RECENT DEVELOPMENTS IN CANADIAN LAW: COMMERCIAL LAW G.H.L. Fridman* I. INTRODUCTION ........................................ 335 II. SALE OF GOODS ....................................... 335 A. The Contract of Sale .............................. 335 B. Property and Title ................................ 338 C. The Quality of Goods ............................. 344 D. Performance of the Contract ....................... 350 E. Rem edies ....................................... 352 III. CONDITIONAL SALES ................................... 356 A. Scope of Legislation .............................. 356 B. Formality ....................................... 358 C. Rights of the Vendor .............................. 358 D. Third Party Rights ................................ 360 IV. CHATTEL MORTGAGES ................................ 363 A. Application of Legislation .......................... 363 B. Requirements for Validity .......................... 364 C. Mortgages Remedies .............................. 366 D. Rights of Third Parties ............................ 369 V. SECURITY INTERESTS ................................... 371 A. New Legislation .................................. 371 B. Scope of the Acts ................................. 371 C. Interrelation with Other Acts ....................... 375 D. The Creation and Registration of Security Interests ..... 378 E. Perfection ...................................... 379 F. Priorities ....................................... 380 G. Other M atters ................................... 382 VI. AGENCY ........................................... 383 A. Definition ....................................... 383 B. Creation ........................................ 384 * Faculty of Law, University of Western Ontario.
Transcript
RECENT DEVELOPMENTS INCANADIAN LAW: COMMERCIAL
LAW
G.H.L. Fridman*
I. INTRODUCTION ........................................ 335
II. SALE OF GOODS ....................................... 335A. The Contract of Sale .............................. 335B. Property and Title ................................ 338C. The Quality of Goods ............................. 344D. Performance of the Contract ....................... 350E. Rem edies ....................................... 352
III. CONDITIONAL SALES ................................... 356A. Scope of Legislation .............................. 356B. Formality ....................................... 358C. Rights of the Vendor .............................. 358D. Third Party Rights ................................ 360
IV. CHATTEL MORTGAGES ................................ 363A. Application of Legislation .......................... 363B. Requirements for Validity .......................... 364C. Mortgages Remedies .............................. 366D. Rights of Third Parties ............................ 369
V. SECURITY INTERESTS ................................... 371A. New Legislation .................................. 371B. Scope of the Acts ................................. 371C. Interrelation with Other Acts ....................... 375D. The Creation and Registration of Security Interests ..... 378E. Perfection ...................................... 379F. Priorities ....................................... 380G. Other M atters ................................... 382
VI. AGENCY ........................................... 383A. Definition ....................................... 383B. Creation ........................................ 384
* Faculty of Law, University of Western Ontario.
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C. The Agent's Authority ............................. 386D. The Agent's Liability to Third Parties ................ 388E. The Agent's Liability to the Principal ................ 390
F. The Agent's Commission ........................... 395G. Termination of an Agent's Authority ................. 398H. Other M atters ................................... 399
Commercial Law
I. INTRODUCTION
This survey examines the field of commercial law and, more specifi-cally, developments that have occurred during the past few years. In thetime since this writer's last annual survey,I there have been many interest-ing developments in commercial law. Unquestionably, the area that hasspawned the greatest interest is the area dealing with personal propertysecurity legislation. This is evidenced by the large number of cases thathave recently surfaced. Indeed, the proliferation of caselaw can beattributed in part to the increasing number of decisions that have beenreported in those provinces in which personal property security legislationis a recent phenomenon. In developing a body of caselaw to help interpretthe provisions of the new legislation, the courts have more clearly definedthe law in matters of security interest. Part V is therefore devoted tosecurity interests.
For those provinces that have not enacted personal property securitystatutes, conditional sale and bills of sale legislation continue to prevail;therefore, parts III and IV of this survey trace new developments in theseareas. Finally, of interest to all the common law provinces are sale ofgoods statutes (part II) and matters relating to the law of agency (part VI).These two areas received a great deal of attention in the previous survey. 2
Given their importance in the field of commercial law, a substantialportion of this survey will also be devoted to them.
H. SALE OF GOODS
A. The Contract of Sale
Before sale of goods legislation and the accompanying common lawcan be applied to a given contract, it must be clear that: (a) the contract isgoverned by the law of the forum, (b) the transaction is not regulated bysome other statute and (c) the contract is one of sale of goods. The firstissue involves the conflict of laws and this issue may be settled by thediscovery of the proper law of the contract, which is usually (but notnecessarily) the law chosen by the parties to apply to the particularcontract. 3 The second issue involves making a choice between sale ofgoods legislation and other statutes in order to find the appropriate legisla-tion pertaining to the transaction or the particular aspect of the transaction
I G.H.L. Fridman, Annual Survey of Canadian Law: Commercial Law (1981) 13OrrAWA L. REV. 571 [hereinafter Annual Survey].
2 Ibid.3 See, e.g., Syncrude Canada Ltd. v. Hunter Eng'r Co. (1984), 27 B.L.R. 59
in question. 4 The third issue requires the determination of whether thecontract is one of sale or something else (such as a contract for theprovision of work and materials).
This last issue has arisen in several cases since the previous AnnualSurvey. 5 Each case obviously depends upon its own special facts and theparticular circumstances involved. However, in Keillian West Ltd. v.Sportspage Enterprises Ltd.,6 Veit J. of the Alberta Court of Queen'sBench relied upon the statement in the English case of Clay v. Yates7 that"the better view" as to the basis of the distinction between a contract ofsale of goods and one for work and materials is "that the court must try todetermine whether it was the work or the materials which constituted theessence of the contract".8 The relevance and effect of this differentiationis evidenced in recent decisions dealing with the printing of programmes, 9
the building of a yacht,' 0 the supply and installation of a lock," the supplyand installation of dental equipment 12 (all cases in which the contract washeld to be one of sale), the building of a house,' 3 the installation of a septicsystem in a house' 4 and the installation of a freezer system in a factory' 5
(cases in which the contracts were held to be for work. and materials).Another distinction is between a sale of goods and a sale of an interest inland. In Saskatoon Sand & Gravel Ltd. v. Steve, 16 the SaskatchewanCourt of Appeal upheld a lower court decision that a contract to dig andremove gravel from the defendant's lawn was a contract involving thegrant of a profit a prendre, not a sale of goods. 17
Some sale of goods contracts must be evidenced in writing or provedto exist by the acceptance and receipt of the goods or by the giving ofearnest or some part payment.18 In Drummond, McCall & Co. Ltd. v.
4 See, e.g., Wilmontv. Apollo Mach. & Prods. Ltd. (1984), 37 Sask. R. 182 (Q.B.)(where the issue involved agricultural implements legislation); Joseph Group of Cos. v.Pickles Tents and Awnings Ltd. (1981), 10 Man. R. 19, 127 D.L.R. (3d) 176 (C.A.) (whereit involved personal property security legislation).
5 Supra, note 1.6 (1982), 40 Alta. R. 586, 23 Alta. L.R. (2d) 99 [hereinafter Keillian].7 (1856), 1 H. & N. 73, 156 E.R. 1123, 108 R.R. 461 (Ex.).8 Keillian, supra, note 6 at 588, 23 Alta. L.R. at 101.9 Ibid.10 Harnett v. Rosborough (1982), 51 N.S.R. (2d) 606, 102 A.P.R. 606 (S.C.T.D.)
[hereinafter Harnettl.'I McNeil v. Village Locksmith Ltd. (1981), 35 O.R. (2d) 50, 129 D.L.R. (3d) 543
(H.C.) [hereinafter McNeil].12 Unident Ltd. v. DeLong (1981), 50 N.S.R. (2d) 1, 98 A.P.R. I (S.C.T.D.)
[hereinafter Unident].13 Waselenko v. Touche Ross Ltd. (1982), 24 Sask. R. 260, [1983] 2 W.W.R. 352
(Q.B.).14 McNeil v. Ja Ron Constr. Co. (1979), 35 N.S.R. (2d) 150, 62 A.P.R. 150
(S.C.T.D.).15 R.E. Newell Fisheries Ltd. v. Gow (1983), 22 B.L.R. 179 (N.S.S.C.T.D.).16 (1979), 97 D.L.R. (3d) 685 (Sask. C.A.).17 See Annual Survey, supra, note 1 at 628.18 See G.H.L. Fridman, SALE OF GOODS IN CANADA, 2d ed. (Toronto: Carswell,
1979) at 51-4 [hereinafter SALE OF GOODS].
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Coastal Structural Steel Ltd., 19 the alleged buyers never sent a formalorder to the alleged sellers to determine the exact quantity of steel that wasto be delivered so as to arrange the financing of the sale and the shippinginstructions. The Court held that initially there was a failure to establish anoffer and acceptance and that in any event the contract did not satisfy theprovisions of the relevant statute.20 No goods were ever accepted by thebuyers, nor had any money changed hands. Moreover, there was noearnest or memorandum in writing. 2' No acceptance within the meaningof the Sale of Goods Act22 occurred in Unident,23 where dental equipmentwas ordered from the plaintiffs, and supplied and installed by them. Thestock sent by the plaintiffs was not part of the order, nor was the order formever signed by the defendants; therefore, no action was maintainable.Goods were accepted, however, in Horseshoe Creek Farms Ltd. v.Sterling Structures Co.24 and, as a result, an action could be maintainedregardless of the fact that the contract was not in writing.
Not all of the terms of a contract must be express. Some provisions ofa contract of sale can be explicit from the circumstances, in accordancewith the general contractual idea of what has been termed "businessefficacy". In Sandy Frank Film Syndication Inc. v. CFQC BroadcastingLtd. ,25 which concerned a contract to import films, there had to be termsimplied into the contract requiring that one of the parties obtain licencesand pay import and export duties. Without such terms the contract wasmeaningless and incomplete. 26 Under the legislation, of course, the exactamount of the price need not be ascertained. If nothing is said as to pricethe legislation itself imposes the obligation to pay a reasonable price, 27 aswas the case in Harnett.28
However, the parties may not agree to anything illegal and, in thisrespect, although the case raised issues of constitutional law, some refer-ence should be made to R. v. Big M Drug Mart Ltd.29 Therein, theSupreme Court of Canada held that legislation which prohibited Sundaytrading (the making of contracts of sale of goods on a Sunday) was
19 (1979), 37 N.S.R. (2d) 239,67 A.P.R. 239 (S.C.T.D.) [hereinafterDrummond].20 R.S.N.S. 1967, c. 274, s. 6. See generally SALE OF GOODS, supra, note 18 at
51-4.21 Drummond, supra, note 19 at 255-6, 67 A.P.R. at 255-6. Nor was there any act of
part performance, which might have overcome the lack of writing. See Kramaruk v.Kushnir (1956), [1956] O.R. 392, 2 D.L.R. (2d) 452 (C.A.).
22 R.S.N.S. 1967, c. 274, s. 6.23 Supra, note 12.24 (1981), 9 Sask. R. 169 (Q.B.), rev'd in part on other grounds 15 Sask. R. 57
(C.A.) [hereinafter Horsehoe Creek].25 (1983), 23 Sask. R. 241 ,[1983] 4 W.W.R. 360 (C.A.), leave to apeal to the
S.C.C. refused (1983), 28 Sask. R. 240, 51 N.R. 319.26 Ibid. at 244-6, [1983] 4 W.W.R. at 365-6.27 SALE OF GOODS, supra, note 18 at 49-50.28 Supra, note 10.29 (1985), [1985] 1 S.C.R. 295, 18 D.L.R. (4th) 321.
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unconstitutional in that it infringed provisions of the Canadian Charter ofRights and Freedoms. 30
B. Property and Title
Questions relating to property arise in many contexts. When they do,the intention of the parties is the primary factor in determining whenproperty in goods passes from seller to buyer. This is resolved by referenceto the particular circumstances. 31 In Smith v. Stafford32 the issue arose inconnection with an accident which occurred while the "buyer" of a carwas driving it. The accident occurred prior to final approval of the buyer'scredit application. The buyer was allowed to drive the new car (with thedealer's plates still attached) because her previous car had been given inpart-payment of the price. In these circumstances, the Court found as a factthat the dealer's intention was to retain dominion over the car until thebuyer's mother co-signed the relevant documents and until the creditapplication was approved. 33 Property in the car, therefore, had not yetpassed from seller to buyer.
Under sale of goods legislation, in the absence of any agreementbetween the parties, certain "rules" apply to determine the issue of thepoint at which property transfers.34 A number of these rules have been thesubject of recent decisions.
If the contract is an unconditional sale of specific goods, propertypasses when the contract is made. 35 Therefore, if the documents relating tothe sale clearly indicate that property is to pass in the usual way, there is noroom for the application of any other statutory provision dealing with the"right of disposal" of the goods, under which the seller may retainproperty rights. 36 Therefore, in Re J.W.O. Enterprises Ltd. ,37 the sellercould not raise as an issue his alleged right of disposal, having stipulated inthe bill of lading relating to the goods that the goods were to be delivered tothe order of the buyer, his agent or his representative as assignee. Propertypassed when the contract was made. The seller should have stipulated inthe bill of lading that the goods were at the order of the seller or the seller'sagent if he wished to preclude the usual rule about transference of propertyin such goods. 38
30 More specifically, s. 2(a) was held to have been infringed. Canadian Charter ofRights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B of the CanadaAct 1982 (U.K.), 1982, c. I1.
31 SALE OF GOODS, supra, note 18 at 79-82. See also Triumph Fisheries Ltd. v. F.E.Cunningham & Sons Ltd. (1984), 64 N.S.R. (2d) 104, 143 A.P.R. 104 (S.C.T.D.).
32 (1981), 29 Alta. R. 473 (sub nom. Collins v. Stafford) 11 M.V.R. 146 (Q.B.).33 Ibid. at 475-6, 11 M.V.R. at 149.34 See SALE OF GOODS, supra, note 18 at 82-107.35 See J.J. Riverside Mfg. Ltd. v. E.J.W. Dev. Co. (1981), 9 Man. R. (2d) 174, [1981]
5 W.W.R. 607 (Co. Ct.).36 See SALE OF GOODS, supra, note 18 at 107-10.37 (1981), 12 Man. R. (2d) 18, [19811 4 W.W.R. 540 (Q.B.).38 Ibid. at 24, [1981] 4 W.W.R. at 546.
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Where unascertained or future goods are involved, as opposed tospecific goods in a deliverable state under an unconditional contract,provisions in the sale of goods legislation provide for very different timeswhen property passes. 39 Goods have to be "appropriated" to the con-tract. 40 The purpose of this is to identify the goods which are the subject-matter of the contract. 41 Such appropriation may take place when goodsare selected, numbered and marked by the seller for the delivery to thebuyer.42 It may also occur when goods are delivered to the buyer (uponclear indication of which goods are allocated to the buyer).43 It mayfurthermore require the seller to package and grade the goods .44 It may besaid that the performance of such acts is a condition precedent to thecompletion of the contract and therefore the transference of property. Suchis usually the case where goods have to be weighed, measured or testedbefore the price is ascertained. But it was not held to be a condition in Pletsv. Irving Pulp and Paper Ltd.45 Property passed when the contract wasmade. Once again, the intention of the parties governed; consequently, the"rules" of the appropriate Act had no application .46
Transfer of property involves transfer of title, unless the parties haveagreed otherwise (for example, where the sale is a "conditional sale") orthe circumstances indicate the contrary (for example, where the seller hasno title to pass, as the buyer knows, and the latter accepts the risk that hewill not acquire title to the goods by the transaction 47). In circumstanceswhere the buyer intends to obtain title and is ignorant of any lack of title onthe part of the seller, the sale of goods legislation provides some protectionto the buyer by making the contract of sale subject to implied terms. 48
These terms relate to the seller's right to sell, the buyer's right to "quietpossession" of the goods and the freedom of the goods fromencumbrances. 49 A case which illustrates the seller's failure to fulfil all ofthese implied terms is Thompson Tractor and Equip. Ltd. v. Roy. 50 This
39 See SALE OF GOODS, supra, note 18 at 101-6.40 Ibid. at 101.41 See, e.g., Royal Bank of Canada v. Saskatchewan Telecommunications (1985),
40 Sask. R. 190, [1985] 5 W.W.R. 333 (C.A.), dealing with property in buildings beingconstructed.
42 See Compagnie Commerciale des Bois et Pdtes d Papier v. Labrador Forest
A.P.R. 670 (Q.B.T.D.) [hereinafter Conary].44 See, e.g., Bolstridge v. Ervin G. Canam Ltd. (1981), 33 N.B.R. (2d) 448, 80
A.P.R. 448 (Q.B.T.D.) where potatoes had to be packaged and graded, with equipmentand bags provided by tl~e buyer.
45 (1982), 39 Nfld. & P.E.I.R. 361, 111 A.P.R. 361 (P.E.I.S.C.) [hereinafterPlets].46 See ibid. at 385-6, 111 A.P.R. at 385-6.47 See SALE OF GOODS, supra, note 18 at 111-29.48 See ibid. at 114-29. These apply wherever the goods are situated. See, e.g.,
Hanson (Director of Trade Practices) v. Cornell Chevrolet Oldsmobile Ltd. (1983), 43B.C.L.R. 270, [19831 4 W.W.R. 285 (S.C.) [hereinafter Hanson].
49 Hanson, ibid. at 271, [1983] 4 W.W.R. at 286.50 (1981), 11 Sask. R. 421 (Dist. Ct.).
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case involved the sale by the plaintiff of a baler and the ultimate resale ofthe same implement (by way of trade-in for another baler) back to theplaintiff by a subsequent purchaser of the baler. In the ensuing period,however, the baler in question had become the subject of a security interestin favour of a corporation which lent money to the original purchaser of thebaler to enable him to purchase it. The corporation seized the implementfrom the plaintiff's possession under the terms of the loan agreement. Theplaintiff therefore sued some intermediate purchasers of the baler for theloss sustained as a consequence of the seizure. Although various statutesmight have been relevant, the Saskatchewan District Court Judge relied onthe provisions of The Sale of Goods Act5' of Saskatchewan which dealtwith the implied terms relating to title. 52 All three of the implied termswere broken by one of the intermediate purchasers, who knew of thecorporation's security interest but did not disclose it to the purchaser (theparty who eventually resold the baler to the plaintiff). The latter purchaserwas not liable to the plaintiff because he was a bona fide purchaser forvalue without notice. The earlier purchaser was liable for breach of all ofthe implied terms.
Where a seller unwittingly sells stolen goods, it is clear that he breaksthe implied term that he has the right to sell the goods .53 Except where thedoctrine of "market overt" applies, 54 title to stolen goods can never pass,even to an innocent purchaser for value without notice of their state. 55
Hence, in Dale Tingley Motors Ltd. v. Herbst56 and in McCallen v.Goldman,57 the innocent purchasers of stolen cars could recover damagesfrom the sellers under the relevant sections of the appropriate statutes. Thestraightforward decisions are not what is interesting about these cases.What is interesting is that in the Dale Tingley case, the effect of The Sale ofGoods Act 58 was not altered by the provisions of The Consumer ProductsWarranties Act59 of Saskatchewan. Further, in the McCallen case, theseller was not protected by the provisions of the Sale of GoodsAct60 whichstates that a buyer in possession, without title, can pass a good title to aninnocent purchaser. 61 The seller of the stolen goods, who had bought themin all innocence, was not such a buyer in possession. The original owner ofthe goods cannot lose his title under any of the statute's provisions. 62 A
51 R.S.S. 1978, c. S-1.52 Supra, note 50.53 See SALE OF GOODS, supra, note 18 at 131ff.54 This appears to be only in British Columbia. R.S.B.C. 1970, c. 370, s. 27. For a
discussion of the doctrine of "market overt", see ibid. at 157-8. See also WestcoastLeasing Ltd. v. Westcoast Communications Ltd., infra, note 72 at 295.
55 SALE OF GOODS, supra, note 18 at 131-59.56 (1983), 27 Sask. R. 264 (Q.B.) [hereinafter Dale Tingley].57 (1982), 38 O.R. (2d) 436 (Co. Ct.) [hereinafter McCallen].58 R.S.S. 1978, c. S-1.59 R.S.S. 1978, c. C-30, s. 11.60 R.S.O. 1980, c. 462.61 See SALE OF GOODS, supra, note 18 at 148-56.62 Except the "market overt" section where it applies. See supra, note 54.
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thief is not a buyer, nor is he a seller, much less an owner of such goods.Consequently, one who buys from a thief cannot be a buyer in possession.
Two recent decisions, both in Ontario, come to different conclusionswith respect to the effect of registration of a security interest under thePersonal Property Security Act6 3 on the provisions of the Sale of GoodsAcI64 dealing with freedom of goods sold from encumbrances. In Zuker v.Paul,65 Smith J. of the High Court held that the buyer of a car which hadbeen used by a previous owner (not the seller) as collateral for a loan andwhich was subject to a security interest registered under the PersonalProperty Security Act6 6 could claim damages from the seller for breach ofthe implied warranty. The buyer was not obliged to search the registry. 67
But in Wynowsky v. Butler,68 where the buyer conducted such a searchbefore buying the car, no similar claim could be made. 69 The searchdisclosed two outstanding liens. One had been discharged and the status ofthe other was undiscoverable. After receiving incorrect advice from acredit union officer as to the law, the plaintiff completed the sale andbought the car. The creditor about whom the plaintiff could find noinformation subsequently enforced his security interest by seizing thevehicle. The plaintiff could not sue his seller (who was innocent of anywrongdoing) for breach of the statutory implied warranty. -What is thedistinction between these cases? In one the buyer made no search. In theother the buyer made a search but could not find out the relevant informa-tion. The latter buyer was worse off than the former. This does not seemjust in that the careful buyer was prejudiced whereas the uncaring (thoughperhaps not careless) buyer was not. The moral seems to be: Seek not andye shall be saved!
Although the seller may have no property or title in the goods sold, hemay nonetheless have the legal power to pass good title to one who buysfrom him (as long as the buyer takes for value, in good faith and withoutnotice of any want to title in the seller70). Various exceptions exist to themaxim nemo dat quod non habet.71 One of these stems from the doctrineof estoppel. In Westcoast Leasing Ltd. v. Westcoast CommunicationsLtd.,72 estoppel was one plea raised by the defendant to resist the claim bythe plaintiff for alleged conversion. The defendant sold goods to theplaintiff and then leased them back, retaining possession all the time. Thedefendant's majority shareholder sold the goods to a third party. Later the
63 R.S.O. 1980, c. 375.64 R.S.O. 1980, c. 462, s. 13.65 (1982), 37 O.R. (2d) 161, 135 D.L.R. (3d) 481 (Div. Ct.), leave to appeal to the
C.A. refused 38 O.R. (2d) 220.66 R.S.O. 1980, c. 375.67 Supra, note 65 at 163, 135 D.L.R. (3d) at 484.68 (1982), 2 P.P.S.A.C. 177 (Ont. Co. Ct.).69 Ibid. at 180.70 See SALE OF GOODS, supra, note 18 at 131-2.71 Ibid. at 133-59.72 (1980), 22 B.C.L.R. 285 (S.C.) [hereinafter Westcoast Leasing].
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plaintiff demanded return of the goods because the defendant had failed tomake payments due under the leasing agreement. The issue for the Courtwas whether the plaintiff remained the owner of the goods or whetherownership was lost by reason of either the plaintiff's or the defendant'sconduct. The plaintiff in the case was not estopped from raising its title tothe goods by virtue of its conduct, namely, leaving the equipment with thedefendant after the latter's default in payments. The judge held that theplaintiff had been reasonably diligent in the steps it took to recover thegoods after the default was made. 73 In the same case, the argument wasmade that since this occurred in British Columbia, the plea of "marketovert" could defeat the plaintiff.74 This too failed. It was held that thepremises where the goods were sold were not a "market overt". 75
Another plea raised by the defendant was that since he was a seller inpossession under a transaction involving a sale and leaseback, title couldbe passed to the third party under the provisions of the Sale of GoodsAct.76
This argument was also unsuccessful. The invoice issued to the ultimatebuyer of the goods was issued by another company which was alsocontrolled by the majority shareholder of the defendant company. Due tothis fact, the relevant section of the Act did not apply, since the actualvendor of the goods was not a previous owner who had continued inpossession. 77 The same provision of the Act was held to be inapplicable inanother recent decision, Ford Credit Canada Ltd. v. Robert Rowe MotorsLtd.,78 where the relevant sale was not made by a seller continuing inpossession. Here, the rogue who sold the goods was neither the originalowner (who leased the goods to customers and then sold the goods and theleases to the plaintiff), nor the plaintiff's agent. The seller was a party whoinitially introduced customers to the original owner and then fraudulentlyobtained possession of the goods. Neither the provision of the Sale ofGoods Act79 nor the provisions of the Factors Act8° applied to the situa-tion.
