Unified Auto Parts Inc. Plaintiff - v. -, 2022 SKPC 22

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2022 SKPC 22 Date: May 16, 2022 File: 20-1103 Location: Prince Albert _____________________________________________________________________________ Between: Unified Auto Parts Inc. Plaintiff - and - George Sterner Trucking Ltd. Defendant - and – Daniel Folster Third Party Ronald G. Parchomchuk For the Plaintiff Michael Mahon For the Defendant No one appearing For the Third Party ______________________________________________________________________________

JUDGMENT F.M. DAUNT, J ______________________________________________________________________________ INTRODUCTION [ 1 ] For 25 years, George Sterner Trucking Ltd. maintained a corporate charge account with UAP/NAPA, dealing with their Melfort location. Between January and December 2019, Daniel Folster purchased items from NAPA’s Prince Albert store and charged them to Mr. Sterner’s company account. Daniel Folster did not work for Mr. Sterner, who received none of the items purchased. In mid-December 2019, Mr. Sterner received a huge bill from NAPA and asked to see the individual invoices. He discovered that Mr.

Folster had been charging on the account. He notified NAPA that he was objecting to the charges and refused to pay the bills for November and December 2019. [ 2 ] The plaintiff is suing the defendant for the amount outstanding on the account, as well as prejudgment interest. The defendant added Mr. Folster as a party to this action, claiming re-imbursement for charges on account already paid, as well as for any judgment granted against George Sterner Trucking in favour of NAPA. Mr. Folster, duly served, has not responded to these proceedings.

FACTS [ 3 ] George Sterner runs a trucking, excavating, and hauling business out of Melfort, Saskatchewan, and has for 52 years. The plaintiff company operates NAPA Auto Parts stores in Prince Albert, Tisdale, and Melfort, Saskatchewan. For about 25 years Mr. Sterner has done business with the Melfort location, maintaining a corporate charge account, until this dispute arose. The evidence reveals a business relationship of mutual trust and respect. Mr. Sterner paid his bills promptly upon receipt. His wife or – during the winter when he was down south – his accountant, would cut a cheque and he would sign it.

It was not his practice to pore over individual invoices; he trusted NAPA to bill him fairly. [ 4 ] Scott Shkopich is the Chief Operating Officer of the plaintiff company. He testified that NAPA maintains different types of corporate charge accounts. Some utilize a Purchase Order system, which contains checks and balances to maintain the integrity of the account. Some accounts used a formal list of approved employees who could charge on the account. Some accounts used neither of those things. For accounts without a list, typically an employee or the owner would come in person to the store or call in an order.

George Sterner Trucking Ltd. had a charge account. He had no list of pre-approved employees and no purchase order system. Rather, according to Mr. Shkopich, “Whoever came in who represented the company, they would purchase the product, and they would sign, and they would leave.” Mr. Sterner never notified the company that charges must be pre-approved. Neither did NAPA contact Mr. Sterner to ask for pre-approval before a charge was made on the account. [ 5 ] In cross-examination, however, Mr. Shkopich admitted that Mr. Sterner would notify the Melfort store of which employees could charge on the account.

The Melfort store “would phone Head Office and they would get put onto the account.” At no time was NAPA notified that Daniel Folster could charge on the account. NAPA sent one monthly statement to Mr. Sterner’s company which covered purchases made from both Melfort and Prince Albert stores. [ 6 ] Mr. Sterner testified on behalf of the defendant company, located in Melfort. Mr. Sterner dealt primarily with the Melfort location. He would notify the store of which employees could charge on the account.

If an employee ceased working for him, he would call up the store and tell them that person was no longer allowed to charge on the account. He or his employees would pick up items at the store using the company charge account. If an item was unavailable in Melfort, the store would order it from Prince Albert, and it would be delivered to Melfort. Only on very rare occasions would Mr. Sterner or one of his employees deal in-person with the Prince Albert location. [ 7 ] Occasionally, Mr.

