. . ''

Cases and Materials on Restitution

Edited by

John D. McCamus Dean

Osgoode Hall Law School

and

Peter D. Maddaugh of the Ontario Bar

1983 - 84 Edition

FOR STUDENT USE ONLY NOT FOR COMMERCIAL SALE

1983 - 84

Osgoode Hall Law School of York University

( i i )

Part I II Restitutionary Remedies ....... .. .. ..... .. . ......... .. .. . . A. Common Law Remedies ...... .... . .................... . .. .

(i) Tracing Property other than Money .......... .. . (ii) Tracing Money .................. . ...... . .. . . .. .

B. Equitable Remedies .... . ... . .................... .. . .

(i) The Constructive Trust . .............. ... . . . . . (ii) Th . b . e Equ1ta le Lien ................... . .. . . . .. . (i1·1·) T . . racing in Equity ...................... .. . ..

C. Concurrent Remedies .... . ......... . .... .... . ... . . . . . . .

(i) Subrogation ........ . ... . .. . .. . ........... . ... . {ii) Contribution .......... .. ..... . ......... . . . ... .

.~

927

927

927 942

957

957 989 990

1004

1004 1077

(iii )

Cases and Materials on Restitution

. Table of Contents

PART I Introductory Materials

Introduction . ........... . ................. . ..... . ....... . Samek, Unjust Enrichment, etc ......... . . .... . .... . . ..... . Restatement of Restitution . ............................. . Moses v. McFerlan . . ............ . . . .. . .......... ....... . Sinclair v. Brougham .......................... . ..... . . . Deglman v. Guaranty Trust Co ............................ . Saint John Tugboat v .. · Irving Refinery .......... . ... . . . . . Pettkus v. Becker ................ . ............ . .......... .

l 2 4

13 17 31 35 38

PART II THE SUBSTANTIVE GROUNDS FOR RESTITUTIONARY RELIEF

1. RESTITUTION OF BENEFITS CONFERRED UNDER MISTAKE

A. Mistake of Fact

Royal Bank of Canada v. The King .. ........ .. ..... 55

(a) An Honest Mistake

Ke 11 y v. So 1 a r i . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Clark v. Eckroyd .. . . .. . .. . .. .. .. .. . .. . .. .. .. 64

(b) Between the Parties

Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

(c) A Supposed Obligation to Pay

Larner v. London County Counci 1 . . • . . . . . . . . . . 69 Lady Hood of Avalon v. MacKinnon . ........ .. . 71

{d) . No Equity in the Defendant to Retain Paym_~ .~!

Krebs v. World Finance Co. Ltd. . . . . . . . . . . 75 R.E .. Jones v. Waring & Gil low Ltd. . . . . . . 79 Deutsche Bank v. Beriro .... . .... ··· ····· · ·· · 90 Unfted Overseas Bank v. Jiwani ... ......... · · 92 Rural Muni'cipality of Storthoaks v. Mobil Oil Canada Ltd ..... . ......... . ...... . · 94

••

(iv}

(e) A Restatement

Barclays Bank v. W.J. Simms Son and Cooke Ltd . .... ... ... ............. ...........

B. Mistake of Law Bilbie v. Lumley and Others . 0' Grad C · t f T • • • · · • · · · • · · · • • · · · · · · y v. 1 y o oronto .... . . ............ .... .

(a) Distinguishing Between Mistakes of Law and Fac t

Eaglesfield v. Marquis of Londonderry . ..... . Macfarlane and Wellington Hotel v. Kennedy .. George (Porky) Jacobs Enterprises Ltd . v. City of Regina .. . ............... .. ...... .

(b} Exceptions to the Rule in Equity

Note .. ... . ........... ..... . .. . ............. . Eadie v. Township of Brantford . .. .......... . Keddy v. Power .......... . ... .. ..... . .... ... .

(c) A Restatement?

Hydro-Electric Commission of Nepean v. Ontario Hydro ..... . .......... . . . ........ .

C. Recovery of Other .Benefits Conferred Under Mistake ( i ) Improvements to Land

Montreuil v. Ontario Asphalt Co .. ...•.•..... (ii ) Improvements to Chattels

Greenwood v. Bennett et al . •......... . ... •••

2. RESTITUTION OF BENEFITS CONFERRED UNDER INEFFECTIVE TRANSACTIONS

(i) Informality

Deglman v. Guaranty Trust Co .. .. ..... ...... . Sigvaldson v. Hitsman . ....... .. .... .. ...... . McCall um. v. MacKenzte ... .. ...... . .... . .. .