A buyer in possession can also dispose of title, albeit he himself lackssuch title. Hence, in Maden v. Long,81 one who stole goods in Washington
73 Ibid. at 289. See also McManus v. Eastern Ford Sales Ltd. (1981), 128 D.L.R.(3d) 246 (Ont. Co. Ct.) [hereinafter McManus] where similarly the plaintiff was notestopped from asserting his ownership, not having been negligent.
74 Westcoast Leasing, ibid. at 291-5.75 Indeed, in British Columbia there were no reported cases in which the plea or
defence of "market overt" had been raised with success. See generally Larsen v. Mac-Donald (1976), 1 B.C.L.R. 64 (S.C.); Lexau v. Brandes (1946), [1946] 2 W.W.R. 697(B.C. Co. Ct.); Bremmer v. Johnson (1946), [1946] 3 W.W.R. 39 (B.C. Co. Ct.).
76 R.S.B.C. 1979, c. 370, s. 30(1). See Westcoast Leasing, supra, note 72 at289-90. See generally SALE OF GOODS, supra, note 18 at 148-56.
77 See WestcoastLeasing, ibid. at 289-90, where Murray J. held section 30(1) not toapply.
78 (1983), 142 D.L.R. (3d) 752 (Ont. H.C.) [hereinafter Robert Rowe].79 R.S.O. 1980, c. 462, s. 25(1).80 R.S.O. 1980, c. 150, s. 2(1), (4).81 (1982), 41 B.C.L.R. 6, [1983] 1 W.W.R. 649 (S.C.).
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State (but committed no crime under the Criminal Code of Canada8 2)could be a mercantile agent in possession for the purposes of the BritishColumbia Sale of Goods Act8 3 and so could pass good title to a third partywho purchased from him in good faith and lacked knowledge of the"theft". However, where goods were stolen in a Canadian jurisdictionunder Canadian law, as in McCallen,84 it was not possible for either thethief or any subsequent purchaser to be considered a buyer in possessionfor this purpose. Where goods are obtained by larceny, by a trick or by avariety of theft, the transaction in question is void; therefore, the one whoacquires goods in this way has no title which he can subsequently pass onto an innocent purchaser. 85 But should that prior transaction be voidable8 6
(as opposed to void) a third party purchaser will be protected.8 7
Finally, the Factors Act can also have an effect similar to variousprovisions of the Sale of Goods Act.88 Transactions by mercantile agentsmay deprive the true owner of his title and pass it to an innocent third partypurchaser.8 9 Several recent cases illustrate the operative principles.
In Sheriff, Judicial District of Vegreville v. St. Bernard de LafondSavings & Credit Union Ltd. ,90 the plaintiff (a credit union) had a chattelmortgage on a vehicle. The vehicle was sold to a dealership selling newand used cars. In the ordinary course of business, an agent of the deal-ership sold the vehicle to the defendant, who was ignorant of the chattelmortgage. The chattel mortgagor defaulted on his payments. The creditunion then sought to recover the vehicle or damages for conversion since itwas entitled to do so. The Factors Act9' provision respecting sales bymercantile agents in possession of goods with the owner's consent did notapply because the dealership was not in possession of the vehicle with thelegal owner's (the chattel mortgagee) consent. Cawsey J. of the AlbertaCourt of Queen's Bench accepted and applied the four propositions laiddown in the earlier Alberta case of Sheriff of Edmonton v. Kozak,92 as wellas the point added thereto by this author concerning the purchaser's goodfaith and lack of notice. 93 Referring to Toronto Dominion Bank v.
82 R.S.C. 1970, c. C-34, s. 283.83 R.S.B.C. 1979, c. 370, s. 30(2).84 Supra, note 57.85 See generally Smart & Godin Inc. v. Ritter Indus. Ltd. (1982), 34 B.C.L.R. 345,
41 C.B.R. (N.S.) 180 (S.C.).86 See, e.g., transactions under the Assignments and Preferences Act, R.S.N.S.
1967, c. 16.87 See, e.g., Avco Fin. Servs. Ltd. v. West (1979), 38 N.S.R. (2d) 441, 33 C.B.R.
(N.S.) 285 (Co. Ct.).88 See SALE OF GOODS, supra, note 18 at 138.89 Ibid. at 138-44.90 (1982), 42 Alta. R. 192, (sub nom. St. Bernard de Lafond Say. & Credit Union
Ltd. v. Spicer) 22 Alta. L.R. (2d) 388 (Q.B.) [hereinafter St. Bernard].91 R.S.A. 1980, c. F-I, s. 2.92 (1965), 54 W.W.R. 677 at 678 (Alta. Dist. Ct.). See also St. Bernard, supra, note
90 at 194, 22 Alta. L.R. (2d) at 391.93 See SALE OF GOODS, supra, note 18 at 139.
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Dwyer,94 Cawsey J. added yet a sixth point, namely, that a purchaser froma mercantile agent will take precedence over prior encumbraces placed bythe mercantile agent himself over the goods. 95
It would appear from Allis-Chalmers Credit Corp. of Canada Ltd. v.Leon's Mfg. Co. 96 that the protection afforded to an innocent purchaser bythe Factors Act 97 provisions dealing with sales by mercantile agents willextend to retail financiers of sales as well as ordinary consumer pur-chasers. But the pledge of the goods, which occurred in that case, musthave been in the ordinary course of business, being an ordinary method ofobtaining retail credit.98 However, in all instances, the possession of thegoods by the mercantile agent must be possession as a mercantile agentand not in any other capacity. Hence, if goods are given to a mercantileagent solely for the purpose of repair (another activity in which the agentengaged), the Factors Act99 will not apply to protect a third party pur-chaser, however innocent he may have been of the original owner'stitle. 100
C. The Quality of Goods
What the buyer is entitled to expect of the goods he is purchasing isgoverned either by the express terms of the contract or by terms which areimplied under sale of goods legislation. The terms under which the goodsare purchased might also be governed by some other enactment passed toprovide protection to consumers (of which there are many examples inprovincial legislation).
A term of the contract must be distinguished from a "mere" repre-sentdtion which provides no contractual protection. A recent decision inwhich this distinction became vital is Gallen v. Butterley. t0' In that casethe plaintiff wanted to buy buckwheat seeds, but was concerned aboutweeds. The defendants, who sold such seeds and bought and resold theresultant crops, reassured the plaintiff that the buckwheat would smotherzny weeds. The plaintiff bought seeds and signed a printed document thats'ated that the defendants gave no warranty as to the productiveness or anydther matter peFiaining to the seeds and would not be responsible for thecr6p. The plaintiff planted the seeds but the crop was destroyed by weeds.Ofie of the isgh6§ in the plaintiff'§ action agaiiiSt the defendants was
4 (1979), 11 Alta. R. 492, 9 Alta. L.R. (2d) 202 (Dist. Ct.).95 Supra, note 90 at 194-5, 22 Alta. L.R. (2d) 391. Cawsey J. notes another case of
iflteest, Moses v. B1unk of Montreal (1982), 19 Alta. L.R. (2d) 67, 133 D.L.R. (3d) 446(0.13.).
96 (1983), 45 Alta. R. 175, 147 D.L.R. (3d) 473 (C.A.).97 R.S.A. 1980, d: F-I.98 Supra, note 96 at 177, 147 D.L.R. (3d) at 476.99 R:S.A. 1980, c. F-I.100 See McManus, supra, note 73 at 251.101 (1984), 53 B.C.L.R. 38, (sub nom. Gallen v. Allstate Grain Co.) 9 D.L.R. (4th)
496 (C.A.) thbreinafter Gallen].
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whether any warranty had been given. The British Columbia Court ofAppeal held that the statement by the manager was a warranty. In thewords of Lambert J.A., the distinction between terms (warranties) andrepresentations turned on "whether the representation became a part of thecontractual relationship between the maker and the recipient. That, inturn, depends on the intention of the parties, as derived from objectiveevidence, including, but not limited to, evidence that tends to showwhether the representation was intended to be acted upon and was in factacted upon." 102 With respect, this last remark seems to contain more ofthe elements of a representation than a warranty. Perhaps the differencebetween the two is becoming more obfuscated as time wears on, lestbuyers suffer the consequences of lack of protection due to the language ofthe contract.
If a statement can be construed as an express term of a contract ofsale, the buyer will be entitled to the protection of its provisions unless thecontract appropriately excludes its operation or unless the buyer haswaived its protection. Several recent cases illustrate the way in whichstatements by a seller can become warranties with the result that, if thegoods do not live up to the warranty or perform in the manner so stipulated,the buyer can sue for breach of contract (without having to rely on theprovisions of the applicable Sale of Goods Act or any other statute). 103
With respect to attempts to exclude liability for breach of an expressor implied term, the attitude of the courts towards "collateral contracts"or "collateral warranties" must be noted. 104 The courts' attitude can beseen in the Gallen case. 10 5 The statement by the manager concerning theability of buckwheat to "smother" weeds undermined the attempt by thedefendants to exclude any contractual liability. However, the difficulty insuch instances may be to establish the existence of the warranty by parolevidence which contradicts a written contract. In the Gallen case; LaitibertJ.A. discussed the ways in which the rule may be isplacdd. 10 6 Hisarguments did not persuade Seat0oi J.A., who dissented and held that thedecision of the Supreme Court of Canada in Haiiiish v. Bank ofMontreal'07 made it impossible to give effect to the kind of oral statement
102 Ibid. at 51, 9 D.L.R. (4th) at 507.103 See, e.g., Morrisdiv. Hillside Motors (1973) Ltd. (1981), 35 Nfld: & EE.I.R.
361, 99 A.P.R. 361 (P.E.I.S.C.); McGuire v. A.M.H. Prefab Ltd. (i979), NA:1. (2d)160, 60 A.P.R. 160 (Q.B.T.D.); Lagace v. Vin&Aiif (1981), 10 Man. R. (2d) 36 (Ca: Ct.).But see MacDonald v. Kennedy (1983), 43 Nfi'd. & P.E.I.R. 235; 127 A.PA: 235(P.E.I.S.C.), affd 50 Nfld. & P.E.I.R. 244; 14 A.P.R. 244 (C.A.) 1hereindtH F Mac-Donald].
104 See, e.g., Syncrhde, supra, note 3:105 Supra, note 101 at 52-6,9 D.L.R. (4th) at 509-12. See alto Storey v. Price, Atlan
Indus. Ltd. (1983), 45 N.B.R. (2d) 181, (sub hom. Hallmark Pool Corp. v. Storey) 144D.L.R. (3d) 56 (C.A.).
106 Gallen, ibid. at 49-58, 9 D.L.R. (4th) at 506-15.107 (1969), [1969] S.C.R. 515,2 D.L.R. (3d) 600. Compare Carman Constr. Ltd. v.
Canadian Pac. Ry. Co. (1982), [1982] 1 S.C... 958, 109 D.L.R. (3d) 288; Bauer V. Bankof Montreal (1980), [1980] 2 S.C.R. 102, 33 eBR. (N.S.) 291.
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that was involved in the Gallen case.' 0 8 An examination of the Canadianauthorities will reveal that there exist some far-reaching inconsistenciesthat will one day have to be resolved by the courts unless legislatures,following the example they have set in special consumer protectionlegislation, decide to eradicate the parol evidence rule.
The past few years have seen more cases reported in which theimplied conditions under sale of goods legislation have been invoked,sometimes successfully, sometimes not, by buyers who have found thegoods they have purchased to be deficient in some way. One well knownprovision imports into sales by description an implied condition that goodswill be fit for the purpose for which they were bought. 109 That impliedterm only protects a party to the contract; it does not give any right ofaction to a third party (even the infant/child of the purchaser) who mighthave been injured by the defective character of the goods. 110 The presentlaw does not extend the scope of such terms. However, two jurisdictions,Saskatchewan and New Brunswick, have in recent years enacted legisla-tion to effect such an extension of the common law in the form of TheConsumer Products Warranties Act"' and the Consumer Product War-ranties and Liabilities Act 1 2 respectively. The same issue was discussedby the Ontario Law Reform Commission in its Report on Sale of Goods, " 3
though no definite recommendation emerged from that discussion.The provisions of sale of goods legislation relating to fitness for
purpose will also not apply to a private sale (although they will apply to asale of second-hand goods by a dealer1 14). The unfortunate buyer has theonus of proving that the alleged defect in the goods caused his harm,although the court may infer that the probable cause of the plaintiff's harmwas defective manufacture. 115 The plaintiff does not, however, have toprove affirmatively that such a defect existed, as long as he establishes thatanother factor, such as his own faulty workmanship, was not a probablecause of the damage. 116 Whether goods are or are not fit for the purpose inquestion is a question of fact." 7 Under fitness for purpose provisions, the
108 Gallen, supra, note 101.109 See SALE OF GOODS, supra, note 18 at 203-20. See also N.A.S. Mgmt. Servs.
Ltd. v. Sivyer Steel Corp. (1983), 23 Sask. R. 202 (C.A.) [hereinafter Sivyer].110 See Lyons v. Consumers Glass Co. (1981), 28 B.C.L.R. 319 (S.C.).I II R.S.S. 1978, c. C-30.112 S.N.B. 1978, c. C-18.1.113 Ontario Law Reform Commission, Report on Sale of Goods, vol. I (Ministry of
the Attorney General, 1979) at 243-55.114 See generally Trethewey v. Girard (1983), 149 D.L.R. (3d) 359 (B.C.S.C.)
115 Compare Afton Mines Ltd. (N.P.L.) v. Canadian Gen. Elec. Co. (1983), 44B.C.L.R. 389 (S.C.), with Peter Easkin Constr. v. Wohlberg (1980), 9 Sask. R. 332(Q.B.).
116 See SchreiberBros. Ltd. v. Currie Prods. Ltd. (1980), [1980] 2 S.C.R. 78, 108D.L.R. (3d) 1.
plaintiff-buyer must also show that he relied on the seller's skill orjudgment in recommending to the buyer that the goods in question wouldfulfil the purpose the buyer had in mind. Some cases have been lost bybuyers through their inability to prove such reliance. " 8 Other buyers havesucceeded in proving the reliance." 9 However, in McNeil it was said thatthe buyer did not have to show absolute reliance. It was sufficient if thereliance were "a substantial and effective inducement" to the pur-chase.' 20 The implied condition as to fitness for purpose may not operatewhere the buyer has had a long period of time in which to examine thegoods and to discover their defective quality before he finally attempts torescind the contract for breach of the implied condition. 121 It may beinoperative where there exists a sufficiently clear exclusion clause con-tained in the contract. However, this did not occur in Saville v. Sher-EllEquip. Sales Ltd. 122 In that case, the expression "as is, where is" did notexclude the statutory condition since the parties did not intend for it to doso. 123
Goods sold by description must also be merchantable. This is inconformity with another condition normally implied into contracts involv-ing transactions under sale of goods legislation. 124 However, that con-dition will not be implied into a sale by someone who is not in the businessof selling the kind of goods that are the subject-matter of the contract (forexample, a farmer selling a tractor).' 25 For the condition to be broken, thegoods must be unmerchantable. In Lavoie v. Poitras Gas & Oil Ltd., 126 agasoline tank leaked, polluting the plaintiff's soil and well with gasoline.
Co. (1984), 53 Alta. R. 304 (Q.B.), Lepera v. Windsor Builders Supply Ltd. (1983), 5C.L.R. 63 (Ont. H.C.), Lloyd's Heating Serv. (1979) Ltd. v. Nilsson (1983), 46 N.B.R.(2d) 70, 121 A.P.R. 70 (Q.B.T.D.), and Superior Propane Ltd. v. Levesque (1983), 50N.B.R. (2d) 362, 131 A.P.R. 362 (Q.B.T.D.) (term broken), with Neal Forest Prods. Ltd.v. WIX Canada Ltd. (1983), 46 N.B.R. (2d) 418, 121 A.P.R. 418 (C.A.), and GordonCampbell Ltd. v. Metro Transit Operating Co. (1983), 23 B.L.R. 177 (B.C.S.C.)[hereinafter Metro] (no breach of term).
118 See, e.g., Buchan v. Ortho Pharnaceutical (Canada) Ltd. (1984), 46 O.R. (2d)113, 8 D.L.R. (4th) 373 (H.C.); Kerr v. Gingras (1980), 24 B.C.L.R. 372 (S.C.); ComincoLtd. v. Westinghouse Canada Ltd. (1981), 45 B.C.L.R. 26, 127 D.L.R. (3d) 544 (S.C.),rev'd on other grounds (sub nom. Cominco v. Canadian Gen. Elec. Co.)45 B.C.L.R. 35,147 D.L.R. (3d) 279 (C.A.) [hereinafter Cominco]; Conary, supra, note 43.
120 Supra, note 11 at 52, 129 D.L.R. (3d) at 545, Grange J.121 See, e.g., Miller v. Pine-Log Homes Ltd. (1984), 50 Alta. R. 106 (Q.B.)
[hereinafter Pine-Log].122 (1980), 25 Alta. R. 550 at 555 (Q.B.) [hereinafter Saville].123 See also the curious case of Wilkinson v. Volk (1981), 14 Man. R. (2d) 31 (Co.
Ct.), where it was suggested that the rule was caveat emptore unless there was a fraudulentor deceitful representation.
124 SALE OF GooDs, supra, note 18 at 220-32.125 See MacDonald, supra note 103.126 (1979), 28 N.B.R. (2d) 541, 63 A.P.R. 541 (C.A.).
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The tank was held to be unmerchantable. Yet, in Cominco Ltd. v. West-inghouse Canada Ltd.,127 electrical cable suitable for use in single strandwas considered merchantable even though it was unusable when laid inproximity to other cable. As long as goods are fit for one of their normaluses they will be merchantable within the meaning of the Act, even thoughthey cannot be used for the particular purpose intended by the buyer. If hewishes to ensure that they will be so usable, he should inform the seller ofhis particular purpose in such a way as to indicate that he is relying on theseller's skill or judgment. In such cases, the implied condition as to fitnessfor purpose, discussed above, will be applicable. 128
Both of these implied conditions, namely, fitness of purpose andmerchantability, come into play when goods are sold by description. Inaddition, when goods are sold in that manner, they must correspond totheir description. 129 In Freeway Sales and Distribs. Ltd. v. Hogan,130
there occurred a sale of a boat said to be a 1976-77 model, when in fact theboat had been in use since 1970. The buyer wanted a boat that was "a fewyears" or "a couple of years" old. The sale was held not to be a sale bydescription, with the result that The Sale of Goods Act' 3' did not apply.However, the buyer was protected under other Manitoba legislation.' 32 Ithas also been held that the packaging requirements of goods can be part oftheir description, such that if the goods are not packaged as required therewill be a breach of this implied condition.133
Goods sold by sample must correspond to their description as well asto the sample. 134 However, the sample must be approved or rejected by thebuyer within a reasonable time, which in Terfloth & Kennedy Ltd. v.Christy Crops Ltd.'35 was within twenty-four hours of receipt of thesample. It should be noted that the preceding implied terms will apply togoods wherever they are situated, even if they are outside the jurisdiction,as long as the contract is governed by the applicable Sale of Goods Act. 136
Conditions that are implied under sale of goods legislation may beexcluded by suitable terms in the contract unless the contract falls withinthe definition of a consumer contract, in respect of which, under modem
127 Supra, note 118.128 See, e.g., Cominco, ibid., 127 D.L.R. (3d) at 559. (The British Columbia Law
Reports do not include this portion of the case.)129 See SALE OF GOODS, supra, note 18 at 191-201.130 (1979), 5 Man. R. (2d) 51 (Co. Ct.) [hereinafter Freeway]. Compare Associated
Fisheries of Canada Ltd. v. Bluenose Indus. Ltd. (1982), 41 N.B.R. (2d) 37,107 A.P.R. 37(Q.B.T.D.).
131 R.S.M. 1970, c. S-10.132 The Consumer Protection Act, R.S.M. 1970, c. C-200, s. 58(l)(e), (5). See
Freeway, supra, note 130 at 51.133 See, e.g., Agrex S.A. v. Canadian Dairy Conn'n (1984), 24 B.L.R. 206
(F.C.T.D.).134 See Metro, supra, note 117.135 (1977), 27 N.S.R. (2d) 433, 41 A.P.R. 433 (S.C.T.D.).136 See, e.g., Hanson, supra, note 48 at 272, [1983] 4 W.W.R. at 287.
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legislation, such exclusion may be prohibited by statute.' 37 Whether suchexclusion has been achieved by the seller will depend on the language thathas been employed in the contract. Thus the expression "as is, where is"used in a contract to describe goods may be insufficient to achieve such aresult. 138 In addition, adequate notice of such exclusion must be given tothe buyer, in the absence of which the exclusion will be inoperative. 39
Nor will any exclusionary term protect the seller from liability for fraudu-lent misrepresentation or deceit. Caveat emptore does not apply wheresuch conduct is perpetrated.140 However, even if there is a term excludingstatutory or other implied or express conditions or warranties, the sellermay still be liable if he has committed a fundamental breach of thecontract. 141
In the past few years, much has occurred in relation to fundamentalbreach and exemption or exclusion clauses, the details of which cannot beexamined here.' 42 Suffice it to say that whether an exclusion clausesurvives a fundamental breach and still protects the seller will depend onthe construction of the contract. As stated in Polaris Leasing Co. v. J.E.R.Assocs. Inc.,14 3 was it "fair and reasonable" to construe the exemption orexclusion clause as surviving the fundamental breach? In that case it wasfair and reasonable, since it involved a contract between experienced andsophisticated businessmen. Moreover, the agreement reflected the real-ities of the transaction. 144 It is important to emphasize that there must be a"fundamental breach", otherwise the exclusion clause will operate.' 45
Other statutes also give protection to consumers or certain classes ofconsumers. Occasionally, it will not be possible for a seller covered bysuch statutes to exclude any of the terms that are incorporated intocontracts within those statutes. 146 On other occasions, the language of
137 See SALE OF GOODS, supra, note 18 at 303-5.138 See, e.g., Saville, supra, note 122 at 555. Compare Hickman Motors Ltd. v.
139 This was the case in Green v. Jo-Ann Accessory Shop Ltd. (1983), 21 Man. R.(2d) 261 (Co. Ct.), where the clause was set out as part of a poster on the store wall. Theplaintiff did not see the poster and the Court held that there was therefore no notice.
140 See, e.g., Campbell v. Woods (1982), 28 Sask. R. 304 (Q.B.) [hereinafterCampbell]; Reidv. Prowse (1983), 5 Nfld. & P.E.I.R. 216,132 A.P.R. 216 (Nfld. Dist. Ct.)[hereinafter Reid].
141 See G.H.L. Fridman, LAW OF CONTRACT, 2d ed. (Toronto: Carswell, 1986).142 See ibid. at 549-55.143 (1984), 34 Man. R. (2d) 34, [1984] 3 W.W.R. 368 (Co. Ct.).144 The transaction involved a plaintiff who was a financier, not a supplier, who was
not expected to maintain and service the goods that were the subject matter of the contract.145 Compare Hickman Motors, supra, note 119, and Reid, supra, note 140, with
Woodland, supra, note 138, and Schofield v. Gafco Enterprises Ltd. (1983), 43 Alta. R.262, [1983] 4 W.W.R. 135 (C.A.). See also Thomas Equip. Ltd. v. Sperry Rand CanadaLtd. (1982), 40 N.B.R. (2d) 271, 135 D.L.R. (3d) 197 (C.A.).
146 See, e.g., Adams v. J & D's Used Cars Ltd. (1983), 26 Sask. R. 40 (Q.B.)[hereinafter Adams]; Winkler v. Belarus Equip. of Canada Ltd. (1985), 37 Sask. R. 143,[1985] 3 W.W.R. 97 (C.A.) [hereinafter Belarus]; Rhodenizer v. Custom Motors Ltd.(1980), 44 N.S.R. (2d) 522, 83 A.P.R. 522 (S.C.T.D.).
