Banking (international)

• Author: International Law Group, PLLC
• Pages: 132-136

Page 132

The Plaintiffs, Audie Hashka (AH) and Paul Backman (PB), owned interests in BMP Global Distribution Inc. (BMP) The Plaintiffs had a meeting with Sunn Newman (SN) in the United States. SN was allegedly associated with a concern called Sunrise Marketing(SM), a company operating in British Columbia that distributed non-stick bakeware without any formal license or written agreement with its supplier. Eventually, upon oral agreement by long distance telephone from the U.S. to Canada, SN offered to buy the rights to distribute BMP's bakeware in the United States for US$1.2 million.

AH next went to a Bank of Nova Scotia (BNS) branch , where BMP held an account. There he deposited an unendorsed check for C$904,563 that was payable to BMP and drawn on the account of a corporation at the Royal Bank of Canada (RBC). This bank initially put a hold on the funds; but it ultimately released and paid them out . The check later turned out to be counterfeit, all endorsers' signatures having been forged. The BNS then froze the Plaintiffs' bank accounts and executed a charge back in favor of RBC .

The Plaintiffs next sued for the recovered amount, alleging that BNS had breached their banking contracts. The trial judge ordered BNS to pay the Plaintiffs the total of the amounts debited or $777,336.04 in damages. BNS successfully appealed the trial judge's decision and the Plaintiffs unsuccessfully cross-appealed, seeking punitive damages.

The Plaintiffs further appealed to the Supreme Court of Canada and the Defendants cross-appealed on the issue related to tracing the amounts in the Plaintiffs' bank accounts. In a scholarly opinion, the Court dismisses the appeal and the cross-appeal. In sum, the Court boils this case down as dealing with the restitution of amounts paid by RBC under a mistake of fact.

"The test laid down [by the English case law] for recovering money paid under a mistake of fact is straightforward. If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact. His claim may however fail if: (a) the payor intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; (c) the payee has changed his position in good faith, or is deemed in law to have done so."

"The right of BNS to resist the claims of the Appellant and the Cross-respondents cannot be examined without regard to RBC's right to ask BNS to transfer the funds. Consequently, RBC's position is the starting point for the analysis."

"On the first step of the [English] test, RBC has a prima facie right to recover. It is common ground that payment was made on the basis of a forged instrument. According to § 48(1) of the Bills of Exchange Act, (BEA), a forged signature is wholly inoperative. It does not create a right to give a discharge for the bill or to enforce payment. RBC made the payment before discovering that the drawer's signatures were forged. BMP no longer disputes the fact that the instrument is a forgery,

Page 133

but it contends that RBC must bear the loss and that BNS was not entitled to restrain the funds and transfer them to RBC. This argument goes to the second step of the test. At the first step, there is no basis for denying that RBC has a prima facie right to recover the funds." [¶¶...