Sterner would allow an employee to charge personal items to the corporate account, on the condition that they pay him back promptly. The employee could then benefit from his corporate discount. [ 8 ] Daniel Folster is the adult son of a former employee of the defendant. Although Mr. Folster helped his father on one or two occasions, he was never Mr. Sterner’s employee. In fact, Mr. Folster stole a chain saw, so Mr. Sterner did not want him on the property. Nevertheless, in January 2019 Mr. Folster, representing himself to be an employee of the defendant, charged $50.91 to Mr. Sterner’s

account in the Prince Albert store, and $330.45 at the Melfort store. [ 9 ] Mr. Sterner, unaware, paid the account in full. In his testimony, he speculated that the Melfort purchases may have been made for Mr. Folster’s father, who may have reimbursed Mr. Sterner, but he could not remember. [ 10 ] Between January and October 2019, Mr.

Folster made the following purchases on the defendant’s account: January $ 330.45 Melfort $50.91 Prince Albert February $540.31 Prince Albert March $665.96 Prince Albert $76.40 Melfort May $253.64 Prince Albert August $200.43 Prince Albert September $317.92 Prince Albert October $1222.90 Prince Albert Given the volume of Mr. Sterner’s business with NAPA, and given that he received one monthly statement covering purchases at both stores, these amounts were initially small enough that Mr. Sterner did not notice anything untoward going on with his account. [ 11 ] In November, Mr.

Sterner and his wife travelled south to winter in warmer climates, as was their habit. In that month, Mr. Folster accrued $6,109.64 in debt, all at the Prince Albert store. On December 13, 2019, the accountant emailed the November bill to Mr. Steiner, asking if it was okay to pay. Mr. Sterner asked to see the invoices before authorizing payment of this bill. Meanwhile, Mr. Folster charged another $2,116.52 to the company account at the Prince Albert store. [ 12 ] During November and December 2019, Mr. Folster charged 46 separate invoices totaling $8,226.16 to the defendant’s account. Mr.

Sterner became aware that Mr. Folster made these purchases only after requesting and receiving copies of the disputed invoices. George Sterner Trucking Ltd. did not receive any of the items that Mr. Folster purchased. Mr. Sterner informed NAPA he objected to the statement and refused to pay the bill. [ 13 ] During these events, obviously Mr. Folster never informed NAPA he was not an employee and not authorized to purchase goods on the defendant’s behalf. Mr. Sterner did not inform NAPA that Mr.

Folster, specifically, was not authorized to charge purchases to the company account until he became aware of the fraud and refused to pay the bill. At no time did anyone from NAPA ask Mr. Sterner whether Mr. Folster was authorized to charge purchases to the defendant’s charge account. ISSUES [ 14 ] The main issue in this case is: who should bear the burden of Mr. Folster’s malfeasance, the one who trusted him (NAPA) or the one who did not (George Sterner Trucking Ltd.)? [ 15 ] The plaintiff submits that by paying items billed on invoices signed by Mr. Folster, Mr.

Sterner induced NAPA to rely on the apparent authority of Mr. Folster to charge to the account. The defendant is now estopped from claiming Mr. Folster had no authority to act on its behalf. He should have been more diligent and ensured store invoices were signed by authorized employees. [ 16 ] The defendant claims Mr. Sterner regularly notified the Melfort store of any changes to his authorized employees. He did not also notify the Prince Albert store because he did not deal with the Prince Albert store.

He says NAPA should have noticed the unusual nature of in-person store purchases in Prince Albert, which was far from typical for his business, and called Mr. Sterner to confirm Mr.

Folster’s authority, especially when the number and value of purchases escalated. ANALYSIS [ 17 ] The case is properly characterized as a contract for the sale of goods. As the contract was for an amount larger than $50.00, the plaintiff must show that the requirements found in

section 6 of the Sale of Goods Act , RSS 1978, c S-1 [ The Sale of Goods Act ] are satisfied. Subsection 6(1) states as follows: A contract for the sale of goods of the value of $50 or upwards shall not be enforceable by action unless the buyer shall accept part of the goods so sold and actually receive the same or give something in earnest to bind the contract or in part payment or unless some note or memorandum in writing of the contract is made and signed by the party to be charged or his agent in that behalf. [ 18 ] In Miller Farm Equipment

(2005) Inc . v Shewchuk , 2009 SKQB 170 , 335 Sask R 111 Sandomirsky, J. states at para. 53: In his text, Fridman, The Law of Contract , 3d ed. (similar to the 4 th ed.) (Toronto: Carswell, 1994) the author discusses The Sale of Goods Act at pps. 241-243 says: (

i) General For a contract to be enforceable under the Sale of Goods Act , one of three alternatives must be satisfied. The buyer must accept part of the goods sold and actually receive them, or the buyer must give something by way of earnest or in part payment, or there must be some note or memorandum signed by the party to be charged or his agent. . . . (ii) Earnest or part payment Earnest is something given by the buyer, at the time of the contract, and accepted by the seller as indicating the completion of the contract.