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exclusion employed by the seller may prove insufficient to achieve thisend.147 Under The Consumer Protection Act 148 of Manitoba, for example,there are implied statutory terms that resemble those in sale of goodslegislation, but which may apply where sale of goods legislation doesnot. 149 In Saskatchewan, under The Consumer Products WarrantiesAct, 150 goods may have to be of "acceptable quality". 151 However,despite this statutory protection, such legislation may not protect a buyerwho attempts to reject goods at too late a date,'52 or one who causesdamage to the goods by his own use or abuse of them. 153 It has also beenheld in Saskatchewan under The Agricultural Implements Act' 54 that anaggrieved buyer can reject goods and claim damages. 155 Under theAlberta Farm Implement Act, 156 a seller can limit the duration of awarranty, but must do so effectively in the contract, otherwise he will stillbe liable. 157 Courts in Canada appear to be construing these protectioniststatutes very strictly, lest sellers take advantage of buyers. As MonninC.J.A. said in Radul: "[t]he Consumer Protection Act [R.S.M. 1970, c.C-200] was intended.., to protect naive and foolish purchasers from suchunscrupulous conduct". 1 58 It is obvious from this kind of language thatcourts will endeavour to give full effect to the provisions of such legisla-tion, unless the conduct of the buyer is itself faulty, as would occur if therewas an undue delay in complaining or a misuse of goods.
D. Performance of the Contract
The seller's duty to deliver the goods is absolute. Hence, any delay indelivering beyond the date when such delivery is due is a breach of
147 See, e.g., Radul v. Daudrich (1983), [19831 6 W.W.R. 278 (Man. C.A.)[hereinafter Radul]; MacLeod v. Ens (1982), [1982] 3 W.W.R. 653, 135 D.L.R. (3d) 365(Sask. C.A.) [hereinafter MacLeod], where the language of the contract purported only tolimit the statutory warranty, not exclude it.
148 R.S.M. 1979, c. C-200.149 See, e.g., Freeway, supra, note 130 (saleby description);Radul, supra, note 147
(merchantability); Desautels v. Zeemal Enterprises Ltd. (1981), 8 Man. R. (2d) 91 (Q.B.)(fitness for purpose).
150 R.S.S. 1978, c. C-30.151 R.S.S. 1978, c. C-30, s. 11(4). See Paskiman v. Meadow Ford Sales Ltd. (1983),
28 Sask. R. 241 (Q.B.), rev'd in part 35 Sask. R. 81 (C.A.) [hereinafter Paskniman]. Seealso Woodley v. Alex's Appliances Ltd. (1982), 16 Sask. R. 24 (C.A.) [hereinafterWoodley].
152 See King v. Meadow Ford Sales Ltd. (1983), 25 Sask. R. 301 (Q.B.) [hereinafterKing].
153 See Gallant v. Larry Woods Used Cars Ltd. (1982), 38 N.B.R. (2d) 262, 100A.P.R. 262 (Q.B.T.D.).
154 R.S.S. 1978, c. A-10.155 See Belarus, supra, note 146 at 148ff, [1985] 3 W.W.R. at 102ff.156 R.S.A. 1980, c. F-14.157 R.S.A. 1980, c. F-14, s. 9(1). See Wilcox v. Ford Motor Co. (1982), 38 Alta. R.
361 at 365-8, 20 Alta. L.R. (2d) 320 at 323-6 (Q.B.).158 Supra, note 147 at 281. The purchaser agreed to take goods "as is".
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contract. Such was the case in Horseshoe Creek159 where the supplierneglected to order the goods in question, which resulted in the goods beingdelivered to the buyer three months after the contract date. Delivery mustalso be at a reasonable time. In Dauphin Consumers Coop. Ltd. v.Puchalski,160 the plaintiff was bound, by a contract entered into inFebruary, to supply 110 tons of the ordered goods at $140 per ton.Although no date for delivery had been agreed upon, the plaintiff knewthat the defendant had no place to store the goods until they were required.In April, when the plaintiff tendered the goods and had sufficient quantityto deliver, the defendant refused delivery. By June, the plaintiff could onlysupply twenty-eight tons and this at a greater cost to the defendant. Theplaintiff's action for breach of contract was unsuccessful. It was held, interalia, that the plaintiff's tender in April was not a performance of theplaintiff's obligation to deliver. It was unreasonable to expect the defen-dant, without storage facilities, to take delivery so far in advance of thetime for seeding. The plaintiff was contractually bound to deliver enoughgoods in fulfilment of the contract at "reasonable times during the seedingseason". 161
The decision in Sivyer 162 illustrates the problem of instalment con-tracts. The defendant sold a heavy scrap metal shredder to the plaintiff. Asecond shredder was also ordered by the plaintiff. The two shreddersbroke, causing damage to the plaintiff's machine. Although the goodswere delivered in instalments, it was held that this was a sale not byinstalments, but an entire contract for the sale of two machines. Eachdelivery was not a separate contract. 163
Recent provincial legislation, where applicable, has affected theseller's duty to deliver. For example, in Audet v. Central Motors Ltd. ,164
the buyer failed to give the seller an opportunity to rectify a minor defect ingoods supplied to him as required by the New Brunswick ConsumerProduct Warranty and Liability Act. 165 The buyer could therefore notclaim the return of the purchase price of the used car which he had bought.Although the seller had not delivered the correct goods as required underthe contract, the provisions of the statute governing the buyer's rights hadnot been fulfilled.
According to Brownridge J.A. in Minn-Dak Growers Ass'n Inc. v.Sid's Sunflower Seeds (1974) Ltd. ,166 a buyer who wrongfully refuses to
Dauphin]. Compare Mitchell v. Agrai Dairy Mart Ltd. (1984), 54 Alta. R. 368 (Q.B.).161 Dauphin, ibid. at 183, [1984] 2 W.W.R. at 678.162 Supra, note 109.163 Ibid. at 205.164 (1981), 35 N.B.R. (2d) 143, 88 A.P.R. 143 (Q.B.T.D.) [hereinafterAudet].165 S.N.B. 1978, c. C-18.1, s. 14(1).166 (1981), 7 Sask. R. 36 (C.A.) at 44-5 [hereinafter Minn-Dak]. Compare Hum-
boldt FlourMills Co. v. Hume, infra, note 176. Time may be made of the essence, in whichevent non-acceptance of such time would be a fundamental breach. See Plets, supra, note45.
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accept delivery may be guilty of a fundamental breach amounting to therepudiation of the contract. To Bayda J.A., however, breach of any part ofthe contract by the buyer entitles the seller to sue under subsection 49(1) ofThe Sale of Goods Act' 67 of Saskatchewan. It is well known that wheregoods are accepted the breach of a condition can only be treated by thebuyer as a breach of warranty. 168 In terms of the seller's rights, byaccepting the return of the rejected goods, the seller does not necessarilyagree to the rescission of the contract (thus forsaking any right of action inrespect of such rejection by the buyer 69).
The duties of seller and buyer in respect of performance may beaffected by the issues of risk and frustration. Normally risk passes withproperty. 170 In Conary,17l for example, the risk of damage to the goodspassed to the buyer once he had paid the purchase price and taken deliveryof the goods. However, as illustrated in Gallant v. Hobbs,' 72 it may beexpressly or impliedly agreed in the contract that risk should remain withthe seller. The horse which was the subject of the sale in that case died ofrabies. It was found that the horse had already contracted the diseasebefore the time of sale. Although the seller was not aware of the horse'scondition at the time the purchase was completed, it was held that he wasto bear the loss, as this would have been agreed to by the parties at the timeof the sale. 173
Although a contract of sale of goods may be frustrated in certainways, 174 the fact that the buyer can no longer afford the price of the goods,due to financial difficulties, will not be a ground for declaring the contractfrustrated. In Pilson v. J. Rudell Sales & Serv. Ltd., 175 the unavailabilityof sufficient funds to complete the transaction prevented the buyer fromclaiming the return of his deposit on the basis of an alleged frustration ofthe contract of sale.
E. Remedies
In the event of a breach of contract by the buyer, the seller may have achoice of remedies, some of which entitle the seller to regain or retainpossession of the goods. However, he may not repudiate the contract, andso claim to retain possession of the goods, unless the buyer's breach is
167 . See Minn-Dak, ibid. at 48. Bayda J.A. referred to R.S.S. 1965, c. 388, s.49(1), which remains the same in the most recent R.S.S. 1978, c. S-i, s. 49(1).
168 See SALE OF GOODS, supra, note 18 at 298-303.169 See generally Conary, supra, note 43, where the Court held that the seller was
correctly mitigating his loss in accepting the rejected goods and reselling them.170 See SALE OF GOODS, supra, note 18 at 320-6.171 Supra, note 43.172 (1982), 37 O.R. (2d) I (Co. Ct.), affid40 O.R. (2d) 377 (C.A.).173 Ibid. at 9.174 See generally SALE OF GOODS, supra note 18 at 328-35.175 (1980), 5 Sask. R. 272 (Dist. Ct.) [hereinafter Pilson].
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"fundamental". Therefore, in Humboldt Flour Mills Co. v. Hume,176 thebuyer's refusal to accept delivery of the goods prior to the due date underthe contract was not a breach that would entitle the seller to repudiate thecontract. A seller who has parted with ownership and possession of thegoods cannot repossess them, even if the buyer has defaulted on pay-ment. 177 Nor is the remedy of replevin available to such a seller, as wasreiterated in Dresser Canada Inc. v. Vos. 178 Under certain circumstances,an unpaid seller who is in possession of the goods may exercise a lien overthem. However, such a lien was not available at common law (nor underthe New Brunswick Liens on Goods and Chattels Act 17 9) where itsexercise was sought by a sub-contractor who had built part of the truckwhich was sold to the buyer.180 The buyer had paid the seller, who wasobliged to pay the sub-contractor but had not done so. The sub-contractordid not have the necessary possession and was not qualified under the Saleof Goods Act.' 8'
Having retained or regained possession, the seller may be permittedto resell the goods in order to mitigate his loss. In the Pilson case,' 82 aseller who purported to do this was held to have acted improperly becausehe failed to give the requisite notice of his intention to resell as stipulated insection 47 of The Sale of Goods Act'83 of Saskatchewan. Hence, he couldnot recover from the buyer the amount which was still outstanding fromthe original purchase price and which had not been obtained in the resale.
The more common remedy available to the seller is an action fordamages. However, because the seller can only sue the other contractingparty, it is necessary to establish the contractual nexus between the sellerand the party he is suing for damages for breach of contract. This issueperplexed several courts, as discussed in the Supreme Court of Canadacase of Scotsburn Coop. Servs. Ltd. v. W.T. Goodwin Ltd. 184 where theSupreme Court determined that there was no contract between the plaintiffand the company that was being sued.
176 (1983), 28 Sask. R. 249, 50 D.L.R. (3d) 477 (Q.B.).177 See, e.g., D. Sustrik Enterprises Ltd. v. Mercury Lapidary Ltd. (1981), 34 Alta.
R. 627 (Q.B.). Unless the contract is a conditional sale which permits such conduct on thepart of the seller, in accordance with relevant statutory provisions. See SALE OF GOODS,supra, note 18 at 542. See also this survey, Part III, C, infra.
178 (1984), 53 Alta. R. 226 (Q.B.). This case followed earlier decisions. In thisregard, see McKee v. Fisher (1929), 64 O.L.R. 634, [1930] 2 D.L.R. 14 (S.C.A.D.).However, if the contract is a lease, not a sale, see Ryder Truck Rental Ltd. v. Walker (1959),[1960] O.W.N. 70 (H.C.); Allis-Chalmers, Rumely Ltd. v. Forbes Equip. Ltd. (1969), 71W.W.R. 300, 8 D.L.R. (3d) 105 (B.C.S.C.).
179 R.S.N.B. 1973, c. L-6, s. 6.Iso See Canadian Pac. Ltd. v. Lawson Motors (1978) Ltd. (1983), 50 N.B.R. (2d)
248, 131 A.P.R. 248 (Q.B.T.D.).Is R.S.N.B. 1973, c. S-1, s. 38(1). See ibid. at 251, 131 A.P.R. at 251.182 Supra, note 175.183 R.S.S. 1978, c. S-1.184 (1985), [1985] 1 S.C.R. 54, 16 D.L.R. (4th) 161.
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One of the problems that has arisen in connection with the seller'sclaim for damages is what has been characterized as the situation of the"lost volume seller". This problem arises when the seller has resold thegoods and therefore cannot validly allege that he has lost anything from theparticular sale, since he obtained his contractual price from another buyer.Instead, the seller attempts to argue that he has lost an additional sale,claiming the profit that would have been made on such a sale if the buyerhad taken the contracted goods and the seller had sold another item. 185Debate has raged about the justice of this, based on legal and economicarguments, where there is a smaller market for the goods and an abundantsupply of goods in comparison with the number of buyers. In Mitchell v.Agrai Dairy Mart Ltd.,186 the seller succeeded in his action for lost profitson the transaction after actually having resold the goods at a greater pricethan that which was to be paid by the original buyer. The Alberta Courtfollowed earlier English 187 and Canadian'8 8 authority in allowing such aclaim, which arises where there is no "available market" in the languageof the Sale of Goods Act. 189
The buyer may be able to rescind the contract if the seller has beenguilty of a fundamental breach, irrespective of the statute's provisionsdealing with the buyer's rights in the event of a breach of condition or ofwarranty.190 In Forest v. Helbren,191 for example, a snowmobile's engine"died down" as soon as it heated, resulting in severe structural damage.This kind of breach justified rescission. Repudiation by the buyer (rescis-sion) may also be possible if the price charged by the seller is unreasona-ble. 192 But rescission will not be permitted where the buyer continues touse the goods with knowledge of a defect that amounts to a fundamentalbreach of the contract. 193
Rescission will also be available to the buyer where the contract wasinduced by a fraudulent misrepresentation. In Campbell, 194 a car that wassaid to be subject to only minor problems was in fact totally unroadworthy.The buyer could rescind although he had agreed to buy the car "as is"The exclusion clause in this case did not exempt the seller from liability for
185 See SALE OF GOODS, supra, note 18 at 397-400.186 Supra, note 160.187 See Thompson (W.L.) Ltd. v. Robinson (Gunmakers) Ltd. (1954), [1955] 1 Ch.
188 See Victory Motors Ltd. v. Bayda (1973), [1973] 3 W.W.R. 747 (Sask. Dist.Ct.).
189 R.S.A. 1980, c. S-2, s. 50(3).190 As to which, see SALE OF GOODS, supra, note 18 at 170-6, 298-303, 419-50. In
one instance, the manufacturer of the goods was treated as the seller for this purpose. Themanufacturer's representation had induced the buyer to contract with a dealer. See Mac-Gregor v. Production Equip. Ltd. (1984), 66 N.S.R. (2d) 80, 152 A.P.R. 80 (S.C.T.D.).
191 (1981), 8 Man. R. (2d) 430 (Co. Ct.).192 See, e.g., Harnett, supra, note 10.193 See, e.g., Hickman Motors, supra, note 119.194 Supra, note 140.
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fraud. Damages may also be obtained for a misrepresentation whichaffects the buyer's decision about the purchase price. 195 Repudiation ofcontract may be possible under an implied term of the contract, but onlyproviding it occurs within a reasonable time after delivery of the goods. 196
Rescission will not be allowed if there is no possibility of restitutionbetween the parties, for example, if goods given by the buyer to the sellerin part exchange for the purchased goods have already been disposed of bythe seller to a third party.197 Such restrictions on the right to rescind alsooperate where they arise under a statute such as The Consumer ProductsWarranties Act' 98 of Saskatchewan.
Damages are also available to an aggrieved buyer as well as or inplace of rescission. Such damages may include loss of profits and out-of-pocket expenses, and even the interest on a loan taken out for the purposeof purchasing the goods in question. 199
A buyer who comes within the scope of modem legislation may alsohave remedies under provincial statutes, which provide more protectionthan sale of goods legislation does. In Saskatchewan, New Brunswick andelsewhere, such legislation has been the subject of judicial interpretationand application in a number of cases in the past few years. 200 Severalimportant provisions have come under scrutiny; for instance, under TheConsumer Products Warranties Act20' of Saskatchewan, rescission willbe granted if there is a substantial failure of the goods to meet the standardwhich the average consumer could reasonably expect of such goods. 20 2
Rescission will also be granted if goods are not durable for a reasonablelength of time after purchase or are not of acceptable quality. 203
Under the statutes, a seller is obliged to make good any damageresulting from a breach. 20 4 The buyer must afford the seller a reasonableopportunity to rectify a breach that has occurred, otherwise the buyer willbe deprived of his remedies under the Act. 20 5 Recent cases have alsoelucidated what is meant by a false consumer representation, applying
195 See, e.g., King, supra, note 152, where the damages led to a diminution in thevalue of the goods.
196 See, e.g., Laden Feed Sys. v. Masco Enterprises Ltd. (1983), 29 Sask. R. 178(Q.B.), where five weeks -was held to be a reasonable time for the return of a defective seedgrain bagger.
197 Haight v. Transport Garage (77) Ltd. (1983), 27 Sask. R. 13 (Q.B.).198 See, e.g., Hiebert v. Sherwood Chevrolet Oldsmobile Ltd. (1981), 8 Sask. R.
296, [1981] 4 W.W.R. 708 (Q.B.); King, supra, note 152.199 See, e.g., Gill v. Kittler (1983), 44 Alta. R. 321, 21 B.L.R. 108 (Q.B.). But a
buyer who fails to mitigate may lose his claim to damages. See, e.g., Estate ofDmyterko v.Relland (1981), 13 Sask. R. 27 (Q.B.). See also Conary, supra, note 43.
200 See SALE OF GOODS, supra, note 18 at 472-8.201 R.S.S. 1978, c. C-30.202 See Woodley supra, note 151.203 See, e.g., Pask-iman, supra, note 151.204 See, e.g., MacLeod, supra, note 147. See also Adams, supra, note 146; Pas-
kinan, ibid.205 See, e.g., Audet, supra, note 164.
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legislation dealing with unfair trade or business practices. 20 6 Under suchlegislation, the duty is on the buyer to prove the necessary facts to establisha case.
207
The buyer may also have remedies against the seller and third partiesunder the law of tort. Recent decisions have indicated that there is aconsiderable body of judicial opinion in favour of the view that where aseller has committed a tort (negligence), as well as a breach of contract, thebuyer may sue alternatively in tort or contract. He is not confined to hiscontractual remedy alone. 208 Where no such contractual nexus exists, as,for example, where the buyer alleges some negligence on the part of amanufacturer, an action in tort will clearly lie. This occurs where amanufacturer fails to warn the buyer of some possible danger inherent inthe use, or a certain use, of the goods. 209 An interesting recent develop-ment which has produced a conflict between Canadian and English deci-sions is found in Triangle Steel & Supply Co. v. Korean United LinesInc.2I° The issue in that case concerned the ability of a buyer to sue acarrier of goods where the buyer had not yet become their owner and wasnot yet in possession of the goods. The English Court of Appeal had earlierheld that the buyer had no right to sue in such circumstances. 21' In theTriangle Steel case, Murray J. took an opposite view, preferring earlierEnglish decisions to the contrary. 212 What remains to be seen is howCanadian courts will resolve this controversial issue which in realityconcerns concepts in the law of tort rather than principles in the law of saleof goods.
Il. CONDITIONAL SALES
A. Scope of Legislation
If a transaction is to be governed by provincial conditional saleslegislation, it must amount to a conditional sale as understood by such
206 See Sandilands v. Guelph Datsun (1980)Ltd. (1981), 35 O.R. (2d) 25, 16 B.L.R.10 (Co. Ct.).
207 See Trethewey, supra, note 114.208 See SALE OF GOODS, supra, note 18 at 470-2. See, e.g., Rose v. Borisko
Brothers Ltd. (1981), 33 O.R. (2d) 605, 125 D.L.R. (3d) 671 (H.C.), affd 41 O.R. (2d)606, 147 D.L.R. (3d) 191 (C.A.); New Brunswick Tel. Co. v. John Maryon Int'l Ltd.(1982), 43 N.B.R. (2d) 469,141 D.L.R. (3d) 193 (C.A.), leave to appeal to S.C.C. refused(1982), 43 N.B.R. (2d) 468, 46 N.R. 262; Consumers Glass Co. v. Foundation Co.(1985), 51 O.R. (2d) 385, 1 C.P.C. (2d) 208 (C.A.).
Steel].211 Leigh & Sillavan Ltd. v. Aliakmon Shipping Co. (1985), [1985] 2 All E.R. 44,
[1985] 2 W.L.R. 289.212 See Schiffahrt & Kohlen G.m.b.H. v. Chelsea Maritime Ltd. (The Irene's
Success) (1982), [1982] Q.B. 481, [1982] 1 All E.R. 218; TheNea Tyhi (1982), [1982] Com.L.R. 9, [1982] 1 Lloyd's Rep. 606 (H.C. of Adm.). These now appear to be incorrect as faras the English courts are concerned.
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legislation. An example of how this may cause a problem was seen inBorg-Warner Acceptance Canada Ltd. v. Co-Ordinated Devs. Ltd.213 Atfirst instance, the Court held that "delivery of goods" in the BritishColumbia statute214 meant delivery of possession - that is - the physicalhanding over of the goods to the deliveree. As this had not taken place, theprovisions of a purported conditional sales agreement, which reserved titlein the party financing a sale, were void as against the receiver appointedunder a debenture subsequently given by the conditional buyer. The Courtof Appeal was uncertain as to the status of the agreement, and they sent itback for a re-trial on the issue of whether or not there existed a conditionalsale under the Act. In W.C. Fast Enterprises Ltd. v. All-Power Sports(1973) Ltd.2 15 the lower court decided that a "C.O.D." contract, whichreserved title to the goods in the vendor until full payment of the price wasmade, was not a conditional sale. This was subsequently reversed onappeal. 2 16 The printed words in the contract relating to reservation of title,which the trial court considered to be mere surplusage, were seen to beboth important and relevant by the appellate tribunal. 2 17
Leases of goods have produced difficulties for the courts. A lease ofgoods with an option to purchase at the end of the lease period may looklike a conditional sale;218 however, Canadian courts will not treat allcontracts of this nature as conditional sales agreements. For example, alease which gave the lessee the option to bid for the goods at the end of thelease was held not to be a conditional sales agreement.219 A contractinvolving a five-year lease of equipment, at the end of which the lessee hadthe option to purchase the equipment for thirty percent of the original saleprice of the goods, was also not considered a conditional sales agree-ment.220 On the other hand, a lease which gave an option to purchase at anascertainable fair market value was a conditional sale;22' as was a leasewith a straightforward option to purchase at the end of the lease. 222
213 (1984), 52 B.C.L.R. 363 (S.C.), rev'd 59 B.C.L.R. 366 (C.A.).214 Sale of Goods on Condition Act, R.S.B.C. 1979, c. 373, s. 2(1).215 (1979), 9 Alta. L.R. (2d) 289 (Dist. Ct.), rev'd29 Alta. R. 483,126 D.L.R. (3d)
27 (C.A.).216 Ibid.217 Ibid. 29 Alta. R. at 489, 126 D.L.R. (3d) at 30-1.218 Such a lease would seem to resemble the English hire-purchase contract which
originally gave rise to many problems. Hire-purchase legislation in England and con-ditional sale legislation in Canada eventually dealt with these problems.
219 Seawest Fin. Corp. v. Thomas Grey Dev. Ltd. (1983), 47 B.C.L.R. 192 (Co.Ct.). Compare General Motors Acceptance Corp. v. Scaddan (1983) 27 Alta. L.R. (2d)328 (Q.B.) where the contract did not state that the lessee was entitled or obligated topurchase.
There are times when a contract is not covered by a statute becausethe legislation itself does not apply to the subject matter of the transaction.For example, in First City Capital Ltd. v. Price Waterhouse Ltd.,223 ahydraulic boom crane was held not to be a motor vehicle. As a result of thisdecision, the contract was not brought under the Sale of Goods on Con-dition Act 224 and there was no need for registration for the lease to beeffective against the receiver-manager of the debtor. Hesston Indus. Ltd.v. Continental Bank of Canada225 is another case where the goods inquestion did not fall under the definition in the appropriate statute. 226
B. Formalities
The Acts must be strictly construed. Although there are judicialstatements of authority to this effect, occasions do arise when differentmembers of the same court come to different conclusions as to thestrictness of the construction and the application of the statute in particularcircumstances. For example, in Federal Business Dev. Bank v. Interna-tional Harvester of Canada Ltd. ,227 the defendant had registered a con-ditional sales agreement which identified by description and serial numberthe vehicle in respect of which it was made. A second and subsequentagreement, however, identified the vehicle by a more extensive vehicleidentification number. Two members of the British Columbia Court ofAppeal held that the description and serial number were sufficient forpurposes of identifying the vehicle. Anderson J.A. dissented, taking astricter view of the statutory requirements and holding that it was neces-sary to include the whole identification number.