(ii) Illegality

106

118 ·11 9

121 122

126

128 129 135

139

159

176

31 182 185

Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

(v)

., . (a) Enforcement of Collateral Rights

Bowmakers v. Barnet Instruments ....... .. ... . Belvoir Finance v. Stapleton .. ..... ... .... . .

(b) Exceptions to the General Rule Denying Restitution Kiri ri Cotton Co. Ltd. v. Dewani ....... .... . Hasiuk v. Oshanek ................. . . . ... .. . . Steinberg v. Cohen ......................... . Kasumu and Others v. Baba-Egbe . ... . ..... .. . . Sidmay Ltd. et al . v. Weh ttam Investments Ltd. Ciz v. Hauka ...... ....... ...... ..... .. . . ... . Berne Developments Ltd. v. Haviland et al . . . Bigos v. Boustead ........ .. ................ .

(c) The Rise and Fal1 of Subrogation

Congresbury Motors v. Anglo-Belge Finance Orakpo v. Manson Investments ... . .. . ..... . . . .

(iii) Incapacity

(a) Ultra Vires Contracts

Note ....... . . .. ..... ..................... .. . Trades Ha l l Co. v. Erie Tobacco Co . ........ . Breckenridge Speedway et al. v. The Queen

(b) Mental Incompetence

Note . . .... . ... . ... . ..... . ... ... ........ .... . Wi 1 son v. The King ... ..... .... . .. ... .. . . .. . .

(c) Minors' Contracts

Note .. . . . . .. .... ... . ... . .. .. . ..... .. ... .. .. . R. Leslie Limited v. Shei l l ................ . Murray v. Dean .... ... ................. .. ... . Bo~Lassen v. Josiassen . ... . . . . . ............ .

(iv) Want of Authority

Craven-El lis v. Canons Ltd ... . ............ . . Hazelwood et al. v. West Coast Securities Ltd.

(v) Misrepresentation

(a) Executed Contracts

197 203

209 215 218 229 236 247 251 263

270 27 5

281 283 297

317 318

338 341 355 356

361 365

Leaf v. International Gal l eries . .. . .. .. ..... 373 Bevan v. Anderson et al. ........ . . . ....... . . 377 Misrepresentation Act (U.K.) .. .. ..... . . ... . . 387 The Business Practices Act (Ont.) .. .. ... . . 388

' l

,i ! 1 l j

1 I

(vi)

(b) Consequential Relief, Indemnity

Wiley et al. v. Fortin et al.

(vi) Mistake and Uncertainty

(a) Mistake

Note .................... . . . . . ..... . .. . . . . . . · Boulton v. Jones .. .. ................. . .... . Cooper v. Phibbs ........... . ......... . .... . Solle v. Butcher ....... . . .. ... .... ...... .. . McCarthy Milling Co. Ltd. v. Elder Packing Co. Ltd . ....... . .... . ..... . . . James More & Sons Ltd. v. University of Ottawa ... .. ............ . .... . .

(b) Uncertainty

Estok v. Heguy ..... . .. . .. .. .......... . .. . .

(vii) Discharge by Breach

(a) The Rights of the Innocent Party

Hunt v. Silk .. . ............. . . . ........ ... . Planche v. Colburn and Another ........ .... . .

{b) The Rights of the Party in Breach

Sumpter v. Hedges .. .. .... . · ........ . ... . . Fairbanks Soap Co. Ltd. v. Sheppard ..... ... . Stockloser v. Johnson ... : .............. .. .

(viii) Frustration

The Frustrated Contracts Act (Ont.) ~ . ... ... . The Frustrated Contracts Act (B.C.) ..... ... . Parsons v. Shea ... . ......... . . . . . ....... . .. . Angus v. Scully . . . .. ........ . .... . .. . ... ... . B.P. Exploration Co. v. Hunt (No. 2) . . ... . . .

{ix) ~nticipated Contracts and Gifts

(a) Contracts

Brewer Street Investments v. Barclays Wooll en

(b) Gifts

Rowe v. Public Trustee .................. . .

393

397 398 400 405

412

417

428

432 436

436 438 442

447 449 452 457 458

499

506

3.

(vii )

., .

