Banks not liable for conversion where payees on cheques not fictitious or non-existing

Supreme court | Bills of Exchange and Negotiable Instruments | Cheques | Forged or unauthorized cheques

Former employee in plaintiff’s finance department committed fraud by requisitioning numerous cheques payable to six entities, two he invented and four which were current or former customers of plaintiff. None of entities were owed any money by plaintiff and former employee had no authority to requisition cheques or approve payments to customers. Cheques were issued by plaintiff’s accounts payable department and negotiated by banks into accounts opened by former employee and his associates. Plaintiff sued banks for damages for conversion. Each party brought motion for summary judgment. Plaintiff was granted judgment in amount of $5,483,249.40. Banks successfully appealed. Plaintiff appealed. Appeal allowed. Decision of motions judge was restored. Plaintiff was not complicit in fraud. Though only four of names used were those of existing customers, the other two names used were very similar to names of plaintiff’s real customers. Motions judge found that there was rational basis for concluding that cheques were apparently made payable to existing clients, and that payees could plausibly be understood to be real entities and customers of plaintiffs. As a result, payees were not fictitious or non-existing.

Teva Canada Ltd. v. TD Canada Trust (2017), 2017 CarswellOnt 16542, 2017 CarswellOnt 16543, 2017 SCC 51, 2017 CSC 51, McLachlin C.J.C., Abella J., Moldaver J., Karakatsanis J., Wagner J., Gascon J., Côté J., Brown J., and Rowe J. (S.C.C.); reversed (2016), 2016 CarswellOnt 1483, 2016 ONCA 94, K.M. Weiler J.A., John Laskin J.A., and E.A. Cronk J.A. (Ont. C.A.).

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