In McKee v. General Motors Acceptance Corp. ,228 which involvedsimilar facts, the dissenting judge, Macdonald J.A., took a more lenientview and treated the error in respect of the second number to be of a clericalnature within the meaning of the statute229 and not one that might mislead.The majority of the Court held that the requirements of the BritishColumbia Sale of Goods on Condition Act 230 had not been complied withcorrectly, therefore, the registration of the contract was invalid and thecreditor (the conditional seller) was not allowed to seize the goods. In thesame way, the addition of the letter F at the beginning and at the end of aserial number invalidated the registration of an agreement, because it didnot allow anyone correctly searching the register to realize that it wasencumbered. 23' It should be remembered that, under some provincial
223 (1984), 57 B.C.L.R. 354, 27 B.L.R. 214 (S.C.).224 R.S.B.C. 1979, c. 373.225 (1985), 37 Alta. L.R. (2d) 21 (Q.B.).226 Conditional Sales Act, R.S.A. 1980, c. C-21, s. l(b).227 (1981), 31 B.C.L.R. 158, 128 D.L.R. (3d) 264 (C.A.).228 (1982), 41 B.C.L.R. 87, 143 D.L.R. (3d) 26 (C.A.).229 Sale of Goods on Condition Act, R.S.B.C. 1979, c. 373, s. 26(1).230 R.S.B.C. 1979, c. 373.231 Re General Motors Acceptance Corp. andKarainanles (1979), 108 D.L.R. (3d)
583 (Alta. Q.B.).
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statutes, 232 an incorrect description will only invalidate a registration if itmisleads or could mislead a subsequent creditor or purchaser as to the truestate of affairs with respect to encumbrances on the chattel in question. 233
There are other ways in which the formalities required under thestatutes may not be fulfilled and which may therefore preclude the con-ditional seller from claiming statutory protection. For example, the agree-ment may not have been registered, as required by the Acts;2 34 the contractmay not have been validly created; 235 or it may have been executed morethan ten days after delivery of the goods, as required under the provisionsof certain Acts, 236 and therefore not fall within the scope of the statute. 237
C. Rights of the Vendor
At common law the conditional seller remains the owner of thegoods. Hence, as pointed out in Bank of Nova Scotia v. Tissington,238 hehas the right to repossess the chattel that is the subject of the contract if heis not paid in full. However, the statutes have placed limitations on therights of the conditional seller. He may not be able to retake possession ofthe goods and then sue the original conditional buyer for any deficiency inthe original purchase price. 239 The Conditional Sales Act 240 in Prince
232 See, e.g., The Conditional Sales Act, R.S.N. 1970, c. 56, s. 19; ConditionalSales Act, R.S.N.S. 1967, c. 48, s. 8; Conditional Sales Act, R.S.N.B. 1973, c. C-15, s.13; The Conditional Sales Act, R.S.S. 1978, c. C-25, s. 35; Sale of Goods oi ConditionAct, R.S.B.C. 1979, c. 373, s. 26; Conditional SalesAct, R.S.P.E.I. 1974, c. C-16, s. 17.
233 See, e.g., Re Fortune & Co. (1981), 38 Nfld. & P.E.I.R. 169, 108 A.P.R. 169(Nfld. S.C.).
234 See, e.g., Re Indus. Forklift Serv. Ltd. (1981), 49 N.S.R. (2d) 585, 96 A.P.R.585 (S.C.); Smart & Godin Inc. v. Ritter lndus. Ltd., supra, note 85; Triple-K EnterprisesLtd. v. FrankHennigarFin. Planning CentresInc. (1983), 59 N.S.R. (2d) 119, 125 A.P.R.119 (C.A.); Pink v. Price Waterhouse Ltd. (1983), 45 C.B.R. (N.S.) 129, 143 D.L.R. (3d)759 (N.S.C.A.).
235 See, e.g., Thorne, Riddell Inc. v. Schroeder (1983), 49 B.C.L.R. 209, 49C.B.R. (N.S.) 231 (S.C.).
236 See, e.g., The Conditional Sales Act, R.S.N. 1970, c. 56, s 4(l); ConditionalSalesAct, R.S.N.S. 1967, c. 48, s. 22, asam. S.N.S. 1982, c. 18, s. 2; Conditional SalesAct, R.S.N.B. 1973, c. C-15, s. 3(1); The Conditional Sales Act, R.S.S. 1978, c. C-25, s.5(1); Sale of Goods on Condition Act, R.S.B.C. 1979, c. 373, s. 2(1); Conditional SalesAct, R.S.P.E.I. 1974, c. C-16, s. 2(2).
237 See, e.g., Clarkson Co. v. G.T.E. Sylvania Canada Co. (1978), 88 D.L.R. (3d)160 (Sask. C.A.).
238 (1981), 31 Alta. R. 332 (Q.B.). See also Ford Motor Co. v. Davis (1981), 29Alta. R. 415, 15 Alta. L.R. (2d) 327 (Q.B.).
239 He may also not sue for the deficiency and then repossess. See Annual Survey,supra, note I at 657. In Alberta Treasury Branches v. Granoff (1984), 58 B.C.L.R. 370(C.A.) the Chattel Mortgage Act, R.S.B.C. 1979, c. 48, s. 23, which precludes actionafter seizure of goods, was applied in a case where the contract was made in Alberta and theaction was brought in British Columbia.
240 R.S.P.E.I. 1974, c. C-16, s. 10(3), as am. S.P.E.I. 1978, c. 2. Likewise, theBills ofSaleAct, R.S.P.E.I. 1974, c. B-3, s. 28.1(4), as am. S.P.E.I. 1980, c. 11, s. 1 wasalso amended to make both kinds of action available to the chattel mortgagor.
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Edward Island was amended to allow the conditional seller to take bothkinds of action. This was explained in Canadian Acceptance Corp. v.Noye & Raynor Constr. Ltd.24 1 which dealt with this statutory abrogationof the common law rule. 242
It has also been held that, besides the security created by the con-ditional sale, no additional action will lie on a promissory note given by aconditional buyer. Such a note is considered collateral to the contract andaffected by the same rule of seizure and suit. 243 As stated in Bloom &Sigalet Ltd. v. Essery,244 once the chattel is repossessed by the vendor, thepurchaser's obligation ceases under both the contract and the promissorynote. The same result will follow with respect to a guarantor of thepurchaser's debt. Seizure of the goods by the vendor extinguishes thevendor's right to sue and the guarantor's obligation to pay. 2 45
Under the statutes, it is at times possible for the purchaser to waive hisimmunity from suit upon repossession of the goods. Waiver, which isallowed only where the purchaser is a corporation, 246 enables the vendorto both seize and sue. An illustration of how this provision works is foundin Continental Bank of Canada v. Rena Constr. Ltd.247
The statutes contain provisions under which the seller can offer backthe goods to the buyer if the buyer pays off the outstanding amounts.Should the buyer not do so, the seller is allowed to resell the goods. 248 Insuch circumstances the seller must act reasonably and obtain the bestpossible price so as to reduce the original buyer's liability. He must alsosell within a reasonable time. 249 If the seller behaves improperly inreselling, he forfeits any claim he might otherwise have had on the fundsproduced by the resale. 250
D. Third Party Rights
Problems arise when goods which are the subject of a conditionalsale are later dealt with by the conditional purchaser in a manner which
241 (1980), 33 Nfld. & P.E.I.R. 361 at 370-1, 93 A.P.R. 361 at 370-1 (P.E.I.S.C.).242 General Secs. Ltd. v. Lyons (1957), 22 W.W.R. 145, 8 D.L.R. (2d) 652
(B.C.C.A.).243 Trans Canada Credit Corp. v. Wai (1984), 55 B.C.L.R. 134 (Co. Ct.).244 (1984), 52 B.C.L.R. 378 (Co. Ct.).245 Midco Kentucky Co. v. Seaker (1985), 61 B.C.L.R. 80 (S.C.).246 Presumably on the ground that corporations do not need the same degree of
protection as private purchasers.247 (1985), 59 Alta. R. 52 (Q.B.). In Pacific N.. Equip. Leasing Corp. v. Van-
couver Whitecaps Partnership (1985), 64 B.C.L.R. 142 (S.C.), waiver by the partnershipwas held not to be invalidper se, the Sale of Goods on Condition Act, R.S.B.C. 1979, c.373, ss. 19-24, giving effect to waiver by those partners which were corporations.
248 Scot Truck v. Tynes (1981), 48 N.S.R. (2d) 699, 92 A.P.R. 699 (S.C.).249 Ibid. at 708, 92 A.P.R. at 708.250 Brett Motors v. MacNutt (1984), 65 N.S.R. (2d) 218, 147 A.P.R. 218 (C.A.).
Note also that if another statute (for example, consumer protection legislation) sets outconditions that must be satisfied before resale by the vendor is allowed, failure to observethe conditions invalidates such resale. See Chartrand v. Canadian Imperial Bank ofCommerce (1982), 17 Man. R. (2d) 57 (Co. Ct.).
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could affect the security of the conditional seller. One illustration of this iswhere the goods are sold by the conditional purchaser to a third party, whobuys them in good faith and for value. Sometimes the provisions ofprovincial sale of goods legislation concerning sales by buyers in posses-sion (who can, under certain circumstances, pass good title to innocentpurchasers without notice) 25' apply to conditional sales and the transfersof conditional buyers.2 52 Other provincial statutes preclude such a result,or have been construed so as to preclude such a result.2 53 Statutes dealingwith conditional sales have also provided that a conditional buyer who is atrader or dealer in goods of the kind subject to the conditional sale can passa clear title to a bona fide purchaser. 254 This can only be done if theconditional buyer is dealing in the ordinary course of his business. This hasbeen described as an exception founded on the principle of estoppel. 255
The buyer under the conditional sale, with possession of the goods, ismade to appear the owner of the goods. 256
The question has been raised whether registration of a conditionalsale in accordance with the provisions of the statutes -is notice to thirdparties of the existence of such a sale. This question may be importantbecause notice may be relevant to the claims of third parties, whether theyare subsequent purchasers of the goods, holders of some other securitywhich might affect them (for example, judgment creditors of the con-ditional purchaser 57) or creditors who advanced money to the conditionalpurchaser. 258 It has been held that registration, if validly effected, is noticeto third parties. Failure to comply with statutory formalities (for example,failure to renew a registration after assignment of the conditional sale) canresult in subsequent creditors not having constructive notice of the con-ditional sale. This may cause the conditional vendor to lose his priorityover them. 259 The issue of notice does not appear to have been relevant,however, where a landlord attempted to distrain upon a mobile home forarrears of rent (the mobile home being subject to a registered conditionalsale). The conditional vendor, a bank, had priority over the landlord.2 60
251 SALE OF GOODS, supra, note 18 at 152-6.252 See ibid. at 285-6.253 Ibid. at 286. See also Canadian Imperial Bank of Commerce v. Andrews (1978),
[1979] 1 W.W.R. 673, 94 D.L.R. (3d) 294 (Man. C.A.).254 Bank of Nova Scotia v. Tissington, supra, note 238; McIntyre v. National Bank
of Canada (1982), 44 N.B.R. (2d) at 330, 116 A.P.R. at 330 (Q.B.); Canadian ApplianceMfg. Co. v. Trijet Holdings Ltd. (1984), 8 C.L.R. 154 (B.C.S.C.).
255 Garden City Auto Sales Ltd. v. Byrne (1980), 19 B.C.L.R. 114 at 120 (S.C.),Meredith J.
256 Compare Royal Bank of Canada v. Traders Group Ltd. (1982), 23 Alta. L.R.(2d) 229 (Q.B.).
257 Re Fortune & Co., supra, note 233.258 Bank of Nova Scotia v. Borg-Warner Acceptance Canada Ltd. (1980), 58
N.S.R. (2d) 438, 123 A.P.R. 438 (Co. Ct.).259 Guaranty Trust Co. v. Dumais (1984), [1984] N.W.T.R. 391 (S.C.).260 Bruce v. Bank of Nova Scotia (1983), 48 Alta. R. 205, 28 Alta. L.R. (2d) 220
(Q.B.). Compare the result in this case with results from similar situations under variouspersonal property security statutes. See section V of this survey, infra.
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Conditional sales legislation is designed to protect creditors who extendcredit without notice of a conditional sales contract. 261 It is apparently notdesigned to protect landlords who have not been paid rent.262
Several cases during the past few years have been concerned with thequestion of priorities as between a conditional seller and a bank or otherfinancial institution that has advanced money to the conditional buyerunder a floating charge or debenture. This floating charge is granted by theconditional buyer (the debtor) to secure repayment of money lent and itprovides a general security over present or future goods of the debtor. Theissue in such cases may be whether the bank taking the debenture in respectof the advances is a subsequent creditor or a subsequent mortgagee, eitherof whom the statutes give priority to over an earlier conditional vendor. 263
For such priority to exist, however, the party advancing the money must bea creditor or a mortgagee without notice of the conditional sale.264 Thus, ifthe conditional sale is unregistered, a subsequent floating charge or deben-ture will not be defeated by the earlier sale. 265 But, as held in Marchi dePoisson,266 if the bank has notice of the prior conditional sale otherwisethan through registration, the bank's debenture will not have priority overthe conditional sale. The issue seems to be whether the bank was misledinto advancing the funds under the belief that the mortgagor was the actualowner of the assets. Once the bank has actual or constructive notice of aconditional sale it cannot rely on the argument that it believed otherwise.In this respect, it is to be noted that in Royal Bank of Canada v. TradersGroup Ltd. ,267 the Alberta Court implied into the Conditional SalesAct 268
the word "subsequent" before the word "mortgagee". Hence, although
261 Bank ofNova Scotia v. Borg-WarnerAcceptance Canada Ltd., supra, note 258.Compare Liftow Ltd. v. Peat MarwickLtd. (1983), 58 N.S.R. (2d) 77, 146 D.L.R. (3d) 116(C.A.); Bank of Montreal v. Glendale (Atl.) Ltd. (1977), 20 N.S.R. (2d) 216, (sub noin.Glendale (Atl.) Ltd. v. Gentleman) 76 D.L.R. (3d) 303 (C.A.).
262 This can be contrasted with a mortgagee of a mobile home. See Plaza EquitiesLtd. v. Bank of Nova Scotia (1978), [19781 3 W.W.R. 385, 84 D.L.R. (3d) 609 (Alta.S.C.T.D.). Compare Annual Survey, supra, note 1 at 658.
263 Borg-Warner Acceptance Canada Ltd. v. Bank of Montreal (1982), 39 Nfld. &P.E.I.R. 387, 111 A.P.R. 387 (P.E.I.S.C.); Imperial OilLtd. v. ThorneRiddelllnc. (1983),48 N.B.R. (2d) 439, 126 A.P.R. 439 (Q.B.T.D.); Liquid Carbonic Inc. v. March dePoisson du QuaiLt~e (1984), 55 N.B.R. (2d) 246, 144 A.P.R. 246 (Q.B.T.D.), rev'd inpart on other grounds 61 N.B.R. (2d) 395,158 A.P.R. 395 (C.A.) [hereinafter Marchj dePoisson]; R. v. Weymouth Sea Prods. Ltd. (1983), 59 N.S.R. (2d) 181, 149 D.L.R. (3d)637 (S.C.T.D.).
264 Borg-Warner Acceptance Canada Ltd. v. Bank of Montreal, ibid.265 Liftow Ltd. v. Peat Marwick Ltd., supra, note 261. The same result will occur if
the registration is defective and not cured by statute. See Borg-WarnerAcceptance CanadaLtd. v. Gentleman (1982), 42 N.B.R. (2d) 449, 141 D.L.R. (3d) 250 (C.A.), leave toappeal to S.C.C. refused 43 N.B.R. (2d) 270,113 A.P.R. 270 (C.A.). Lack of registrationwill also render a conditional sale void against the trustee of the conditional buyer. See ReIndus. Forklift Serv. Ltd., supra, note 234.
266 Supra, note 263.267 Supra, note 256.268 R.S.A. 1970, c. 61 [now R.S.A. 1980, c. C-21], s. 3(1) [Now s. 2(1)].
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the floating charge was created before the conditional sale, it was held thatthe bank lacked priority over the conditional vendor. In this instance thebank could not argue that it was misled into advancing the funds by anunfounded belief that the debtor owned the assets that were charged. Therationale of other conditional sales statutes was invoked even though thelanguage of such other statutes had not been reproduced in Alberta. TheCourt held that what was important was the policy or purpose of theprovisions, not the precise language.
A different conclusion was reached in R. v. Weymouth Sea Prods.Ltd. 269 The debenture holder in that case advanced money before, not afterthe debtor entered into the conditional sales contract. The debenture holderwas therefore neither a subsequent mortgagee nor a subsequent creditor asstipulated in the Nova Scotia Act.270 Consequently, the conditional saleprevailed over the debenture holder.
IV. CHATTEL MORTGAGES
A. Application of Legislation
Except where more modem personal property security legislationhas occupied the field, 271 the creation and regulation of mortgages overchattels is controlled by bills of sale legislation. 272 The rationale for suchlegislation is well known and needs no recapitulation. 273 How thesestatutes have been interpreted and applied over the past few years isimportant to the present discussion. The first issue to be examined iswhether or not a transaction falls within the ambit of such a statute. Is thecreation of a charge on a chattel a chattel mortgage within a provincialBills of Sale Act, or does it come under the aegis of some other statutedealing with the creation of a security interest, such as under legislationdealing with corporations?274 In other words, is the chattel one to whichthe Acts apply? In Alberta Treasury Branches v. R. ,275 it was held that a
269 Supra, note 263.270 Conditional Sales Act, R.S.N.S. 1967, c. 48, s. I1(1).271 See part V. of this survey, infra.272 In some ways, bills of sale legislation resembles conditional sales legislation
and has similar consequences.273 SALE OF GOODS, supra, note 18 at 537-9. The statutes deal with "absolute" bills
of sale (where property passes), as well as "mortgage" bills (where property does notpass). In this context, only mortgage bills are considered.
274 This issue was raised in T & C Track Serv. & Welding Ltd. v. Henning (1981), 30Alta. R. 164, 39 C.B.R. (N.S.) 59 (Q.B.).
275 (1984), 32 Alta. L.R. (2d) 306 (Q.B.). Compare Canadian Imperial Bank ofCommerce v. Campbell (1984), 52 B.C.L.R. 157, 7 D.L.R. (4th) 252 (S.C.), which heldthat a mortgage on a fishing vessel did not fall under the provisions of the provincial ChattelMortgage Act. But see Gulf and Fraser Fisherman's Credit Union v. Almnas (1984), 55B.C.L.R. 301 (S.C.) on the effect of a chattel mortgage over items on board a ship that areused in the operation of the vessel.
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motor boat was not an itinerant machine, and was therefore not within thescope of the Bills of Sale Act. 2 76 Was the transaction one to which the Actsapplied? In Ford Credit Canada Ltd. v. Fahl,27 7 the defendant, who wasin the business of leasing vehicles to customers, transferred his rightsunder the leases to another party. The issue arose as to whether or not thetransfer was a chattel mortgage for, if it was, it required registration forvalidity against another creditor. The Court held that such a transfer wasnot a chattel mortgage and did not fall under the Act. The chattels involvedwere not in the apparent ownership of the defendant (the lessor) since theywere not used and enjoyed by the defendant, but by the defendant'scustomers (the lessees). Therefore, other creditors were not misled as tothe defendant's title, although they might have been as to his financialsituation. Hence, the situation was not within the mischief which the Acthad been passed to deal with, namely, the potential deception of creditorsas to the property belonging to the debtor.
B. Requirements for Validity
It has been suggested that less specificity is required in relation to theidentification of a chattel in the documents to be registered under theconditional sales statutes than under the bills of sale legislation. 278 Hence,the serial number of a motor vehicle had to be absolutely correct before thechattel mortgage could provide protection to the mortgagee as againstother creditors. 279 However, an error in the description of the mortgagordid not invalidate the chattel mortgage when no one could have beenmisled by such a misdescription. 280 Similarly, the description of the goodscharged did not have to be completely accurate. 28 1 However, in Cloake v.Canada Permanent Trust Co.,282 defects in the bill of sale rendered itvoid. The bill of sale did not disclose the true name of the mortgagee andthe affidavit did not give an accurate account of the consideration. InFederal Sav. Credit Union v. Alchorn,283 there was also an insufficientdescription of the chattel. The incorrect year and serial number of the carwere included, and this was misleading to third parties. Also misleading
276 R.S.A. 1980, c. B-5.277 (1985), 61 B.C.L.R. 47 (S.C.).278 Re Blower (1981), 29 Alta. R. 217, (sub nom. Re Reicher and Avco Fin. Serv.)
279 Re Blower, ibid. Compare Re Nordine (1981), 31 B.C.L.R. 82, 39 C.B.R.(N.S.) 56 (S.C.).
280 Bank of Nova Scotia v. LaHave Equip. Ltd. (1981), 35 N.B.R. (2d) 201, 88A.P.R. 201 (Q.B.T.D.).
281 Thompson v. ApprovisionnementAtlantique Inc. (1983), 55 N.B.R. (2d) 279,144 A.P.R. 279 (Q.B.T.D.). Compare Touche Ross Ltd. v. Royal Bank of Canada (1984),31 Sask. R. 131, [1984] 3 W.W.R. 259 (C.A.).
was the misdescription of a serial number of the mobile home in ReBank ofNova Scotia and Thorne, Riddell Inc.2 84 In Royal Bank of Canada v.Martin,28 5 where besides an incorrect serial number there were also otherdefects such as the failure to include the promissory note containing theloan agreement and the terms of defeasance and the wrong date for itsexecution, the Court held that this was misleading and that it could not curethe defects.
As long as the mortgagee has complied with the requirements of thelocal statute, he will be protected under the legislation. This will be trueeven though a third party may plead that he has acquired a good title, freeof encumbrances, under other legislation2 86 which governed the transac-tion under which the third party obtained the goods. 287
Although compliance with the requirements of the Act is vital, not allminor defects or departures will spell out lack of compliance. In Irving OilLtd. v. Beothuck Transp. Ltd.,288 a chattel mortgage was executed by oneof the corporation's directors. The corporation's articles of associationstipulated that the company's seal was not to be affixed to any instrumentunless the latter bore the signature of two directors. Although the docu-ment had only been signed by one director, it was held to be valid on theground that the improper application of the seal did not invalidate thechattel mortgage. 289
In Re Hawes,290 the chattel mortgage stated that the consideration forthe mortgage was more than it actually was; nevertheless, the chattelmortgage was valid by virture of the curative provision of the Act.29' Thiscase can be contrasted to Davey v. Bank of Montreal292 where a registeredchattel mortgage also did not state the true consideration for the mortgage.Instead of stating that the consideration was a redeemed loan it said that theconsideration was an extension of time for the payment of the sumoriginally lent. This document failed to meet the statutory requirementsand was therefore void against a bona fide purchaser for value. In thePrince Edward Island case, Re Agricultural Equip. Centre Inc. ,293 the
284 (1980), 115 D.L.R. (3d) 157 (B.C.S.C.).285 (1985), 53 Nfld. & P.E.I.R. 359, 156 A.P.R. 359 (Nfld. C.A.).286 E.g., Factors Act, R.S.A. 1980, c. F-1.287 See, e.g., RoyalBank of Canada v. Taschuk (1979), 30 Alta. R. 101 (Q.B.). The
chattel mortgage in this case was registered in the appropriate jurisdiction.288 (1982), 34 Nfld. & P.E.I.R. 518, 95 A.P.R. 518 (Nfld. Dist. Ct.).289 Steele . relied on s. 81(b) of the CompaniesAct, R.S.N. 1970, c. 54, as well as
on the common lav rule that a corporation is no longer required to execute a contract (i.e.,a chattel mortgage) under seal. Consequently, it was no longer necessary to have twosignatures appear on the document for it to be properly executed and binding on thecorporation.