RECOVERY OF THE PROFITS OF WRONGDOING

(i) Criminal and Quasi-Criminal Acts

Note . .. . ........... . .... . ... . ..... ......... . Re Johnson ........ .... .. ..... .. .... .. . ... .. . Schobelt v. Barber ................ ... ...... . Gray v. Barr . .. ..... . .. . . . .......... . ...... .

(ii) Waiver of Tort

Note .. .. ........ . ........... . . ... . ... . . . ... .

(a) The Election Problem

United Australia Ltd. v. Barclays Bank Lt d. Mahesan v. Malaysian Gov't Housing Society ..

(b) The Scope of the Doctrine

Phillips v. Homfrey ............ . ........ .. . bani el v. O'Leary .......... . ........... .. . . .

(c) The Measure of Recovery

Olwell v. Nye & Nissan Co .

(iii) Compulsion

(a) Duress

Note ... .. . . . .. . . . . .. ................. . .. . . . . Skeate v. Beale ......................... ... . Fuller v. Stoltze .. . ......... . . . ..... ...... .

{b) Practical Compulsion

512 513 520 525

532

533 560

567 580

582

586 588 592

Knutson v. Bourkes Syndicate ............ ... . 606 Peter Kiewet Sons Co. of Canada Ltd. et al . v. Eakins Construction Ltd. . . . . .. .. . . . . . . . . 611 The 'Siboen' and the 'Sibotre' . . . . . . . . . . . . . . 620 North Ocean Shipping v. Hyundai . . . . . . . . . . . . . 623 Pao On et al. v. Lan Yiu et al. . . . . . . . . . . . . . 633 Morton Construction v. City of Hamilton . . . . . 642 George (Porky) Jacobs Enterprises Ltd. v. City of Regi'na . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4 8 Eadie v. Township of Brantford . . ..... . ... . . . 649

I 1,

i .{ I

(viii)

(c) Undue Influence

Note ............ . ....... . ..... . ........... · . McKenzie v. Bank of Montreal et al ........ . .

(iv) Breach of Fiduciary Duties

(a)

(b)

(c)

Note . .......... . ................. . .. .. ..... .

Establishing a Fiduciary Relationship

Midcon Oil and Gas Ltd. v. New British Dominion Oil Co. Ltd ..... . ............. . . . . . Jirna Ltd. v. Mister Donut of Canada Ltd ... . Pre -Cam Exploration & Development Ltd. et al. v. McTavish et al . . ... . .... . ..... .. .. . ..... .

The Duty of Loyalt~

Mcleod and More v. Sweezy . . . . . . . . . . . . . . . . . . . Breach of the Duty of Loyalty

Reading v. Attorney-General . . . . . . . . . . . . . . . . . Canadian Aero Services Ltd . v. O'Malley .. . ..

(d) Liability for Breach of the Duty of Loyalty

Note .... . .......... . ...... . ........ . .. . .... .

(v) Unconscionable Transactions

Waters v. Donnelly .... . . . .... . ............. . Gaertner v. Fiesta Dance Studios ... . ....... .. Clifford Davis Management Ltd. v. WEA Records Ltd. . . .. . ..... . .............. . .. . Morrison v. Coast Finance Ltd . . ...... . .. . .. .

(vi) Other Fo.rms of Equitable Wrongdoing

Unsworth v. Grant ........................... (a) Hiding Behind The Statute of Frauds

Note . ...................... . ......... . ..... .

(b) Dishonoured Undertakings: Interests in Land

Note . . ..... . .. . ...... . ..................... . Bi nions v. Evans . . . . . . . . . . . . . . . . . . . . . . . . . . .

667 ti83 .

694

698

703

708

723

725 731

734 737

742

751

753 754

4 .

5 .

(ix)

(c) Dishonoured Undertakings: Restrictive Covenants

Note ... . .... . .... . . • . .. ........ .- .... .. ·.:;' :. ~ ·~ .. 758 Canadian Brotherhood of Railway and General Workers v. B.C. Airlines Ltd ........... . ... .

(d) Abuse of Confidence

Saltman Engineering Co. Ltd. v. Campbell Engineering Co. Ltd .................... . ... .

(e) Refusal to .Share Spousal Assets on Separation

Rathwe11 v. Rathwell .... . ....... . .......... . Pettkus v. Becker ...... . ....... . .. . ....... . .