290 (1981), 59 N.S.R. (2d) 116, 125 A.P.R. 116 (S.C.T.D.).291 Bills of Sale Act, R.S.N.S. 1967, c. 23, s. 25.292 (1981), 60 B.C.L.R. 51 (S.C.).293 (1985), 50 Nfld. & P.E.I.R. 109, 18 D.L.R. (4th) 381 (S.C.), affd 53 Nfld. &
P.E.I.R. 73,156 A.P.R. 73 (C.A.). Touche Ross Ltd. v. RoyalBankofCanada, supra, note281 where lack of affidavit of execution did not invalidate since no one was misled.
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parties failed to swear an affidavit of bona fides before a notary, as requiredby the provincial statute. However, the affidavit had been sworn in NewBrunswick before a person authorized to witness under the NewBrunswick statute. The Prince Edward Island Supreme Court held that thecurative provisions of the Bills of Sale Act 294 rendered the chattel mort-gage valid.These varying decisions reveal that the issue of compliance with theprovisions of provincial bills of sale legislation can be a delicate matter.Much may turn on the particular provisions of the provincial statuteinvolved, as well as on the view taken by the court as to whether or notother parties are or could be misled by the way the mortgage has been filedor registered.
C. Mortgagee's Remedies
As is the case with conditional sales, where the vendor may have toelect between repossession of the goods and suing for any deficiency, 295
so in the case of a chattel mortgage. The mortgagee may not always be ableto seize the mortgaged goods and also sue for any outstanding amounts stillowed by the mortgagor. The question may arise, however, whether theconduct of the mortgagee constitutes either a seizure or a suit, so as to barthe alternative remedy. For example, in Northwest Acceptance Corp. v.Tri-Western Helicopter Corp. ,296 the mortgagee issued a petition againstthe mortgagor and the guarantor of the debt to obtain an order for the saleof the goods. This was held not to be an election by the plaintiff, themortgagee. However, in Bank of Montreal v. Traves,297 the bank, whichheld a chattel mortgage on the goods in question, accepted the proceedsfrom the seizure and sale of the goods by a landlord who had distrained onthem. They did this to satisfy the debt owed by the mortgagor in respect ofrent. It was held that this amounted to an adoption of the seizure and saleby the bank; therefore, the bank could no longer sue for the balance of themoney borrowed by the mortgagor. In Bank of Nova Scotia v. McNutt,298
the mortgagee seized chattels which were within the scope of the ChattelMortgages Act299 of British Columbia as well as other chattels not withinthe Act, although included in the mortgage. It was held that the "seize orsue" provision of the Act applied, so that the mortgagor was relieved of allliability for the unpaid principal and interest. 300
294 R.S.P.E.I. 1974, c. B-3, s. 26.295 See, Part III, C, supra.296 (1984), 52 B.C.L.R. 371, 8 D.L.R. (4th) 442 (S.C.).297 (1985), 63 B.C.L.R. 87 (Co. Ct.).298 (1985), 62 B.C.L.R. 158 (Co. Ct.). Compare Canadian Imperial Bank of
Commerce v. Campbell, supra, note 275.299 R.S.B.C. 1979, c. 48.300 See also Debienne v. Royal Bank of Canada (1984), 32 Sask. R. 148 (Q.B.).
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A different point was raised in Dewar v. Bank of Montreal.30 1 Thebank took chattel mortgages on two different cars as security for one loan.The bank later seized one of the cars and subsequently wished to seize theother car or sue for the outstanding amount. This was not permitted. Thesecond chattel mortgage on the second car was a collateral security.Hence, the seize or sue provision applied to preclude the adoption of anyfurther remedy after the first seizure. The decision at first instance wouldhave been different had both cars been subjected to the same chattelmortgage. This decision was reversed with the Court of Appeal holdingthat the mortgagee was not obliged to seize both chattels simultaneously,but could realize its security on the second chattel mortgage at a laterdate. 302
The discussion in this case reveals that the position of collateralsecurities given by the mortgagor may also be affected by the seize or sueprovision of the applicable statute. Thus, if the mortgagee takes posses-sion of the chattel which is the subject of and the security for the chattelmortgage, a collateral security given over land may also be affected so thatseizure or suit with respect to such land may be barred. 30 3 For example, inContinental Bank of Canada v. Hildebrandt,30 4 where the bank seizedchattels subjected to a chattel mortgage, the bank's rights under a mort-gage of land which was made with the chattel mortgage wereextinguished. The Chattel Mortgage Act,30 5 on its true construction,meant that seizure of the chattels extinguished all the debt. Nor could themortgagee sue on a promisory note which had been given by the debtor tosecure the amount of the loan, when the goods subject to a chattelmortgage had been sold by public auction under the Prince Edward Islandstatute. 30 6 In much the same way, a guarantor may be immune from suit ona guarantee in respect of any deficiency after seizure of the goods, eventhough the mortgagor has waived the prohibition against seizure andsuit. 30 7 A guarantor was also protected from an action in CanadianImperial Bank of Commerce v. Romanchuk.30 8 In that case, the creditor
Klarich (1985), 65 B.C.L.R. 28, [19851 5 W.W.R. 477 (C.A.).305 R.S.B.C. 1979, c. 48 [formerly Bills of Sale Act, R.S.B.C. 1960, c. 28 as am.
S.B.C. 1973, c. 7].306 Bank of Nova Scotia v. MacGuigan (1982), 39 Nfld. & P.E.I.R. 43,136 D.L.R.
(3d) 185 (P.E.I.S.C.).307 Bank of British Columbia v. Abbotsford Sport Parachute Centre (1972) Ltd.
(1980), 23 B.C.L.R. 254 (S.C.). Subsection 22A(10) of the Chattel Mortgage Act,R.S.B.C. 1979, c. 48 [formerly theBills ofSaleAct, R.S.B.C. 1960, c. 28 as am. S.B.C.1973, c. 7] permits the waiver of this right providing the grantor, guarantor or indemnitor isa corporation. With respect to the possibility of waiver of the statutory provisions, comparethe situation under the Conditional Sales Acts and see Northwest Acceptance Corp. v. Tri-lVestern Helicopter Corp., supra, note 296.
308 (1985), 60 B.C.L.R. 203 (S.C.).
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wished to sue the debtor and his guarantor on a promissory note. The debthad been secured by a chattel mortgage. To have allowed the creditor tosue both debtor and guarantor would have impaired the guarantor'ssecurity. He would have been precluded from seizing, and then selling, thegoods pursuant to the chattel mortgage, in order to recoup what he hadbeen obliged to pay on the guarantee. Hence, the creditor-mortgagee couldnot proceed against the guarantor, but could only proceed against thedebtor.
Where there is more than one chattel mortgage on the same chattel,the rights of the second mortgagee are severely limited by the rights of thefirst mortgagee. This is true as long as the first mortgagee has registered hischattel mortgage under the Act, so that it is valid and effective against thirdparties. The first mortgagee has legal title to the chattels, whereas thesecond mortgagee has only an equitable mortgage; therefore, the secondmortgagee has no right to seize and sell the mortgaged chattels. If he doesso, he will be liable to both the first mortgagee and to any third party towhom he has sold the goods (on the ground that the sale was a fraudulentone). 309
Should the mortgagee be entitled to resell the goods in order to recoupany deficiency, his position is similar to that of the conditional vendor whorepossesses and then resells the goods for the same reason. 310 The mort-gagee is under a duty to act in good faith when undertaking such a resale;otherwise, if there is a breach of this duty, the mortgagee will be liable. 311
What this means is that the mortgagee may be prevented from claimingany deficiency remaining after crediting the mortgagor with the amountreceived on the resale. Moreover, as seen in Jauvin v. Bank of NovaScotia,312 a mortgagee who is not in breach of this duty of good faith, butnevertheless has made errors in the handling of the mortgagor's interests,may be liable for any loss incurred by the mortgagor.
What conduct amounts to a breach of this duty? Selling the goods at aprice below their real value is undoubtedly an example of a breach. Aslong as the resale price represents the true value of the goods, the mort-gagee will not have committed a violation of his power of sale. 313 Thesame will be true if the mortgagee has obtained the best possible price. 314
But a mortgagee who sells at a gross undervalue will be guilty of wrongfulconduct. Thus, in Bank of Montreal v. Faulkner,315 a bank (the chattel
309 Bank of Montreal v. Associates Fin. Serv. Ltd. (1983), 58 N.S.R. (2d) 44, 145D.L.R. (3d) 319 (S.C.A.D.).
310 See Part III, C, supra.311 Bank of Nova Scotia v. Beck (1984), 53 N.B.R. (2d) 357, 138 A.P.R. 357
(Q.B.T.D.); Coulombe v. Bank of Nova Scotia (1984), 53 N.B.R. (2d) 414, 138 A.P.R. 414(Q.B.T.D.)
312 (1982), 37 O.R. (2d) 389 (H.C.).313 Gulf and Fraser Fisherman's Credit Union v. Ainas, supra, note 275.314 Banque Continentale du Canada v. Courty (1985), 61 N.B.R. (2d) 102, 158
mortgagee) which had put the goods on an inaccessible lot and had onlyadvertised the goods twice, was held not to have made reasonable effortsto obtain a fair price for the goods. On the same ground, in Coady Savs.and Credit Union Ltd. v. Thomas,316 a mortgagor who failed to advertisethe goods at all in the local newspaper was barred from claiming for anydeficiency. What the legislation is seeking to prevent is any failure by thechattel mortgagee to pay adequate attention to the interests of the mort-gagor. The former is not permitted to have regard to his own interests to theexclusion of those of the latter. There may be no fiduciary relationshipbetween the parties, but there would appear to be a relationship similar tothat which exists between bailor and bailee. For example, a mortgageewho has repossessed goods must take reasonable care and, for example,not allow frozen meat in a repossessed freezer to spoil. 317
D. Rights of Third Parties
Continental Bank of Canada v. Thorne Riddell Inc.318 was a curiouscase. The issue was one of priorities as between a conditional sale vendor,a chattel mortgagee and the debtor's trustee-in-bankruptcy. The analysisof the situation by the Court, involving the interpretation and applicationof the statutes and the caselaw, produced the conclusion that there was nological result. One party had priority over another who had priority overthe third who had priority over the first, and so forth. The Court adoptedwhat might be called a "Gordian Knot" approach, and held that the leastoffensive result should be applied. On this basis, the conditional salecontract holder had the first claim on the vehicle that was the subject of theconditional sale, followed by the chattel mortgagee and the trustee respec-tively. Fortunately for litigants and courts, not all cases are this difficult toresolve. Usually the matter will be resolved by the application of appropri-ate principles relating to notice and the determination of whether thechattel mortgage was registered correctly.
In Federal Business Dev. Bank v. Lobo Heavy Hauling and Equip.Co.,319 a chattel mortgage was registered late. A debenture over thevehicle involved in the mortgage was subsequently made in favour of thebank, which took the debenture subject to the chattel mortgage. On theissue of priority, the British Columbia Court of Appeal held that the chattelmortgage was void as against the receiver of the debtor corporation, butnot as between the borrower and the chattel mortgagee. The latter there-fore ranked ahead of the bank, and was entitled to the proceeds of the saleof the vehicle as a secured creditor. In that instance, the debenture holderhad actual notice of the prior chattel mortgage, and indeed was willing tosubject its debenture to that mortgage.
316 (1980), 10 Sask. R. 41 (Dist. Ct.).317 Criss v. Acme Rentals Ltd. (1981), 13 Sask. R. 112 (Dist. Ct.).31s (1982), 41 Alta. R. 541, 136 D.L.R. (3d) 232 (Q.B.).319 (1981), 30 B.C.L.R. 138 (C.A.).
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In Clarkson Co. v. Muir,320 it was held that, as far as notice wasconcerned, if actual notice were given of the existence of a chattelmortgage, there was no need for registration of the mortgage. This wasreversed on appeal. 321 On principle this reversal must be correct. In viewof the requirement that the provisions of the statute be complied withstrictly, it is hard to see how an unregistered or improperly registeredchattel mortgage (for example, where it was registered in the wrong place)can be valid as against another creditor, even one with notice of themortgage. Wood Motors Ltd. v. Sullivan322 reinforces this view. In thatcase, registration of a chattel mortgage provided constructive notice to theworld, with the result that a subsequent purchaser of the chattel, albeit ingood faith, could not claim lack of knowledge of the mortgage so as to givehim good title as against the chattel mortgagee. In another case, a subse-quent chattel mortgage had priority over a floating charge given to a bankbecause the bank knew about the chattel mortgage system of the dealerwho gave the debenture. 323 This meant that the bank could not claim to beeither a subsequent mortgagee without notice of a chattel mortgage or asubsequent creditor within the meaning of the Alberta statute. 324
Special problems arise when a chattel is moved from one place toanother. In the Nova Scotia case of Pozdnekoff v. Royal Bank of Can-ada,3 25 a chattel subject to a mortgage was moved from one registrationdistrict in the province to another. The relevant statute required that noticeof such event be given to the chattel mortgagee. The Court held that it wassufficient if the mortgagor notified the mortgagee that he had changed hisaddress. This meant that the mortgagee had to register the change withinthirty days of receiving such notice. Failure to do so meant that the chattelmortgage was void against a subsequent bona fide purchaser of the chattel,even though the purchaser bought the chattel before the mortgageereceived the notice in question. However, in General Motors AcceptanceCorp. v. Mahfouz, 326 the Alberta Court held that notice of the removal of amortgaged chattel into Alberta, thereby bringing into operation registra-tion provisions of the Alberta statute, meant actual notice of the move ofthe chattel to the mortgagee, not what might be called implied or con-structive notice derived from knowledge that the mortgagor had moved.
(1980), 13 Alta. L.R. (2d) 100, (sub nom. Re Hepburn) 112 D.L.R. (3d) 474 (Q.B.).323 Sperry New Holland Div. of Sperry Inc. v. Central Farm Supply (Rycroft) Ltd.
(1982), 41 Alta. R. 104, 19 Alta. L.R. (2d) 247 (Q.B.). Compare Bank of Nova Scotia v.Spun-Cast Pole and Pile Ltd. (1983), 43 B.C.L.R. 50, 144 D.L.R. (3d) 753 (C.A.).
324 Bills of Sale Act, R.S.A. 1980, c. B-5.325 (1979), 34 N.S.R. (2d) 435, 96 D.L.R. (3d) 627 (S.C.T.D.). See Annual
The advancing tide of personal property security legislation has nowextended beyond Ontario and Manitoba, reaching Saskatchewan and theYukon Territory. 327 It is currently in the process of engulfing Alberta. 328
In the years since the last Annual Survey, 32 9 there has emerged a consid-erable corpus of caselaw interpreting and applying the provisions of thevarious provincial statutes. 330 The present discussion can do no more thanprovide a mere outline of these developments. 331
B. Scope of the Acts3 32
In a number of cases, the issue that has arisen has been whether thetransaction involved came within the ambit of the statute and therebyrequired compliance with the statute's provisions and consequently thedetermination of priorities in accordance with the statute. In Charles A.
327 In Ontario, see Personal Property Security Act, R.S.O. 1980, c. 375; inManitoba, see The Personal Property Security Act, S.M. 1973, c. 5; in Saskatchewan, seeThe Personal Property SecurityAct, S.S. 1979-80, c. P-6.1; and in the Yukon Territory, seePersonal Property Security Ordinance, O.Y.T. (2d Sess.), c. 20.
328 See R.C.C. Cuming, Alberta Moves Toward Enactment of a Personal PropertySecurity Act (1985) 11 CAN. Bus. L.J. 82.
329 Supra, note 1.330 Developments in Manitoba and Saskatchewan are considered in depth by D.L.
Voechting, The Personal Property Security Act (Manitoba) -Review of Cases to the Endof 1981 (1982-83) 12 MAN. L.J. 147; and R.C.C. Cuming, Second Generation PersonalProperty Security Legislation in Canada (1981-82) 46 SASK. L. REv. 5. See also J.S.Ziegel & R.C.C. Cuming, The Modernization of Canadian Personal Property SecurityLaw (1981) 31 U.T.L.J. 249.
331 As a result of judicial developments and the revision of some of the originalideas contained in the statute, a government advisory committee report was issued in Aprilof 1984. See Report of the Minister's Advisory Committee on the Personal PropertySecurity Act (Toronto: Ministry of Consumer and Commercial Relations, April 1984)(Chair: F.M. Catzman). For a full discussion of these developments, see J.S. Ziegel,R.C.C. Cuming & R.A. MacDonald, SYMPOSIUM: Recent and Prospective Develop-ments in the Personal Property Security Law Area (1985) 10 CAN. Bus. L.J. 131.
332 See J.S. Ziegel, The Scope of the Ontario Personal Property Security Act -Recent Developments (1981-82) 6 CAN. Bus. L.J. 107; B. Colburn, Consignment Salesand the Personal Property Security Act (1981-82) 6 CAN. Bus. L.J. 40. Sometimes asecurity interest must also comply with the requirements of other statutes, for example, inSaskatchewan, The Limitation of CivilRights Act, R.S.S. 1978, c. L-16. This was the casein Bank of Montreal v. Gravelle (1982), 2 P.P.S.A.C. 219, [1983] 2 W.W.R. 345 (Sask.Q.B.). In Ontario, Re M.C. United Masonry (1983), 40 O.R. (2d) 330, 142 D.L.R. (3d)470 (C.A.), examined the Statute of Frauds, R.S.O. 1980, c. 481, in a similar context. Seealso the comments of J.S. Ziegel, Security Interest in Shares and the OPPSA (1981-82) 6CAN. Bus. L.J. 378, where he discusses at length the Ontario case.
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Hare Ltd. v. Payn333 the Personal Property Security Act 334 did not applyto a charge over equipment which was used in construction and whichbecame an integral part of the building being constructed. The subjectmatter of the transaction was such that it became affixed to the realty, andthe statute does not affect charges relating to real property. 335 However, inAssiniboine Credit Union Ltd. v. Canadian Imperial Bank of Com-merce,336 the Court held that a house on leased land could be treated as achattel and therefore could be subjected to a chattel mortgage registeredunder The Personal Property Security Act 33 7 of Manitoba. The leasestipulated that the house could be removed on the expiration of the lease,hence, it was severable from the land. 338 In Newman v. E.M. NeonSigncrafters Inc.,339 the debtor gave a chattel mortgage on its property andon the employees' wages under The Labour Standards Act. 340 The Per-sonal Property Security Act34 1 was held to be inapplicable because thebank did not establish that the mortgage provided "purchase-money" thatwas used by the debtor to acquire the chattels described in the mort-gage. 342
In Thorne Riddell Inc. v. Rural Municipality of Rudy No. 284,3 43
there was a sale subject to conditions which were not met. As a con-sequence, the contract never took effect and there was no relationship ofbuyer and seller. The buyer was therefore not protected under subsection20(1) of the statute. 344 However, in Banque Nationale de Paris (Canada)v. Pine Tree Mercury Sales Ltd. ,345 goods were sold by the defendant to F
333 (1982), 18 B.L.R. 209, 42 C.B.R. (N.S.) 284 (Ont. H.C.).334 R.S.O. 1980, c. 375.335 Personal Property Security Act, R.S.O. 1980, c. 375, s. 1(y).336 (1983), 27 Man. R. (2d) 164, [1984] 2W.W.R. 61 (Q.B.), affd28 Man. R. (2d)
281, [1984] 5 W.W.R. 251 (C.A.).337 S.M. 1973, c. 5.338 This case raised several questions relating to security interests. The Court was
asked to decide whether the assignment of a lease required notice. On this issue, the Courtof Appeal held that the assignment of a lease was not a personal property interest,therefore, it was not registrable under the Act in question. See supra, note 336, 28 Man. R.(2d) at 290, [1984] 5 W.W.R. at 259-60.
339 (1984), 33 Sask. R. 177, 4 P.P.S.A.C. 19 (Q.B.) [hereinafter Newman].340 R.S.S. 1978, c. L-1.341 S.S. 1979-80, c. P-6.1.342 For the definition of "purchase-money security interest", see The Personal
Property Security Act, S.M. 1973, c. 5, s. l(u)(i), (ii). For further discussion of theseparagraphs and, more specifically, s. l(u)(ii), see Clark Equip. of Canada Ltd. v. Bank ofMontreal (1984), 27 Man. R. (2d) 54, 8 D.L.R. (4th) 424 (C.A.).
343 (1985), 5 P.P.S.A.C. 6, 56 C.B.R. (N.S.) 209 (Sask. C.A.), affg on othergrounds (sub. nom. ThorneRiddelllnc. v. Rudy) (1984), 35 Sask. R. 231, 4 P.P.S.A.C. 223(Q.B.) [hereinafter Thorne Riddell].
344 The Personal Property Security Act, S.S. 1979-80, c. P-6.1. Subsection 20(l)provides for the subordination of unperfected security interests to the interests of variousother specified parties with interests in the goods.
Limited. The price was due on delivery but was not paid; therefore, titlewas to remain with the defendant until full payment was made. It was heldthat this created a security interest which should have been registeredunder the Act by filing a financing statement. As a result of failure toregister, the defendant's interest was void against the plaintiff bank. Inarriving at this conclusion, the learned judge followed the decision of theManitoba Court of Appeal in Pickles Tents and Awnings Ltd. v. JosephGroup of Cos.34 6 In that very important decision the Court appears to havetaken the view that transactions which might not at first sight seem to comewithin the ambit of The Personal Property Security Act347 may createsecurity interests that must be "perfected" within the meaning of the Actif they are to have validity against other parties. In that case, the bank hadregistered a security agreement under the Manitoba statute prior to the saleof the goods by the plaintiff to the defendant. That sale was held to be aconditional sale, not an outright sale, since the property in the goods wasnot to pass to the defendant (the buyer) until payment was received in full.In view of this, the plaintiff's interest should have been registered. It didnot, in any event, have priority over the interest of the bank. The bank'ssecurity agreement covered all goods owned or to be acquired by thedefendant. The bank's security interest took effect upon the goods beingdelivered to the defendant and, since it was "perfected", it had priorityover whatever interest the plaintiff might have had. The plaintiff couldtherefore not succeed in his replevin action in respect of the goods.
The interpretation of leasing agreements and arrangements in light ofpersonal property security legislation has produced some problems. Inseveral instances, courts have held that a lease of personal property did notgive rise to a "security interest" that was registrable under the statute.Therefore, the lack of compliance with statutory requirements did notaffect the interest of the lessee. 348 The question, however, is whether thelease is a true lease or whether it is a colourable transaction, namely,something which though purported to be a lease is in reality the creation ofan interest that ought to be dealt with under the statute. In arriving at thecorrect decision, consideration is given to the role of the parties, their
346 Supra, note 4. Compare Re Dempster's Custom SheetMetal Ltd. (1983), 41 O.R.(2d) 424, 146 D.L.R. (3d) 302 (C.A.); George 0. Hill Supply Ltd. v. Little Norway SkiResorts Ltd. (1980), 1 P.P.S.A.C. 190 (Ont. Dist. Ct.), regarding the "liberalizing"judicial approach to the interpretation of contractual documents as security agreements.But see Atlas Indus. v. Federal Business Dev. Bank (1983), 3 P.P.S.A.C. 39 (Sask. Q.B.).
347 S.M. 1973, c. 5.348 CompareRe Stark Coaxial Sys. Inc. (1985), 55 C.B.R. (N.S.) 308 (Ont. S.C.);
and Robert Rowe, supra, note 78 (leases intended as "true leases" not as security and,therefore, not registrable within the meaning of the Act); with Re 488723 Ontario Inc.(R.P.M. Motors) (1985), 55 C.B.R. (N.S.) 311 (Ont. S.C.); FederalBusiness Dev. Bank v.Bramalea Ltd. (1983), 45 C.B.R. (N.S.) 299, 144 D.L.R. (3d) 410 (Ont. H.C.), affd 150D.L.R. (3d) 768 (C.A.); Re Speedrack Ltd. (1980), 1 P.P.S.A.C. 109, 33 C.B.R. (N.S.)209 (Ont. S.C.); andRe Ontario Equip. (1976) Ltd. (1981), 33 O.R. (2d) 648,125 D.L.R.(3d) 321 (S.C.), affd 35 O.R. (2d) 194, 141 D.L.R. (3d) 766 (C.A.) (leases found to beintended as security interests and were therefore within the Act).
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intent and the effect of the transaction. The essence of a lease which isactually a security interest is that property ultimately passes to the lesseewho must pay the lessor the purchase price with interest and carryingcharges over the life of the lease. 349 Therefore, a lease of a copier whichgave the lessee the option to purchase the copier at the end of the term forone dollar created a security interest under the provision of the Act. 350
Leases of vehicles to customers of the debtor, however, were held to betrue leases in the Robert Rowe case. 351 When the debtor in that case soldthe vehicles and their leases to the plaintiff, and the debtor was required torepurchase the vehicles at the end of the leases for a substantial sum, thecontract was held not to be a conditional sale and the plaintiff was notrequired to register under the Personal Property Security Act. 352 Nor wasa sign rental agreement treated as a lease intended to operate as a securityin Martel-StewartLtd. v. Marco Holdings & Dev. Ltd. 353 The vendor (thelessor) retained property in the sign; therefore, the Act did not apply.
The facts in Manning v. Furnasman Heating Ltd.35 4 produced adifficult problem for the Court. The defendant installed a furnace in theplaintiff's house at the request of the plaintiff's builder. The plaintiff paidthe builder for both the house and the furnace and had title for approx-imately one year before the defendant registered a financing statementunder The Personal Property Security Act 3 55 of Manitoba and filed noticeof an interest against the title when the builder failed to pay for the furnace.The defendant then demanded payment of the price of the furnace. At thetrial of the action it was held that the plaintiff was an innocent third party,with no knowleldge of an actual or potential claim by the defendant. As faras the plaintiff knew, the defendant had been paid by the builder. Variousreasons were given by the Court concerning why the defendant had lost theright to sue for the unpaid price of the furnace. Some of these reasons werebased on common law rules -such as estoppel and agency - others aroseunder The Personal Property Security Act,3 56 such as the priority of theplaintiff and the fact that the plaintiff was a purchaser for value withoutnotice before the defendant's security interest was perfected. On appeal, itwas further held, by way of rejection of the defendant's claim, that sincethe transaction involving the furnace was not a conditional sale, the Acthad no application. 357 The subject matter of the transaction was not
349 See generally the cases cited ibid.350 See Unilease Inc. v. Graphic Centre (Ontario)Ltd. (1982), 2 P.P.S.A.C. 197,43
C.B.R. (N.S.) 234 (Ont. Co. Ct.); Standard Fin. Corp. v. Coopers & LybrandLtd. (1984),28 Man. R. (2d) 99, [1984] 4 W.W.R. 543 (Q.B.).
W.W.R. 1 (C.A.) [hereinafter Manning].355 S.M. 1973, c. 5.356 S.M. 1973, c. 5.357 Supra, note 354.
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capable of being the subject of a conditional sale or a security interest. Thefurnace, when attached to the house, became part of the realty. Moreover,there was no agreement in writing as required by the Act.
C. Interrelation with Other Acts
It is impossible to consider personal property security statutes inisolation. Other provincial legislation, and at times the common law, canaffect a security interest. For example, in Bank of Montreal v. Gravelle358
a security interest holder had to comply not only with The PersonalProperty, Security Act, 359 but also with The Limitation of Civil RightsAct 360 of Saskatchewan. Other decisions reveal how the interests of otherparties in chattels which are the subject matter of security interests underpersonal property security legislation can have priority over the securityinterest holder, notwithstanding that the appropriate personal propertysecurity statute has been followed in every respect. Thus, in CommercialCredit Corp. v. Harry D. Shields Ltd.,361 the Ontario Court of Appeal,affirming the decision of the trial judge, 362 held that the landlord's right todistrain on a tenant's goods was a right given by statute, or some other ruleof law, within the meaning of paragraph 3(l)(a) of the Personal PropertySecurity Act. 363 It was therefore not subject to that Act. So too, in Bank ofMontreal v. 414031 Ontario Ltd.,364 an innkeeper's lien had priority overa registered security interest; and in Royal Bank of Canada v. J.I. CaseCanada Inc.,365 the lien of an unpaid vendor of farm machinery, whicharose under The Farm Machinery and Equip. Act 366 of Manitoba, wasgiven priority over a security agreement registered under The PersonalProperty Security Act 3 67 of Manitoba. Similarly, in United DominionsInvs. Ltd. v. Morguard Trust Co.,36 8 a security interest under theSaskatchewan statute369 was subordinate to an interest in real propertyacquired under The Land Titles Act3 70 of that province.
D.L.R. (3d) 153 (H.C.) [hereinafter Shields]. Compare Canadian Imperial Bank ofCommerce v. Klunkovski (1983), 3 P.P.S.A.C. 216 (Ont. H.C.). ButseeDCA CanadaLtd.v. Mark (1983), 27 Sask. R. 274, [1983] 6 W.W.R. 118 (Q.B.), where the Ontario case wasdistinguished on the basis of the different language in the Saskatchewan statute.
362 The trial decision of this case was referred to in the earlierAnnual Survey, supra,note I at 664.
363 R.S.O. 1980, c. 376, as am. S.O. 1981, c. 58, s. 1.364 (1983), 2 P.P.S.A.C. 248, 45 C.B.R. (N.S.) 77 (Ont. Dist. Ct.).365 (1983), 25 Man. R. (2d) 140, 3 D.L.R. (4th) 518 (C.A.).366 S.M. 1971, c. 83.367 S.M. 1973, c. 5.368 (1985), 43 Sask. R. 81, [1986] 1 W.W.R. 76 (C.A.).369 The Personal Property Security Act, S.S. 1979-80, c. P-6. 1.370 R.S.S. 1978, c. L-5.
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The most important case in this respect is Euroclean Canada Inc. v.Forest Glade Invs.371 This case has received much attention in legaljournals.372 A creditor registered a debenture under the Personal PropertySecurity Act 3 7 3 and the Corporation Securities Registration Act. 374 Underthe debenture, the debtor was allowed to give mortgages or liens inconnection with the acquisition of property and to acquire property subjectto liens. The charge created under the debenture was to be subordinated tosuch liens. The debtor later acquired equipment under a conditional saleagreement, but the conditional seller did not perfect its interest under thePersonal Property Security Act 375 in the time allowed. By section 39 ofthe Personal Property Security Act, 376 a secured party may, in the securityagreement or otherwise, subordinate his security interest to any othersecurity interest. The issue concerned priorities as between the debentureholder and the conditional seller. Applying subsection 66(a) of the Act, 37 7
Fitzpatrick J. held that the debenture holder had priority. This establishedthat a charge normally registered under the Corporation Securities Regis-tration Act 37 8 will not be invalid merely because it has not been registeredunder that Act, providing it has been registered under the PersonalProperty Security Act. 379 The latter statute will be deemed to have appliedto the security interest. On that basis, the debenture holder's interestranked above later charges, even though the debtor was allowed to createthem, because that privilege was subject to the priority of the debenture.
The Court of Appeal reversed the above decision. The Court held thatthe effect of the subordinate clause in the debenture was that the con-ditional seller had priority by virtue of section 39 of the Personal ProperySecurity Act. 38 0 Amup J.A. also held that the conditional seller hadpriority, but not by reason of the provisions of the Act. Rather, in hisopinion, the conditional seller's priority stemmed from the common law,under which a conditional sale agreement "was valid not only as betweenthe parties but also against the whole world. The purchaser ... paid
371 (1985), 49 O.R. (2d) 769, 16 D.L.R. (4th) 289 (C.A.), rev'g 46 O.R. (2d) 14, 8D.L.R. (4th) 260 (S.C.), leave to appeal to S.C.C. refused 6 June 1985 [hereinafterEuroclean].
372 See, e.g., J.S. Ziegel, The Scope of Section 66a of the OPPSA and Effects ofSubordination Clause: Euroclean Canada Inc. v. Forest Glade Investments Ltd. (1984) 9CAN. Bus. L.J. 367; J.R. Varley, Floating Charges, Subordination Clauses and Section66a of the OPPSA: Euroclean Canada Inc. v. Forest Glade Investments Ltd., in theOntario Court of Appeal (1985) 10 CAN. Bus. L.J. 482; G.J. Matalon, PPSA RegistrationProblems: Euroclean v. Forest Glade (1985) 11 CAN. Bus. L.J. 79.
373 R.S.O. 1980, c. 375.374 R.S.O. 1980, c. 94.375 R.S.O. 1980, c. 375.376 R.S.O. 1980, c. 375.377 Personal Property Security Act, R.S.O. 1980, c. 375, asam. S.O. 1981, c. 2, s.
I.378 R.S.O. 1980, c. 94.379 R.S.O. 1980, c. 375.380 R.S.O. 1980, c. 375.
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nothing to the vendor; therefore, the purchaser had no interest of any valueupon which the floating charge in the debenture could attach." ' 38'
On the issue of the relationship between the two statutes, Houldenand Blair JJ.A. held that if a security interest created by a mortgage or acharge whose registration is provided for in the Corporation SecuritiesRegistration Act 382 is perfected by registration under the Personal Prop-erty Security Act,3 8 3 the latter Act applies to the transaction, regardless ofwhether or not registration has been made under the other statute. 384
Arnup J.A. thought that the Corporation Securities Registration Act, notthe personal property security legislation, applied to the case. Based on hisinterpretation of subsection 66(a),385 that particular provision had noapplication to the case. 3 8 6 Moreover, he held that by virtue of the PersonalProperty Security Act, 3 87 that statute did not apply to a mortgage, chargeor assignment required to be registered under the corporations statute. 388
This difference of judicial opinion does not appear to have been consideredby the Advisory Committee established to report on the Act,389 with theresult that, until the matter is resolved satisfactorily by a higher court,there may be some uncertainty as to the correct position. In the meantime,however, it would appear that the majority view is to be accepted, with theresult that the two statutes will have dual jurisdiction over a securityinterest that is registrable under both.
The Personal Property Security Act390 figured indirectly in twoOntario cases arising out of alleged breaches of the implied warranty thatgoods are free from encumbrances contained in the Sale of Goods Act. 391
In Wynowsky v. Butler,392 the buyer searched the registry and discoveredtwo security interests. Inquiry revealed that one interest had been paid off,but the buyer could discover no further information concerning the othersecurity interest. He went ahead and bought the goods. At a later date, thecreditor of a former owner of the goods, who was shown as a debtor on theregistry, claimed and seized the goods. The buyer sued the seller, but wasunsuccessful. Once he had made a search and was advised that there were
381 Supra, note 371, 49 O.R. (2d) at 785, 16 D.L.R. (4th) at 305. See also RogersonLumber Co. v. Four Seasons Chalet Ltd. (1980), 29 O.R. (2d) 193, 113 D.L.R. (3d) 671(C.A.). This case is also discussed in the last commercial law survey, see Annual Survey,supra, note 1 at 667-8.
382 R.S.O. 1980, c. 94.383 R.S.O. 1980, c. 375.384 Supra, note 371, 49 O.R. (2d) at 776, 16 D.L.R. (4th) at 295.385 R.S.O. 1980, c. 375, as am. S.O. 1981, c. 2, s. 1.386 Supra, note 371, 49 O.R. (2d) at 783-4, 16 D.L.R. (4th) at 303-4.387 R.S.O. 1980, c. 375, s. 3(1)(c), as am. S.O. 1981, c. 58, s. 1.388 See Euroclean, supra, note 279 at 784, 16 D.L.R. (4th) at 304.389 Report of the Minister's Advisory Committee on the Personal Property Security
Act (Toronto: Ministry of Consumer and Commercial Relations, April 1984) (Chair: F.M.Catzman).
390 R.S.O. 1980, c. 375.391 R.S.O. 1980, c. 462, s. 13.392 Supra, note 68.
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outstanding registrations, the buyer's knowledge negated the impliedwarranty that goods are free from encumbrances.
In Zuker v. Paul,39 3 the buyer failed to make any search, though asearch would have revealed valid registration of a security interest againstthe goods being sold. When the security interest holder demanded pay-ment from the buyer, the latter sold the goods at a small loss and then suedhis vendor for breach of the implied warranty. On appeal to the DivisionalCourt he was successful, despite the lack of a search. The provision of thePersonal Property Secutity Act 39 4 to the effect that registration constitutesnotice to the world, while it might affect subsequent interests in the goods,did not have any effect on the rights inter se of seller and buyer under theSale of Goods Act. 39 5 Though an attempt to distinguish and rationalizethese cases has been made, 396 it is difficult to discern why one buyer failedwhile the other succeeded.
D. The Creation and Registration of Security Interests
Errors in the instrument creating the security interest (the documentfiled) can result in the interest not having validity as against other inter-ested parties who have claims of their own against the goods that are thesubject of the security interest in question. Not all errors will have sucheffect. The statutes draw a distinction between "clerical errors" and othererrors. The former may be "cured" by the statute, 397 whereas the latter,which actually or potentially mislead strangers, are not curable by thestatute. 398 An error in the serial number of a motor vehicle is curable,399 asis an error in the description of the collateral owned by a chattel mort-gagor, 400 the leasing agreement relating to the chattels, 40 1 or the failure todescribe the collateral by type or kind. 402 Held to be incurable under the
393 Supra, note 65.394 R.S.O. 1980, c. 375, s. 53(l).395 R.S.O. 1980, c. 462.396 The comments referred to were made in the form of annotations to the cases
themselves. For Wynowsky v. Butler, see 2 P.P.S.A.C. 177 at 178; and for Zuker v. Paul,see 2 P.P.S.A.C. 53 at 53-4.
397 See, e.g., Re W.H. Cunningham & Hill Ltd. (1982), 2 P.P.S.A.C. 79,41 C.B.R.(N.S.) 81 (Ont. C.A.) [hereinafter Cunningham] where the "cured error" was the name ofthe debtor corporation at one place in the documents.
398 This can be implied from a plain reading of the Act, e.g., R.S.O. 1980, c. 375,s. 47(5).
399 See Bank of Nova Scotia v. Airline Credit Union Ltd. (1981), 7 Man. R. (2d) 6,[1981] 3 W.W.R. 55 (Q.B.).
401 See Re Bell's Dairy Ltd. (1984), 35 Sask. R. 187, 4 P.P.S.A.C. 149 (Q.B.)[hereinafter Re Bell's].
402 Compare Elmcrest Furniture Mfg. Ltd. v. Price Waterhouse Ltd. (1985), 41Sask. R. 125, 5 P.P.S.A.C. 22 (Q.B.), with Regal Feeds Ltd. v. Waldner (1985), 5P.RS.A.C. 32, [1985] 5 W.W.R. 259 (Man. Q.B.) [hereinafter Waldner]. But see GateFertilizers Ltd. v. S.A. Waddell (1985), 5 P.P.S.A.C. 79.
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statute are such errors as the entry of the wrong serial number of a car, 40 3
the omission of the name of a sole proprietor of a business from a financingstatement, 404 the description of the debtor by a nickname, 40 5 the failure torecord the individual name of the debtor on a financing statement 40 6 andthe omission of the initial of the second given name of the debtor. 40 7
There may also be mistakes, omissions or failures in respect of theregistration of the material documents. These too may have a negativeconsequence so far as the protection of the holder of the security interest isconcerned. For example, in Fotti v. 777 Mgmt. Inc. ,408 the plaintiff soldhis business and the purchaser financed the sale by securing a debenturecharged on the defendant's assets. The debenture was subject to a chattelmortgage previously granted by the plaintiff to another party. The chattelmortgagee allowed the registration to lapse. It was held that the plaintiffhad priority over the chattel mortgagee. In Percival Mercury Sales Ltd. v.Town and Country Insulation Ltd. ,409 the creditor failed to register theleases that were the subject matter of the security interest, with the resultthat their interest was subordinate to the title of the debtor's trustee.Similarly, in J.J. Riverside Mfg. Ltd. v. E.J. W. Dev. Co. ,410 the failure toproperly register a security agreement meant that the alleged charge on thegoods could be ordered vacated. But in Trans Canada Credit Corp. v.Royal Bank of Canada41' it was held that there was no need to register afinancing statement each time a loan was renewed on the same chattelwhich was pledged as security.
E. Perfection
To be effective a security interest must be "perfected". Perfectionmay be effected in various ways. Registration is one method, but registra-
403 See Bank of Montreal v. Szusz (1982), 2 P.P.S.A.C. 215, 44 C.B.R. (N.S.) 109(Ont. Co. Ct.).
405 See Waldner, supra, note 402; Re Wilson (1984), 46 O.R. (2d) 28, 8 D.L.R. (4th)271 (S.C.).
406 Only the corporate name was included in the statement. See Re Barous (1983),29 Sask. R. 6, 3 P.P.S.A.C. 61 (Q.B.). Compare Re Elliott (1984), 3 P.P.S.A.C. 296 (Ont.S.C.), and Re Lehner (1985), 4 P.P.S.A.C. 254 (Sask. Q.B.).
407 See Re Gibbons (1984), 45 O.R. (2d) 664, 51 C.B.R. (N.S.) 235 (C.A.). Seealso Re Dante Boutique Shoes Ltd. (1981), 40 C.B.R. (N.S.) 19, 131 D.L.R. (3d) 243 (Ont.S.C.) [hereinafter Re Dante].
408 (1981), 9 Man. R. (2d) 142, [1981] 5 W.W.R. 48 (Q.B.). But see Bank ofMontreal v. Kalatzis (1984), 37 Sask. R. 3C0 (Q.B.).
409 (1984), 33 Sask. R. 230, (sub norn. Percival Mercury Sales Ltd. v. Touche Ross
410 Supra, note 35.411 (1985), 38 Sask. R. 274, 5 P.P.S.A.C. I (Q.B.). The situation is different if a
new car is made the security. See Re Williams (1981), 33 O.R. (2d) 180, 124 D.L.R. (3d)337 (S.C.).
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tion involves strict compliance with the requirements of the statute and afailure in this regard may spell lack of perfection. 4 2 Thus, registrationafter a crucial event, such as a lessee's assignment in bankruptcy, willmean subordination of the security interest holder's claims to those of thedebtor's trustee. 413 Registration must occur within thirty days of deliveryof the security agreement. 414 But, as was decided in Re HarbourChevrolet Ltd.,415 the failure to note a change in the debtor's name whichoccurred after the security interest had been perfected by registration didnot render the interest unperfected.
Perfection can also be achieved by taking possession of the goods inquestion. In Re Darzinkas416 the creditor instructed the bailiff to seizeheavy equipment that was the subject of a security interest, but not toremove it from the debtor's premises. Later, with the creditor's permis-sion, the debtor moved the equipment. It was held that the creditor neverhad physical possession of the equipment, therefore, he had not perfectedhis security interest and was subordinated to the debtor's trustee.
F. Priorities
In Robert Simpson Co. v. Shadlock,4 17 it was held that the order ofregistration under the statute, 418 not the order in which actual notice hadbeen given to the debtor of the security interests involved, applied todetermine issues of priorities. It is therefore important to determinewhether or not a creditor's security interest is perfected within the meaningof the statute. In Re Bellini Mfg. & Importing Ltd. ,419 the Court pointedout that the debtor's trustee must show that the Act gives him priority overa secured creditor. For this purpose, the trustee must show that at therelevant date at least one registered creditor was without knowledge of anunperfected security interest. If all registered creditors knew of an unper-fected security interest, the trustee would have no priority, even if thetrustee personally had no such knowledge. Another case which seems to
412 See, e.g., Canadian ImperialBank of Commerce v. FederalBusiness Dev Bank(1984), 32 Sask. R. 77, 4 P.P.S.A.C. 50 (Q.B.).
413 See, e.g., Re Bell's, supra, note 401.414 As discussed in an earlier part of this survey, delivery is an integral part of the
security agreement's execution. See also Re Johnston (1982), 2 P.P.S.A.C. 150, 43 C.B.R.(N.S.) 39 (Ont. S.C.).
415 (1982), 39 O.R. (2d) 1, 139 D.L.R. (3d) 376 (C.A.).416 (1981), 34 O.R. (2d) 782, 132 D.L.R. (3d) 77 (S.C.). But see the situation that
was discussed inSperrylnc. v. Canadian InperialBank of Commerce (1982), 40 O.R. (2d)54, 141 D.L.R. (3d) 119 (S.C.), affd 50 O.R. (2d) 267, 4 P.P.S.A.C. 314 (C.A.).
417 (1981), 31 O.R. (2d) 612, 119 D.L.R. (3d) 417 (H.C.).418 Personal Property Security Act, R.S.O. 1980, c. 375.419 (1981), 32 O.R. (2d) 684, 122 D.L.R. (3d) 472 (C.A.). This important case has
been applied in subsequent decisions. See generally Re Harper (1981), 34 O.R. (2d) 491,126 D.L.R. (3d) 327 (S.C.); Re Dante, supra, note 407; Cunningham, supra, note 397; ReMassari (1983), 3 P.P.S.A.C. 7, 46 C.B.R. (N.S.) 106 (Ont. S.C.).
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restrict the rights of third parties is Thorne Riddell,420 which involved abuyer who gave a deposit for goods which were not subsequently pur-chased. He then sought to recover the deposit, but was subordinated by theclaims of a bank which had a security interest perfected under theSaskatchewan Act. 42'
The right of a creditor to trace the proceeds of chattels subjected to asecurity interest was considered in Massey-Ferguson Indus. Ltd. v. Bankof Montreal.422 There the financing statement filed by the creditor referredto "all proceeds" of the goods in question. The debtor sold the goods and,in breach of its agreement with the creditor, deposited the proceeds in itsgeneral account where they were mixed with other funds. The debtor thenwent into receivership and the creditor sought to trace the proceeds inquestion and claim priority over the bank, which was the debtor's otherprincipal creditor. Under the Act, while a security interest in collateralextends to its proceeds, the interest in the proceeds is unperfected unless afinancing statement is registered or the security interest in the proceeds isperfected within ten days after their receipt by the debtor. 423 Although thiswas not done, O'Brien J. held that the proceeds were protected without theneed for fresh registration, so that the creditor had the necessary priorityover the bank.424
Another decision affecting priorities is that of Montgomery J. inSperry Inc. v. Canadian Imperial Bank of Commerce.425 The issue waswhether a security interest had "attached" to the goods. It was held on thefacts that no such attachment had occurred because a security interestattaches when the parties intended it to attach. 426 The bank never intendedthat its general security agreement should attach to unpaid inventorysupplied by the plaintiff creditor to the debtor.
Another matter of note in respect of priorities is the possibility that apurchaser for value without notice of the fact that goods are subjected to asecurity interest may acquire such goods free of the security interest. Thiscan occur where the goods are sold in the ordinary course of business bythe debtor who created the security interest. 427 But a sale between dealers
420 Supra, note 343. Compare RoyalBank of Canada v. 216200Alberta Ltd. (1983),30 Sask. R. 40, [1984] 1 W.W.R. 558 (Q.B.).
421 The Personal Property Security Act, S.S. 1979-80, c. P-6.1.422 (1983), 44 O.R. (2d) 350, 4 D.L.R. (4th) 96 (H.C.). See J. Alpert, Perfection
and Tracing of Proceeds Under The Personal Property Security Act (1984) 9 CAN. Bus.L.J. 467.
423 Personal Property Security Act, R.S.O. 1980, c. 375, s. 27.424 This decision was reversed "by consent" on appeal. See Massey-Ferguson
Indus. Ltd. v. Bank of Montreal (1985), 52 O.R. (2d) 165, 5 P.P.S.A.C. 27 (C.A.). Noreasons were given and there appears to be no justification for this reversal.
425 Supra, note 416. See T.J. Hunter, Certainty or Fairness?- The Interpretation of"Attachment" in the PPSA (1984) 9 CAN. Bus. L.J. 111.
426 Personal Property Security Act, R.S.O. 1980, c. 375, s. 12(1).427 In Royal Bank of Canada v. 216200 Alberta Ltd., supra, note 420, this was the
case. The debtor company which had created the security interest was both a trader and adealer in the goods. This was its ordinary course of businesss. This circumstance withinthe realm of personal property security legislation might also be profitably compared to thesituation with respect to bills of sale, in the previous section.
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is not a sale in the ordinary course of business within the meaning of theAct. Therefore, a buyer in such circumstances is not protected against thesecurity interest of one who sold to the one who sold to the buyer. 428
G. Other Matters
Should a creditor lose priority, it may be possible to make a claim onthe fund set up under the statute to deal with errors by the Registrar, butpriority must be lost as a result of such an error. 429 A creditor has no rightunder the statute to an order for possession of the goods which are thesubject of a security agreement. However, he may acquire such a rightunder the agreement, since it then becomes a matter of contract, notlegislation. 430
An interesting question was raised, but not answered, in Re M.C.United Masonry Ltd.431 The question was whether the Statute ofFrauds432 applied to a guarantee given under the Personal PropertySecurity Act. 433 The Statute of Frauds requires guarantees to be in writingor evidenced by a note or memorandum in writing. 434 While the failure tofulfil this requirement means that the guarantee will be unenforceable byaction, it does not mean that it will be void. Hence, in this case, theguarantor was not prevented from retaining shares which were given assecurity for the guaranteed debt.