COMPULSORY DISCHARGE OF ANOTHER'S LIABILITY

Moul e v. Garrett .................................. . · . D & J Motors Ltd. v. Ellis .................. . ....... . Brooks Wharf and Bull Wharf Ltd. v. Goodman Bros . ... . County of Carleton v. City of Ottawa .. . ........ . ... . . General Security Ins. Co. of Canada v. Howard Sand & Gravel Co . Ltd ............. .. .. . .. . Lambert Implements Ltd. v. Parde11 et al. ...... .

UNREQUESTED BENEFITS AND THE VOLUNTEER

(a) Agency of Necessity

760

772

775 38

793 794 798 802

808 815

Hastings v. Village of Semans ........ 820

(b) Preservation of Life

Matheson v. Smiley .....•... . . . ... . ... Attorney-General for British Columbia v. Parklane Private Hospital Ltd .....

(c) Preservation of Property

Nicholson v . Chapman ............. . .. . Sherr in v. Haggerty ....... . .- ..... . • .. In re Pike ............. . ............ .

(d) Voluntary Discharge of Another ' s Obligation Norton v. Haggett ................... . Falcke v. Scottish Imperial · Insurance Co . ................ . ...... . Owen v. Tate et al ....•. .. . . ....... . .

(e) The Self-serving Intermeddler

824

828

835 837 841

843

845 857

Felton v. Finley ..•......• . .......... 864 Nicholson v. St. Denis et al . . ....... 870 Mechanical Contractors Association of Ottawa v. J.G. Rivard Ltd ..... . .. 874

l J . ! '

(x)

6. Restitutionary Liability of Public Authorities

W- 11. Wh. 1 1 am 1 te 1 y Ltd . v . R. . ... . ........ .. ...... . Mason v. New South Wales . ..... . ............ . ... . Hydro Electric Commission of the Township of Nepean v. Ontario Hydro . . ...... . . . .. .. . ........ . Amax Potash Ltd. v. Govt. of Saskatchewan .. .. . . .

PART III RESTITUTIONARY REMEDIES

A. COMMON LAW REMEDIES

Note .. ...... ... .. ... ............... .. .. .......... .... ( i ) Tracing Property other than Money

(a) Access io

Firestone Tire & Rubber Co. of Canada Ltd. v. Industrial Acceptance Corp . Ltd ..... . ... . Jones v. De Marchant ...... . ............... . .

(b) Confusio and Commixtio

Lawrie v. Rathbun

(c) Specificatio

Si l sbury and Calkins v. Mccoon and Sherman . .

(ii) Tracing Mone~

Note ...... . . . ....... . ... . .... . . . .......... . . Taylor v. Plumer ... .. ..... . . · .......... . . . ... . Banque Be l gue pour l ' Etranger v. Hambrouck ..

B. EQUITABLE REMEDIES

(i) The Constructive Trust

Note

(a) Those Arising out of Express Trusts

Ankcorn v. Stewart ............. . ... . .. . .... .

(b) Those Arising out of Other Fiduciary Relationships

Note . t ~ ••• ~ • , ••••• , • , •• • ••••• ~ ••• • • • ••••••• •

(c) Those Arising out of Fraud

McCormick v. Grogan .. . .... . ................ . Pahara et al. v. Pahara .................... .

878 881

889 916

927

928 931

935

939

942 943 947

957

959

. 962

964 965

(xi) • • ·f •

(d) The Constructive Trust as a General Remedy

Craddock Bros. v. Hunt .................... . Hussey v. Pa lmer ... . . ....... . .. . ..... . .. . . . Ra thwe 11 v. Ra thwe 11 ...... . .... . . . ........ . Pettkus v. Becker ... . ..... . ............... . Chase Manhatten Bank v. Israel -British Bank

(ii) The Equ i tabl e Lien

Note ..... .. ............................. . . . Montreuil v. Ontario Asphalt Co.

(iii) Tracing in Equity

969 975 775

38 979

989 159

Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990

(a) When does the Right to Trac~ in Equity Ari se?

Re Hallett's Estate ...... .. .. . ... . ....... . Sinclair v. Brougham ...... ~ . .... . ......... . Nebraska National Bank v. Johnson .. .. ..... . Chase Manhatten Bank v. Israel-British Bank

(b) When will the Right to Trace in Equity be Lost?

The Rule in Clayton ' s Case ........... . .... . The Rule in Hallett's Case ........... ... . . . The Rule in Re Oatway . . . : . ..... .. ......... . The 'Lowest Intermediate Ba lance ' Rule .... . The Available Remedies . ...... . ... . ........ . Competing Beneficial Owners . ... . . . . . ...... . The Innocent Vol unteer ... . . . .. ............ .

C. CONCURRENT REMEDI ES

(i) Subrogation

Note ... . . . .. . . . .... . .......... . . . . . .. . .... .

(a) Subrogation of the Plaintiff to the Rights of the Payee Against a Third Party

Weldon v. Canadian Surety Co ...... ... . . ... . Bayda v. Canada North Dakota Land Co. Ltd . et a 1 . . ............ .. .... . ........ . ....... . Re Okotoks Mil li ng Co. Ltd ........ . ...... . Brown v. Mclean ...... . . . .. . . . .. . . . . . . . . . .. . Traders Realty Ltd. v. Huron Hei ghts Shopping Pl aza Ltd .... . .... . ... . ... .. ..... . ... . . . . . .

991 992 993 979

996 996 998 998

1000 1001 1002

1004

1006

1018 1020 1021

1025

(xii)

(b) Subrogation of the Plaintiff to the Rights of a Third Party Against the Payee ..

Bank of Nova Scotia v. Kelly . .. ....... . .. · · · Reversion Fund and Insurance Co. Ltd. v. Mai son Co sway, Ltd. . . . ........... · · · · · · · · · · · Congresbury Motors Ltd. v. Angl o-Belge Finance Co. Ltd . ... . .... · · · · · · · · · · · · · · · · · · · · Orakpo v. Manson Inv .. . ...... . . .. . . . ... · · · · ·

(c) The "Officious" Subrogee

Campbell Auto Finance Co. v. Warren ...... · · · Re Cleadon Trust Ltd ... . ..... . . .. . .. . . . . .. · ·

(ii) Contribution

Brook' s Wharf and Bull Wharf Ltd. v. Goodman Bros . . ..... . ..... . ... . · · · · · : · · · · · · · · Continent al Insurance Co. v. Prudential

.Insurance Co. Ltd. of England . . .. . .. .. ... · · ·

1028

1046

2 .70 275

1062 1069

798

1077

PART I ., .

Introduction

In historical terms , the practice of organizing legal rul es into collections which we look upon as "subjects" of the substantive l aw is a rel atively recent phenomenon. The rise and fal l of the medieval writ system and the reformul ation of the l aw q.evel oped by the courts of common 1 aw and equity into · tts modern form is properly the subject of a course in the history of Engl ish l egal doctrine. It is sufficient for our purposes to note simply that this evol utionary process did not proceed at the same pace in al l areas of the law. Al though it was easily seen that the rul es rel ating to the enforcement of undertakings coul d be useful ly brought together and described in one place, recognition of the uni ty of what we now view as tort law was a more difficult matter . In 1871, O.W. Holmes Jr . , greeted a new edition of Addison on Torts with this remark: ··we are incl ined to think that torts is not a proper subject for a law booK ft (Goff and Jones, p.5, n8). In 1931, Winfield offered a general defini tion of the nature of tortious l iability which has been widel y adopted. Interestingly, however, hi s approach was rejected by one contemporary reviewer in the fol l owing manner:

"The truth is that there cannot be a tort unti l there is a wrong for which a remedy by trespass'· case or detinue would have been given [i .e. , at common law prior to 1852]. The criteri on i s empirical, not a priori. But it enables one to give a perfect definiti on- per genus et differentiam A tort is a ci vi l wrong (that is tfie genus)-wh1ch 1s differentiated from other ci vi l wrongs (there is only one other : breach of contract) by reference to the remedies which the common law created. 11

P.A. Landon (1931), The Bel l Yard, Nov . , p. 32) .

It i s, of course, now generdlly recognized that the various sub- branches of the l aw of tort have more in common than . their historical origins in certain forms of action (See C.A. Wright, The Province and Function of the Law of Torts in Linden (ed.) Studies in Canadian Tort Law, p. 1).

The l aw of restitution has not yet achieved recognition of thi s kind . Some lawyers and juri st s would argue that t he di sparate strands of law and equity which have been woven together by the students of resti tuti onary law are simply not suffi ciently inter-rel ated to warrant treatment between the covers of one book . Indeed , even those who agree that it is sound to recognize and devel op a "subject" of thi s kind have not been able to reach agreement as to the boundaries of the subject or as to i ts most appropriate name. Accordingly,