A problem that has surfaced since the enactment of personal propertysecurity legislation, although it existed under earlier legislation dealingwith security interests in chattels, is the effect of a transfer betweenprovinces of the goods which are the subject matter of the interest. InTrans Canada Credit Corp. v. Bachand,435 a security interest was per-fected in New Brunswick and Alberta. The collateral was later broughtinto Ontario. Under the Personal Property Security Act of Ontario, theperfection outside Ontario continues for sixty days after the collateral isbrought into the province. 436 Therefore, if within sixty days the security
428 See, e.g., Fairline Boats Ltd. v. Leger (1980), 1 P.P.S.A.C. 218 (Ont. S.C.).Compare Quigley v. General Motors Acceptance Corp. of Canada (1983), 3 P.P.S.A.C. 43(Ont. Co. Ct.); Income Trust Co. v. GlanbrookAuto Sales Ltd. (1982), 2 P.P.S.A.C. 211(Ont. Co. Ct.); Belleville Truck Centre Ltd. v. Ford Credit Canada Ltd. (1983), 4P.P.S.A.C. 236 (Ont. Co. Ct.).
429 See Federal Business Dev. Bank v. Registrar of Personal Property Security(1984), 45 O.R. (2d) 780, 7 D.L.R. (4th) 479 (Div. Ct.).
430 See Mid-Canada Radio Communications Ltd. v. Mechanical Servs. (1979) Ltd.(1984), 31 Sask. R. 286, [19841 2 W.W.R. 569 (Q.B.).
431 Supra, note 332.432 R.S.O. 1980, c. 481. See generally the comments in note 332, supra.433 R.S.O. 1980, c. 375.434 R.S.O. 1980, c. 481, s. 4.435 (1980), 30 O.R. (2d) 405, 117 D.L.R. (3d) 653 (C.A.). See also ReAdair (1985),
4 P.P.S.A.C. 262, 54 C.B.R. (N.S.) 281 (Ont. C.A.).436 R.S.O. 1980, c. 375, s. 7(1).
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interest holder perfects his interest under the Ontario statute, he will beprotected. However, it was held that the provisions of the Act did notprotect the security interest holder who failed to register within the sixtydays against a purchaser in Ontario who bought the goods in good faithwithin the sixty days. 437 But, in Westman Equip. Corp. v. Royal Bank ofCanada438 Ontario law governed when a security interest in goods wasregistered in Ontario under the Ontario Act and the goods were latertransferred to Manitoba. Under the Manitoba statute, 439 where goods wereused in more than one jurisdiction (as was the situation with the trucks thatwere the subject matter of the security interest in this case) the law of theprovince where the security interest was created governed. Therefore, thebank which had that interest had priority over the plaintiff, who was a bonafide purchaser for value without notice.
VI. AGENCY
A. Definition
In Gerco Servs. Co v. Aston440 the Court adopted the definition ofagency provided by this writer. 44 1 They stated that agency arose onlywhen a person made representations or performed actions that affectedanother person's legal position. 442 In the Gerco case the defendantscollected silver residue from hospitals on behalf of the plaintiff. Thedefendants removed the plaintiff's machines for dealing with the silver andinstalled their own. It was held that an agency relationship was createdbetween the parties and that the defendant's act constituted a breach of thefiduciary duty owed by an agent to his principal. The agency relationshipdeveloped when the defendants, upon picking up the silver residue fromthe hospitals on the plaintiff's behalf, imposed an obligation on theplaintiff to pay the hospitals for the silver.
The agency relationship can be created in a number of ways. Theemployment of someone as a solicitor, even though that person wasunlicensed, created the relationship of principal and agent between theparties. 44 3 The relationship was also created upon the employment of a"friend" to buy something on the other's behalf, which entailed giving thefriend a cheque and allowing the friend to sign a purchase and sale
437 See Trans Canada Credit Corp. v. Bachand, supra, note 435 at 408-9, 117D.L.R. (3d) at 656-7.
438 (1982), 2 P.P.S.A.C. 171, [1982] 5 W.W.R. 475 (Man. Co. Ct.).439 The Personal Property Security Act, S.M. 1973, c. 5, s. 5.440 (1981), 48 N.S.R. (2d) 541, 92 A.P.R. 541 (S.C.T.D.) [hereinafter Gerco].
441 G.H.L. Fridman, THE LAW OF AGENCY, 5th ed. (London: Butterworths, 1983)at 9 [hereinafter LAw OF AGENCY].
442 E.g., his rights against and liabilities towards other people.443 Roeder v. Halicki (1983), 43 B.C.L.R. 304, [1983] 4 W.W.R. 220 (Co. Ct.).
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agreement. 444 At times the nature of the relationship is a matter ofinference from the circumstances, as was seen in Robertson Constr. Ltd.v. Wildrose Constr. Ltd.445 In that case the Court held that the third partydealing with X should have realized that X was acting as agent for anotherparty. The mere fact that parties used the expression "agency" in anagreement, however, does not necessarily mean that an agency rela-tionship exists in fact or in law.446
An important factor which was omitted from the definition in theGerco case 447 is the element of control. 44s An agent is a person who actsunder the control and direct order of another, and who has a limiteddiscretion with respect to the subject matter of the agency. For example, inRodale Press Inc. v. Webster Indus. Ltd.,449 an advertising agency (usingthe expression "agency" in a broad, non-technical sense) was the agent(in the strict legal sense) of a New Brunswick industry which put advertise-ments in the plaintiff's magazines. This made the industry responsible tothe plaintiff. In Thorne Riddell Inc, v. Rolfe, 450 however, a developer washeld to be an independent contractor and not the agent of the individualowners of a multiple-unit residential building. 451
B. Creation
The relationship of principal and agent does not have to be statedexplicitly in a statute, or for that matter in an agreement entered intopursuant to a statute. The facts of a situation can establish that parties havecreated the relationship. However, there must be evidence to support anallegation that an agency relationship was created. In Gardner v. R.,452the Eagle Lake Band of Indians sought to establish that the governmentwas their agent in respect of a certain matter. This allegation in theirstatement of claim was struck out for lack of supportive facts.
A lack of certain formalities, however, will not displace the con-clusion that there exists an agency relationship. In Rijean Lemieux Inc. v.Levesque,453 it was not necessary for an agreement which was entered intoby the mayor on behalf of a village to be signed and sealed, despite theprovisions of the New Brunswick Municipalities Act.454 In that case, the
444 Tanouye v. KJMDevs. Ltd. (1980), 25 Alta. R. 200 (S.C.T.D.).445 (1984), 10 C.L.R. 312 (Alta. Q.B.).446 See, e.g., Thorne Riddell Inc. v. Rolfe, infra, note 450, where the parties used
the expression "agency" in a land development agreement.447 Supra, note 440.448 Compare LAW OF AGENCY, supra, note 441 at 27-9.449 (1983), 47 N.B.R. (2d) 328, 124 A.P.R. 328 (Q.B.T.D.).450 (1984), 58 B.C.L.R. 71, [1984] 6 W.W.R. 240 (S.C.).451 And the developer in any even would not have had the authority to pledge the
mayor had described himself as acting on behalf of the village although thevillage council had not authorized him to make a purchase. The Court heldthat the village was bound by the agreement because the village hadsubsequently ratified the agreement. In Irving Oil Ltd. v. Slattery455
ratification expostfacto was also given as ajustification for the validity ofan agent's act. The Court held that no contract emerged between the thirdparty and the principal as a result of the ratification until notice ofratification had been given to the third party. However, on appeal, theCourt stated that the facts gave rise to agency by estoppel or "holdingout" .456 The decision in Re Cosco Supply (1979) Ltd.457 is less clear. TheCourt held that a company was bound by the signature of an "agent"which resulted in an advance of money by a bank. The decision does notappear to elucidate whether this was on the basis of ratification ex postfacto or a prior "holding out" by the company.
Estoppel or "holding out" as a basis for the creation of an agencyrelationship is illustrated by several decisions in the past few years. 458
Since this form of agency depends quintessentially upon the way in whichthe court analyses the facts, there is little point in examining each case indetail. It will suffice to say that where there is evidence that a "principal"had given the impression to an outsider that someone is acting as his"agent", the former will be estopped from denying that there was such anagency. The authority of the agent is "ostensible" and stems from therepresentation by words or conduct of the "principal".
The notion of agency of necessity was raised in Condev ProjectPlanning Ltd. v. KramerAuto Sales Ltd.459 by a tenant who tried to justifyhis payment of the price of power supplied to the premises of which he wastenant. He argued that he had signed the meter agreement and paid thesums in question because he was compelled to do so through necessity,even though the real contracting party should have been the landlord. Theattempt failed, there being no real necessity. It was not practically impos-sible to get in touch with the landlord prior to signing the agreement todiscover what the latter intended and what the relations between the partiesunder the tenancy agreement involved.
An agent with authority to act in a certain way binds his principal ifhe acts in that way.4 6 0 So, in Voyager Petroleums Ltd. v. VanguardPetroleums Ltd. ,461 once it was established that the trustee was the agentof the lessor of a petroleum and natural gas lease, the lessor was estoppedfrom denying any of the terms of the lease. However, an agent withouteither actual or ostensible authority cannot bind his principal. In LyonDevs. Ltd. v. Airways Compressor Sales Ltd. ,462 the plaintiff allowed Wto speak to the defendant about instructions with respect to the wiringconfiguration of a compressor. Acting on the statements by W, thedefendant manufactured a compressor with such configuration. The plain-tiff had in the meantime decided on a different wiring configuration. Herejected the article manufactured by the defendant and sued for non-performance of the contract. To this the defendant rejoindered that he hadobeyed the instructions of the plaintiff's agent. But W was held not to havehad any authority to make a final decision or give binding instructions inthis matter. Hence, the defendant was liable for non-performance andcould not claim on a quantum meruit for the work which had been done.
Authority may be actual or ostensible (apparent). In Roy's MidwayLtd. v. Economical Mutual Ins. Co. ,463 the issue that arose was whetheran agent of an insurance company had authority to notify the company(which he had failed to do) of an accident to the insured's property. It washeld that the agent had authority to record claims and to contact an adjusterappointed by the company and process the matter; therefore, the companywas liable for the agent's failure. This was actual authority, not ostensibleauthority. Such authority may also be contained in an implied term in anagency agreement, as was seen in Smith v. Mosher Limestone Co.464 Theplaintiff in that case was an exclusive sales agent for the defendant inAnnapolis County. A term could be implied into the agency agreementwhich had the effect of broadening the scope of his authority. As a result,the plaintiff could not only exclusively sell limestone but could alsoexclusively deal in limestone spreading.
Just as actual authority may be widened, so it may be limited, eitherby law or as a matter of fact. In Manitoba Secs. Comm'n v. Aronovitch andLeipsic Ltd. ,465 the Commission asked the Court to determine whether areal estate agent, for whom the Commission was responsible, possessed
460 So that the principal, not the agent, is the correct party to be sued. See CanadianImperial Bank of Commerce v. Mullins (1982), 40 N.B.R. (2d) 339, 105 A.P.R. 339(C.A.). Note, however, the possibility that the agent may be personally liable.
authority to do certain things. The Court stated that the agent's contractwith his client did not authorize the agent to accept an offer on the vendor'sbehalf so as to create a binding contract of sale between the vendor andpurchaser, even though the agent was a sole, exclusive agent with anirrevocable right to sell the vendor's property. The agent was therefore notentitled to a commission when he obtained an acceptable offer which wasnot accepted by the vendor. So too, in Kohn v. Devon Mortgage Ltd. ,466
the trial Court held that the authority to receive interest did not establishthat the agent also had the authority to receive money on and for theprincipal's account. This decision was reversed on appeal. 467 In MerrillLynch Royal Secs. Ltd. v. Norman Manning Ltd.4 6 8 the granting of apower of attorney to trade in commodities on the principal's behalfincluded the authority to make a large number of trades.
The cases mentioned above provide examples of apparent or ostensi-ble authority, or agency by estoppel. One additional example should benoted. In 0.G. Enterprises Ltd. v. Grosskamper,469 a father and son werepartners in a printing business. The father authorized his son to sell theequipment. The son instead entered into a partnership with a friend,contributing the equipment to the business while the friend contributedmoney. When the partnership terminated, the father sued the friend for theprice of the equipment. He was denied any remedy. It was held that thefather was bound by the son's agreement with the friend, since the son hadostensible authority to contribute the equipment to the partnership, overand above his actual authority to sell the equipment.
The authority of lawyers requires special mention. An issue that hasarisen several times is the extent to which a client will be bound by anagreement or compromise of a suit made by his lawyer. In Philipp v.Southam,470 there was an agreement between counsel for the two oppos-ing parties providing for the withdrawal of a caveat, a general release, andnotice of discontinuance of the action and costs. This was held not to bindone counsel's client (the principal) since it was entered into without anyauthority from that principal. However, it would appear that at timescounsel has apparent authority to make agreements of this kind. Such wasthe situation in Landry v. Landry,471 where the agreement in questionprovided that the wife should have the "family" car until she found workor for six months, whichever took longer. The Court rejected the hus-band's claim that his lawyer was not authorized to enter into such anagreement, holding that the latter had apparent authority to do so. Sim-
ilarily, it was held in Revelstoke Cos. Ltd. v. Moose Jaw472 that a solicitorcould compromise the proceedings by negotiating a settlement of theaction, unless his client had limited the solicitor's authority, and notice ofsuch limitation had been given to the other party before the compromiseagreement was signed. Unless this is done, the compromise will only bedisallowed if it was unreasonable, collusive or fraudulent.
D. The Agent's Liability to Third Parties
Normally an agent is not personally liable on a contract made for hisprincipal, 473 although there are situations where the agent will be liable. Inthese situations, the issue of joint or several liability as between agent andprincipal may arise. A judgment obtained against the agent may bar anysubsequent proceedings against the principal. 474 However, if the judg-ment so obtained is a default judgment, rather than one which followed atrial of action, subsequent proceedings against the principal will not bebarred.475
If the agent is clearly acting as an agent when he makes and signs acontract, neither he nor the other party had any intention of his becomingpersonally liable on the transaction. 476 He will also not be able to sue onthe contract. 477 Moreover, as in Bank of Nova Scotia v. Terry,478 it wouldnot be possible to sue an agent on any other basis, such as on the groundsthat he owed a quasi-contractual duty to the third party or that he was guiltyof misrepresentation. In that case, the agent was merely carrying out theprincipal's directions in paying money to someone when it should havebeen paid directly to the third party.
If it is not clear whether the agent contracted as agent or as principal,the agent will be held personally liable on the contract. This occurred inKisil v. John F. Stevens Ltd. ,479 where the president of a company washeld to be personally liable for misrepresentation in making a contract (thecompany for which he acted was held to be liable as well). This resultedfrom the fact that it was not clear whether he was acting as an individual oras an officer of the company at the material time. The same result followedin Shuper v. Noble,480 where the defendant signed his name "in trust" to acontract under seal. The principal was not named as a party to the
472 (1983), 28 Sask. R. 115, [1984] 1 W.W.R. 52 (Q.B.).473 LAW OF AGENCY, supra, note 441 at 193-4.474 See Tedrick v. Big T. Restaurants of Canada Ltd. (1982), 21 Sask. R. 147, [1983]
2 W.W.R. 135 (Q.B.).475 Rodale Press Inc. v. Webster Indus. Ltd., supra, note 449. But compare Tedrick,
ibid., which in effect involved a default judgment.476 Canadian Imperial Bank of Commerce v. Mullins, supra, note 460.477 See, e.g., Eddy Housing Ltd. v. Langlais & Sons Ltd. (1984), 55 N.B.R. (2d)
instrument, although an agent (the defendant) was held to be liable alongwith the company on the contract.
As a number of recent cases illustrate, much will depend on how thecourts interpret what the agent has done and how the agent has transactedthe contract. The owner/general manager of a company was personallyliable on a contract for materials delivered to his own property and chargedto his own account.48s A party who signed the document providingsecurity for the loan of money to a company of which she was an officerwas personally liable, in the absence of any indication that she was signingin a representative capacity. 482 In Maritime Carpet Distribs. Ltd. v.Reinders,483 the defendant, who incorporated himself after having dealtpersonally with the plaintiff for some time, was held to be personally liablefor goods delivered to his premises. The plaintiff had not been notified ofthe incorporation, even though the plaintiff's bills had been paid by acompany cheque and the premises to which the goods were delivereddisplayed a company sign. An agent who acts for an undisclosed principalmay also be personally liable, as in Cameron v. Maritime Travel (Halifax)Ltd.4 84 where the travel agent acted for a wholesaler who was not revealedto the travel agent's client. Indeed, it has been suggested that there is a dutyon an agent to inform the third party that he, the agent, is acting as an agentand is contracting only in that capacity. 485 However, that was not the viewtaken in Still Creek Terminals Ltd. v. Karlsruher-Sanatorium A.G. ,486
where it was held that a solicitor was under no duty to a third party (thepotential vendor of property) to reveal the solicitor's lack of authority orthe principal's intention not to complete the transaction.
An agent may be liable in tort as well as in contract to a third partywho has been injured by the agent while acting as an agent. In suchinstances, the agent's liability is additional to any liability that may beimposed vicariously on the principal for the acts of his agent. This mightoccur where the agent has acted negligently and harmed the economicinterests of the third party. 48 7 A prime example of an agent's negligence
Northrup v. Taylor (1980), 31 N.B.R. (2d) 185, 75 A.P.R. 185 (C.A.). The defendantbought property in his own name, at the request of the "principal", and was personallyliable.
causing economic loss is where the agent is guilty of a misrepresentationwhich induces the third party to contract with the agent's principals. 488
However, an agent will not be liable for such negligent misrepresentationif it is not relied on by the third party when acting as it did. 489
In relation to the agent's personal liability in tort, mention must bemade of the developing doctrine that an agent may be able to rely upon anexemption clause in the contract between his principal and third party as adefence to an action for negligence brought by the third party against theagent. Such was the situation in Dyck v. Manitoba Snowmobile Assoc. 490
In that case, the Association's official (the starter of a race) could plead theexemption clause which was in the contract between the participant in arace who was injured as a result of the starter's negligence and theorganizers of the race. The Manitoba Court of Appeal, in a judgmentaffirmed by the Supreme Court of Canada, held that it was possible to findthat the organization, when contracting for the exemption clause, did so asthe agent of the starter- that is - the agent of its agent. Such a conclusionis not always possible, however, and the decision of the Supreme Court ofCanada in Greenwood Shopping Plaza Ltd. v. Beattie491 indicates that thecourts will be strict in their construction of contracts and circumstances.Not every instance of an exemption clause that purports to cover the acts ofthe agents of a contracting party will be construed as having such aneffect. 492
E. The Agent's Liability to the Principal
An agent will be liable to his principal for any breach of dutyoccurring in the performance of his duties. Broadly speaking, those dutiesmay be divided into two classes. The first comprehends duties relating tothe proper performance of what the agent has been employed or entrustedto achieve. The second involves the agent's obligation to behave withloyalty towards his principal. The agent may not betray the principal'sconfidence or make some secret, unpermitted profit from the performanceof the agency undertaking.
1. Performance
An agent must perform his undertaking as an agent with reasonablecare and skill. This may oblige him to ensure that his principal has
488 See Kisil v. John F. Stevens Ltd., supra, note 479; Casey Fisheries Ltd. v. Max'sFish Market Ltd., supra, note 48 1.
489 See Todd v. Haslhofer (1983), 41 O.R. (2d) 409, 27 R.P.R. 276 (H.C.).490 (1982), 15 Man. R. (2d) 404, [198214 W.W.R. 318 (C.A.), affd [198511 S.C.R.
589, 18 D.L.R. (4th) 635.491 (1980), [1980] 2 S.C.R. 228, 111 D.L.R. (3d) 257.492 See also Miida Elec., Inc. v. Mitsui O.S.K. Lines Ltd. (1981), [1982] 1 C. 406,
124 D.L.R. (3d) 33 (A.D.).
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adequate knowledge, so that the principal may take appropriate steps toprotect his interest. So, in Reardon v. Kings Mutual Ins. Co., 4 9 3 aninsurance agent who was notified by an insurance company that a barnowned by the agent's principal (the assured) was not insurable, failed inhis duty to the principal by not passing on this information. Lacking suchknowledge the assured was unable to protect his financial interest and hesuffered when the barn was destroyed without being insured.
Many cases entail conduct by an agent that can be characterized asnegligent. Some of these involve misconduct by solicitors, for example:failing to follow up on information that would have enabled his client torealize the condition of premises being purchased; 494 failing to notice thatthe plans of a property to be purchased by his client revealed the lack of anydriveway access to the property;495 failing to advise a client about an offerof settlement of an action;496 failing to commence an action within theproper limitation period;497 failing to contact and interview an indepen-dent witness whose evidence might have ensured judgment in the client'sfavour;498 failing to obtain a warranty before dealing with a cheque fromthe client to the other party's solicitors in a vendor-purchaser situation;499
and failing to ensure that directors obtained qualifying shares in a companythat was being formed. 500 In Spence v. Bell,50 however, a solicitor whowas asked a question of limited purport and who answered it correctly, butwho did not go beyond the scope of the question and examine anotherissue, was not guilty of negligence. It was held in Kienzle v. Stringer502
that where a solicitor was guilty of negligence in a matter involving realestate, the solicitor's liability extended as far as the consequential loss tothe client did.
The activities of insurance agents have also led to litigation in the pastfew years. An agent who failed to inform himself of the fact that a
(S.C.A.D.).501 (1981), 28 Alta. R. 527, 16 Alta. L.R. (2d) 1 (Q.B.), affd 39 Alta. R. 239, 22
Alta. L.R. (2d) 193 (C.A.), leave to appeal to S.C.C. refused 41 Alta. R. 305, 46 N.R. 179.502 (1981), 35 O.R. (2d) 85,130 D.L.R. (3d) 272 (C.A.), motion for leave to appeal
to S.C.C. dismissed, 42 N.R. 352, 130 D.L.R. (3d) 272n. This case limited the meaningand scope of the earlier case of Messineo v. Beale (1978), 20 O.R. (2d) 49, 86 D.L.R. (3d)713 (C.A.).
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residence was not the principal residence of the assured (his principal) wasguilty of negligence because the agent knew that the principal relied on hisexpertise. 50 3 It is normally an insurance agent, or a company for which anagent acts, that is liable in this way. 50 4 However, in International Bhd. ofTeamsters, Local 464 v. Taylor-Read Enterprises Inc.,5°5 an employerwas liable as the agent of his employees in a group life insurance schemefor failing to forward an application for group life insurance as he shouldhave done. The failure resulted in the loss of a considerable sum of moneyin benefits by the estate of a deceased employee.
Real estate brokers or agents have also often been found guilty ofnegligence. This is at times the result of negligent misrepresentation. Inone case, Young v. Harper, Macaulay Nicolls, Maitland & Co.,506 theagent's misrepresentation was with respect to the terms of a counter-offermade by the vendor to the purchaser. As a result of it, the vendor lost thesale and later had to sell at a lower price. The difference between the twoprices was recoverable from the agent. A similar result followed in Pricev. Malais50 7 where the agent's misconduct in not mentioning an easementof which the agent was aware resulted in the vendor falsely, but inno-cently, warranting a clear title. This led to the rescission of the contract andthe return of the purchaser's deposit. The vendor successfully sued for thedifference between the market value of the property at the time of theagreement and its value one year later when the property was sold (as wellas certain costs and mortgage payments that had to be paid in the interim).However, not every case is decided against the agent. 50 8 As long as theagent acts in conformity with the standard of real estate agents in the area,he will not be guilty of negligence. 50 9 Nor will he be liable if no reliancewas placed on his misrepresentation. 510 He will also not be guilty ofnegligent misrepresentation if he indulges in what has been termed thenormal "puffing" to be expected from a salesperson trying to make a saleof real property. 511
503 Homburg v. Toole, Peet & Co. (1980), 28 Alta. R. 546, 13 Alta. L.R. (2d) 363(Q.B.).
504 See, e.g., Jessette v. Conacher (1981), 30 Alta. R. 489, [1981] I.L.R. 1-1429(Q.B.), rev'd [1983] I.L.R. 1-1683 (C.A.). At first instance, the Court held that the insurer(the insurance company) was liable for the damages suffered by the plaintiff as a result ofthe negligent act. On appeal, the Court held the agent rather than the insurer responsible.
where there was no negligence and therefore the agent was entitled to a commission.Compare a similar situation involving the vendor's spouse in Dorff v. Gilbert (1985), 37R.P.R. 63 (Ont. H.C.). Compare also, with regard to the liability of an agent to a thirdparty: Semkuley v. Clay (1982), 39 Alta. R. 526, 140 D.L.R. (3d) 489 (Q.B.); Shields v.Broderick (1984), 46 O.R. (2d) 19, 8 D.L.R. (4th) 96 (H.C.).
509 Hart v. Howse (1981), 27 R.P.R. 1 (Ont. H.C.).510 Zigelstein v. Steiner (1985), 49 O.R. (2d) 308 (H.C.).511 Shields v. Broderick, supra, note 508.
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Volkers v. Midland Doherty Ltd.5 12 is an interesting decision involv-ing a stockbroker. The employee of a firm of brokers did not buy sharesimmediately, as he was instructed to do by the principal (the employer'sclient). He chose to wait for the arrival of another employee who was morefamiliar with the principal's account. As a result, it was argued that theclient lost a valuable opportunity, because the shares that might have beenbought later rose in value. At first instance it was held that the brokers werenot liable - the employee, and therefore the brokers, had not been guiltyof negligence. The British Columbia Court of Appeal reversed this deci-sion. 513 It held that the broker had a duty to advise the client that his orderwas not going to be perfected, so that the client could protect himself eitherby placing the order through another broker or by giving specific instruc-tions that would compel the broker to buy.
2. Fidelity
If an agency relationship exists between two parties, the agent owesfiduciary duties to the principal regardless of whether the relationship iscreated expressly or implicitly. 51 4 Such duties will emerge from therelationship of banker and customer,515 or from the relationship of masterand servant. If one is employed as a sales representative 516 or a salesmanager, 517 that person will be obliged to behave with loyalty and fidelityto the employer and not breach any confidences that emerge from themaster-servant situation. 51 8 Even if an express promise or covenant not toact in a certain way upon termination of employment infringes the lawrelating to restraint of trade, it may still be actionable for the employee tobehave in this manner if it results in a breach of his duty as an agent. Thisconclusion was reached by the Court in Investors Syndicate Ltd. v.Versatile Invs. Ltd.,519 a case which may be said to have revolutionizedthe law on restraint of trade insofar as it relates to the master-servantrelationship. The duty of fidelity owed by an agent to his principal will beconstrued strictly. 520
512 (1984), 53 B.C.L.R. 209 (S.C.), rev'd62 B.C.L.R. 131 (C.A.).513 Ibid.514 See, Francis v. Dingman (1982), 43 O.R. (2d) 641, 2 D.L.R. (4th) 244 (C.A.),
leave to appeal to S.C.C. dismissed 52 N.R. 400, 23 B.L.R. 234n. E.g., the relationshipbetween a real estate agent and the person whose property he is selling. Re Crackle (1983),47 B.C.L.R. 256, (sub nora. Re Crackle and Deputy Superintendent of Ins. and RealEstate) 150 D.L.R. (3d) 371 (C.A.).
515 Guertin v. Rayal Bank of Canada (1983), 43 O.R. (2d) 363, 1 D.L.R. (4th) 68(H.C.), affd47 O.R. (2d) 799, 12 D.L.R. (4th) 640 (C.A.).
516 Investors Syndicate Ltd. v. Versatile Invs. Inc. (1983), 42 O.R. (2d) 397; 149D.L.R. (3d) 46 (C.A.).
517 White Oaks Welding Supplies v. Tapp (1983), 42 O.R. (2d) 445,149 D.L.R. (3d)159 (H.C.).
518 LAW oF AGENCY, supra, note 441 at 153-6.519 Supra, note 516.520 Re Crackle, supra, note 514.
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Whether a breach of this duty has occurred will depend on thecircumstances. 52 1 For example, non-disclosure of material facts mayresult in a breach of this duty. Several recent cases illustrate the kinds offacts which are material in this respect: the fact that the agent was buyingthe property in his own name; 522 the fact that the agent was selling to afriend;523 the fact that there was a purchaser who would have paid morethan the actual purchaser did;5 24 or the fact that the mortgage offered bythe principal was below the existing rate. 525 In contrast to these cases, itwas not a breach of duty for a solicitor and a real estate agent not to disclosethat the purchasers of the principal's property were their spouses;526 or thatthe purchaser was the owner of the real estate agency employed by theproperty owner.527 Nor will there be a breach of duty if the principal is notrelying on the agent's expertise. 528 Similarly, a solicitor is not required toadvise the client directly about an unusual mortgage transaction; he mayrely on the client's respresentative to pass on this information. Nor is heobliged, when dealing through his client's agent, to encourage his client toobtain independent legal advice. 529
Another manner of referring to the duty of an agent in this regard is byspeaking in terms of a "conflict of interest" between the agent's duty tohis principal and the agent's self-interest. An extreme example of suchmisbehaviour occurs where the agent accepts a bribe. 530 There are othersituations where the agent acts in a manner intended to benefit himselfbeyond the extent of the promised commission. Thus, a real estate brokermay not buy his principal's property for himself unless he has disclosed allof the facts to his principal and does not disadvantage his principal bybuying and, of course, providing he fulfils the requirements of the relevantlegislation. 53' A solicitor who acts for opposing parties or for parties with
521 See, e.g., Memco Ltd. v. Vellema, Amonex (80) Realty Ltd. (1982), 19 Alta.L.R. (2d) 307 (Q.B.); Invesco Real Estate Ltd. v. Lister (1981), 36 Alta. R. 415, 16 Alta.L.R. (2d) 369 (Q.B.).
522 Wareing v. Selinger (1982), 19 Sask. R. 163 (Q.B.). Compare Thorne RiddellInc. v. Rolfe, supra, note 450. But see Calbar Secs. Ltd. v. Toole Peet & Co. (1983), 49Alta. R. 305, 29 Alta. L.R. (2d) 236 (C.A.).
523 Cully v. Penosky (1981), 36 Alta. R. 292 (Q.B.). Compare Harrison v. BlockBros. Realty Ltd. (1985), 39 Alta. L.R. (2d) 351 (Q.B.).
524 Jackson v. Packham Real Estate Ltd. (1980), 28 O.R. (2d) 261, 109 D.L.R. (3d)277 (H.C.).
525 Pat King Real Estate Ltd. v. Corkum (1983), 59 N.S.R. (2d) 74, 125 A.P.R. 74(S.C.T.D.).
526 Hambrook v. Lerner (1981), 32 Alta. R. 576 (Q.B.).527 Proulx v. Gardiner Realty Ltd. (1982), 40 N.B.R. (2d) 529, 105 A.P.R. 529
(Q.B.T.D.).528 Todd v. Haslhofer, supra, note 489.529 Sinclair v. Smith (1982), 41 B.C.L.R. 374 (S.C.).530 Alberta Housing Corp. v. Achtem (1981), 18 Alta. L.R. (2d) 58, [1982] 2
W.W.R. 218 (Q.B.).531 Yared Realty Ltd. v. Topalovic (1980), 130 D.L.R. (3d) 625 (Ont. H.C.); George
inconsistent claims or purposes may involve himself in a conflict ofinterest situation. 532 So also might an agent who seeks commissions fromboth parties to a contract of sale of goods. 533 However, not every instanceof an agent acting for both parties will come within the scope of conflict ofinterest. An example of this is where the relationship between the agentand one of the parties occurred much earlier in time and had no directbearing on the matter at hand. 534
F. The Agent's Commission
In recent years, most of the decisions relating to payment of anagent's commission have arisen in the context of real estate agents orbrokers. Despite the legislation that has been enacted in the common lawprovinces to cope with the relationship between owners of real estate andthose they employ to sell it on their behalf, problems still emerge. 535
A commission will not be payable if the agent has waived claim topayment. 536 Nor can an agent who breaches his duty claim entitlement to acommission. An agent who is negligent or who is involved in a conflict ofinterest situation will also be denied any compensation. 537 Furthermore, acommission will not be due from the principal unless there is an express orimplied term concerning compensation in the contract between principaland agent. There need not be a formal contract such as a listing agreementbetween a property owner and a real estate agent. 538 There may be merelyan implied agreement between the parties or, as was argued (unsuc-cessfully) in Burns Fy Ltd. v. Khurana,539 there may be an implied termin the contract which substantiates the payment of a commission inparticular circumstances. The agreement in that case stated that a commis-sion was payable "upon closing the transaction". The agent found a
D.L.R. (3d) 647 (C.A.), leave to appeal to S.C.C. refused 44 N.R. 89; MacCulloch'sEstate v. Corbett, supra, note 500; Dwyer v. Spry and Hawkins (1981), 27 B.C.L.R. 253(S.C.); McCallum v. McCallum Estate (1981), 47 N.S.R. (2d) 530, 90 A.P.R. 530(S.C.T.D.) (shows it can affect a lawyer's partner).
533 Moores v. Sequeira (1985), 55 Nfld. & P.E.I.R. 128, 162 A.P.R. 128 (Nfld.C.A.). Compare B.L.T. Holdings Ltd. v. Excelsior Life Ins. Co (1984), 52 Alta. R. 1(Q.B.).
534 Marasco v. Bow Bend Trailer ParkLtd. (1982), 36 Alta. R. 54 (Q.B.), affd 31Alta. L.R. (2d) 167 (C.A.).
535 See W.F. Foster, REAL ESTATE AGENCY LAW (Toronto: Carswell, 1984), ch. 4.536 Villa Real Estate & Dev. Ltd. v. Bloomenthal (1981), Alta. R. 277 (Q.B.).
Representation by the agent that he waived his commission which led to estoppel.537 Compare Montreal Trust Co. v. Sinons, supra, note 508; B.L.T. Holdings Ltd.
v. Excelsior Life Ins. Co., supra, note 533.538 Petro-City Real Estate Ltd. v. Breitkreuz (1983), 46 Alta. R. 107, [19831 6
with a lengthy examination of situations where a term may be implied in a contract. Seeibid. at 255-9.
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purchaser for the principal's business, willing to pay approximately theprice asked by the principal. The principal subsequently changed his mindand did not sell. The agent sued for breach of an implied term that theprincipal would not behave in this manner, or, in the alternative, on thebasis of payment for the value of services rendered by the agent, or,finally, on the basis of the benefit accruing to the principal (that is, inrestitution). The agent failed. There was no implied term that was brokenby the principal. There could be no payment for services rendered in theabsence of a sale. The agent accepted the risk that nothing would eventu-ate. The valuation of the business by the agent was of no significant benefitto the principal, it was certainly not the kind of benefit that might support aclaim in restitution.
If two or more agents are employed by a principal (for example, tworeal estate brokers), only one will be able to claim commission on the saleof the property involved. 540 To hold otherwise would be impracticable andunreasonable.
For a commission to be earned, the cases suggest that two factors areimportant. First, the agreement between principal and agent must befulfilled, in the sense that the event upon which the commission is payablemust have taken place. Secondly, the agent must have been the "effec-tive" or "efficient" cause of the event (which is usually the sale of theprincipal's property).
Some cases revolve around a provision in the agency agreementwhich states that to earn a commission the agent must obtain a sale of theproperty while the agreement is in force between the parties, or within astipulated period after the agreement's termination or conclusion. Muchthen depends on what the agent did within the time period specified, thatis, whether he introduced the ultimate purchaser to the vendor, whether hemade some vague contact, and whether the sale was concluded in thespecified time. 54' The contract may state that commission is payable if theagent procures an acceptable offer, which means that the offer must be onethat is accepted by the owner. 542 If the agreement specifies that a sale beeffected by an agent, it is not enough that the agent finds a buyer who isready, willing and able to complete the transaction. The Ontario Court of
540 Eddie WilloxAgencies Ltd. v. Great WestLife Assurance Co. (1983), 21 Man. R.(2d) 46, 27 R.P.R. 294 (Q.B.).
541 Compare Bolohan v. John R. Marsh & Co. (1981), 20 R.P.R. I (Ont. C.A.);Maritime Mgmt. Ltd. v. Jet Holdings Ltd. (1982), 38 N.B.R. (2d) 155, 100 A.P.R. 155(Q.B.T.D.); Coastal Holdings Ltd. v. Young (1981), 37 N.B.R. (2d) 93, 94 A.P.R. 93(Q.B.T.D.); Central and Eastern Trust Co. v. Plymouth Holdings Ltd. (1980), 30 Nfld. &P.E.I.R. 1, 84 A.P.R. 1 (Nfld. S.C.T.D.); VanWart Realty Ltd. v. Wheeler (1982), 40N.B.R. (2d) 365, 105 A.P.R. 365 (C.A.); Royal Trust Co. v. Clarke (1980), 28 Nfld. &P.E.I.R. 409, 79 A.P.R. 409 (Nfld. Dist. Ct.); Wolstencroft Realty Corp. v. AshcroftHolding Ltd. (1984), 33 R.P.R. 206 (B.C.S.C.).
542 Note that the agent may be entitled to compensation for work he has done even ifhe is not entitled to the actual commission. See Manitoba Secs. Conn'n v. Aronovitch &Leipsic Ltd., supra, note 465.
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Appeal in Leading Invs. Ltd. v. New Forest Invs. Ltd.543 said that thesituation is governed by the reasonable expectations of the parties. Therecan be no payment of commission unless the agent found a purchaser whocompleted the sale. But an agreement of sale was a binding contract inWilliams Lake Realty (1978) Ltd. v. Symynuk, 544 even though the pur-chaser had a right to exercise an option to buy or not to buy at any time untilthe date of closing. Similarly, there was a binding contract of sale in LewisRealty Ltd. v. Skalbania545 even though the vendor was unable to maketitle because he could not obtain the assent of a co-owner. In Alex DuffRealty Ltd. v. Eaglecrest Holdings Ltd. ,546 the Alberta Court of Appealanalyzed the word "sale" in a contract involving a real estate agent, wherethe contract spoke of payment of commission on a "sale" of the property.It was held that "sale" must mean "completed sale", since the languageof the contract was to be construed contra proferentem.547 In construingthe meaning of such agency agreements courts often seem to favourowners rather than agents.
A difficult issue that has often arisen is whether the agent has been the"cause" of the sale that is the basis of his claim for commission. 548 Sovital is this that in a case where the vendor sold the property himself,without referring the purchaser to the agent (as the vendor should havedone under the agency agreement), the vendor's breach of contract did notlead to any payment of commission to the agent. The latter obtained onlynominal damages because he had done no work towards the sale of thevendor's property and was not the cause of the sale. 549 To earn hiscommission, the agent must show that he brought about the eventual sale.He may do this by showing that he introduced the property to the pur-chaser550 or by showing that the purchaser had a sustained interest in theproperty which resulted in the purchase even after the listing agreementbetween agent and owner had terminated. 55' But an agent who does
544 (1982), 39 B.C.L.R. 313 (C.A.).545 (1980), 23 B.C.L.R. 336 (C.A.).546 (1983), 44 Alta. R. 67, [1983] 5 W.W.R. 61. Compare Black Gavin & Co. v.
Cheung (1980), 20 B.C.L.R. 21 (S.C.). See also Kernahan & Graves Real Estate Co. v.National Trust Co. (1983), 44 O.R. (2d) 53, 3 D.L.R. (4th) 175 (C.A.) where a-listingagreement was interpreted to mean that a contract had been concluded.
547 That is, against the party for whose benefit the term in question had beeninserted.
548 Harvest Holdings Ltd. v. Bohun (1984), 34 Sask. R. 127 (Q.B.); Campbell &Haliburton (Regina) Ltd. v. F.M. Constr. Ltd. (1983), 22 Sask. R. 297 (Q.B.);Aronovitch& Leipsic Ltd. v. Famous Players Ltd. (1984), 30 Man. R. (2d) 280 (C.A.).
551 Royal Trust Corp. v. Pintaric (1982), 39 Alta. R. 176, 22 Alta. L.R. (2d) 224
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nothing to bring about the sale loses any claim he may have to a commis-sion. 552 If the owner has to effect the sale himself, the agent cannot assertthat he has earned his remuneration. 553 Nor can an agent who has notintroduced the purchaser to the property say that he is entitled to anythingwhen the property is sold. 554
Provincial legislation on real estate agents has attempted to regulatethe extent to which, and the circumstances upon which, an agent mayclaim commission. Some cases have involved consideration of variousprovisions of this legislation. Thus, in Dominion Trust Co. v. KesmarkLtd., 555 a trust company which was not registered under the Ontariostatute556 could not claim a finder's fee in respect of obtaining a purchaserfor the vendor's property. Under the British Columbia Act, 557 a personclaiming commission was obliged to be the full-time salaried employee ofa real estate agent. The plaintiff satisfied this criterion in Higginson v.Kelowna Pines Golf Course Ltd.558 and he was able to claim commission.An agent may purchase the principal's property provided that, in additionto the requirements of the common law, the agent satisfies the require-ments contained in the legislation. 559 Moreover, under the Ontario Act 560
there may be limits on the extent to which a real estate broker can claimcommission on a listing agreement with another broker. 56'
G. Termination of an Agent's Authority
Some agencies are "irrevocable". This will be the case where thepurpose of the relationship is to secure some interest of the agent; the
(Q.B.); ChiefMountain RealtyLtd. v. Aebli (1982), 47 Alta. R. 146 (Q.B.);RiclieldRealEstate Co. v. Terrace Corp. (Constr.) Ltd. (1982), 40 Alta. R. 467 (Q.B.); Terry MartelReal Estate Ltd. v. Lovette Invs. Ltd. (1981), 32 O.R. (2d) 790 (C.A.).
552 Bringing the property to the attention of the purchaser is not enough: Campbellv. Haliburton (Regina) Ltd. v. F.M. Constr. Ltd., supra, note 548. Compare InterlakeAgencies Ltd. v. Waddell (1983), 22 Man. R. (2d) 208 (Co. Ct.); George v. Efford (1981),33 Nfld. & P.E.I.R. 323, 93 A.P.R. 323 (Nfld. Dist. Ct.). Nor is it enough to bring thevendor and the purchaser together: Lewis v. Sincoe Real Estate Ltd. (1984), 33 R.P.R. 315(Ont. Prov. Ct. Civil Div.).
553 Moores v. Sequeira, supra, note 533. Unless the principal dealt directly with thepurchaser to avoid paying commission: Roycom RealtyLtd. v. Heim (1981), 47 N.S.R. (2d)364, 90 A.P.R. 364 (S.C.T.D.).
554 Compare the cases cited note 541, supra.555 (1981), 21 R.P.R. 313,129 D.L.R. (3d) 357 (Ont. H.C.). But if the commission
is paid it may be irrecoverable, since the agreement between the principal and agent isillegal and the parties are in pari delicto: Rosemay v. Nuberg & Dale Constr. Ltd. (1982),40 O.R. (2d) 152 (Div. Ct.).
556 Real Estate andBusiness BrokersAct, R.S.O. 1980, c. 431, s. 22.557 Real Estate Act, R.S.B.C. 1979, c. 356, s. 37(1).558 (1981), 26 B.C.L.R. 89, 121 D.L.R. (3d) 449 (S.C.).559 Krassman Realty Ltd. v. Paragon Realty Ltd. (1983), 45 Alta. R. 64 (Q.B.).560 Real Estate andBusiness BrokersAct, R.S.O. 1980, c. 431, s. 43(2).561 W.H. Bosley & Co. v. 353500 Ontario Ltd. (1980), 30 O.R. (2d) 759, 117
D.L.R. (3d) 409 (H.C.).
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principal will then not be able to dismiss his agent at will.562 Hence, in ReHartt Group Ltd. and Land Secs. Ltd. ,563 a landlord was entitled to re-enter premises "in the name of and as agent of the tenant". The tenantpurported to revoke the landlord's authority as agent. This was notpossible because the reason why the agency was created in the first placewas to secure the interest of the landlord in the premises.
If an agent is not given adequate notice, the relationship of theprincipal and agent will sometimes not be terminated. 564 This occurred inMetz v. Con-Stan Canada Inc.565 The agent had been employed for somethirteen years and the short time given for termination was not enough.The Court held that the employee ought to have been given at least twelvemonths notice of termination. Similarly, in Western Equip. Ltd. v. A.W.Chesterton Co. ,566 the agent ought to have been given ten months notice.The contract had been between two companies, one acting as sales agentfor the other in Alberta. Various factors were cited and discussed as beingrelevant to a determination of the proper period of notice in situations ofthis kind, including: the length of the relationship between the parties andthe type of relationship it involved, the extent of the sales effected by theagent, the importance of the exclusive arrrangement made by the agent tothe principal and the acquisition of inventory by the latter.
If a statute governs the relationship, termination can only be effectedunder its provisions. For example, in Adams-North Shore Ins. Servs. Ltd.v. Insurance Corp. of British Columbia,567 the suspension of the appoint-ment of the plaintiff as agent of the insurance corporation could only bepermitted for "just cause". This may involve some serious misconduct,habitual neglect of duty, incompetence or conduct that was irreconcilablewith the agent's duties or prejudicial to business. Cessation of operationsat a certain time of the year was not such a serious misconduct that it wouldjustify dismissal and, because of the statute, 568 the principal could notterminate the agency at will. 569
H. Other Matters
An agent's liability to third parties has been mentioned. Referenceshould also be made to the possibility that an agent acting withoutauthority may be liable on the basis of the agent's "implied warranty ofauthority". When this occurs, he will be liable to a person who relies on
562 LAW OF AGENCY, supra, note 441 at 349.563 (1984), 7 D.L.R. (4th) 89 (N.B.Q.B.).564 E.g., if the contract expressly or implicitly requires notice.565 (1984), 33 Sask. R. 3 (C.A.).566 (1983), 46 B.C.L.R. 64 (S.C.).567 (1982), 42 B.C.L.R. 218 (S.C.).568 Insurance (Motor Vehicle) Act, R.S.B.C. 1979, c. 204, s. 15(4).569 Normally the principal can terminate the agency at will unless the contract
expressly or implicitly requires that notice be given.
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his being an agent with authority to act in a certain manner. The sister ofthe owner of real estate was liable in this way when she signed a listingagreement for the sale of the property on her brother's behalf without hisauthority to do so. 570 Her act was not subsequently ratified and as a resultshe was personally liable.
An agent may also become involved in personal liability where heacts for an undisclosed principal. 57' Hence, a travel agent who dealt withclients on behalf of a wholesaler of tours (who was the undisclosedprincipal) may have been liable to the clients in damages when the trip wascancelled because the wholesaler went bankrupt. 572 But in Thorne RiddellInc. v. Rolfe,573 where no agency existed between the owners of units in aresidential building and the developer, it was held that the owners wouldnot have been liable on the transaction entered into by the developerbecause the latter had no authority to pledge the credit of the residenceowners. Only the developer could be bound by the agreement he hadmade. Thus, one who acts for an undisclosed principal may find himselfpersonally liable - notwithstanding the usual doctrine of agency - eitherbecause he is equally liable with his principal, or because he was notpossessed of the requisite authority to contract in the circumstances or tocontract in the way in which he did.
Finally, it should be noted that the Ontario Powers of Attorney Act 5 74
has been amended by the creation of a new Form which excludes certainprovisions of the Mental Health Act.575
570 Sanford v. Milburn (1983), 51 N.B.R. (2d) 137, 134 A.P.R. 137 (Q.B.T.D.).Contrast Russelsteel Ltd. v. Consolidated N. Drilling & Exploration Ltd., supra, note458; Still Creek Terminals Ltd. v. Karlsruher-Sanatorium A.G., supra, note 486.
571 Superior Devs. Ltd. v. Brown, supra, note 484. Compare IV. Rodgerson'sInsulators Ltd. v. Bezanson (1979), 39 N.S.R. (2d) 81, 71 A.P.R. 81 (S.C.A.D.); W.R.Benjamin Prods. Ltd. v. Saulnier, supra, note 485.
572 Cameron v. Maritime Travel (Halifax) Ltd., supra, note 484.573 Supra, note 450.574 R.S.O. 1980, c. 386, as am. S.O. 1983, c. 74.575 R.S.O. 1980, c. 262, as am. S.O. 1983, c. 75.