To be earnest it must be given outright by the buyer to the seller with no hope or intention of being returned. A part payment, on the other hand, is made after the contract and is not made as part of the process of contracting. It is a question of fact whether anything which may have gone from buyer to seller is given as either earnest or part payment. [ 19 ] Here, the buyer, George Sterner Trucking Ltd., did not receive the goods purchased by Mr. Folster. Neither did he “give something in earnest to bind the contract or in part payment.” He made no payment after Mr. Folster’s fraud was discovered.

There was a note or memorandum of the purchases, signed not by Mr. Sterner or an authorized employee, but by Mr. Folster. [ 20 ] Under

section 6 of The Sale of Goods Act , an agent acting within his authority can bind a principle and render the contract enforceable. Here, Mr. Folster had no actual authority to act for the defendant company. The plaintiff must therefore prove the defendant is liable due to the apparent or ostensible authority of Mr. Folster to act on its behalf. [ 21 ] I accept this statement of the law found in Halsbury's Laws of Canada (online) - Commercial Law I ( Agency ), “Authority of an Agent,” III.4 at HAY-46 “Extent of Agent’s Authority.”: Apparent or ostensible authority.

Various authors use different terminology in describing what authority other than actual authority can bind a principal to the conduct of its agent. Under the principle of ostensible authority, if a reasonable person in the place of a “third party” would have believed that the person (the agent) who approached him or her was acting within the agent’s authority, the principal will be bound. The question in each case becomes whether a reasonable person in the place of the third party would have believed that the agent was acting within the agent’s authority as an agent.

Ostensible or apparent authority is based on the doctrine of estoppel and creates a legal relationship between the principal and a third party by means of a representation made by the principal to the third party, intended to be and in fact

acted upon by the third party in whole or in part. In the absence of such a representation, ostensible authority cannot exist. In theabsence of actual authority or ratification, a principal is not bound by the act of his or her agent done out of the ordinary course ofbusiness, or outside the scope of the agent’s apparent or ostensible authority. Where agent acts fraudulently. The principal may even be bound where the agent has acted fraudulently. In such a case, the court’sproblem may be to assess liability as between two equally innocent and wronged parties, injured at the hand of the fraudulent agent.

However, where there has been no conduct or representation by the principal to suggest to the outside world that the fraudulent agentwas its agent, the principal will not be bound. When actual authority of an alleged agent has been negatived, a plaintiff seeking to holdthe alleged principal liable on the basis of ostensible authority either must show a holding out by the principal of the alleged agent assuch or must give proof of some custom on which ostensible agency can be predicated. [22] Applied to the case at bar, Mr. Sterner is the “principle,” Mr.

Folster is the “fraudulent agent,” and NAPA is the “thirdparty.” [23] In Toronto-Dominion Bank (TD Canada Trust) v Currie, 2017 ABCA 45, 48 Alta LR (6th) 40, the Court summarizes therelevant principles at paragraphs 6 and 7 as follows: When an agent acts within his or her actual authority, the principal is bound by the acts of the agent, even if fraudulent: Martin vNational Union Fire Insurance Co., (AB CA), [1923] 3 WWR 897 at p. 904 (Alta SC App Div), affirmed NationalUnion Fire Insurance Co v Martin, (SCC), [1924] SCR 348. However, where the principal alleges that the actor either(

i) was never an agent or (ii) was an agent but acted outside his or her actual authority, the question becomes whether the agent hadostensible authority. The answer depends on whether the principal has, by words or deeds, held out the agent as having the authority todo the challenged act: Doiron v Manufacturers Life Insurance Co., 2003 ABCA 336 at paras. 15-6, 20 Alta LR (4th) 11, 339 AR 371. The law has established a number of principles about ostensible authority of an agent: (

a) Representations about the authority of the agent must come from the principal; an agent cannot clothe himself or herselfwith authority: Jensen v South Trail Mobile Ltd., 1972 AltaSCAD 29 at para. 21, [1972] 5 WWR 7, 28 DLR (3d) 233; (

b) The onus is on the person who is relying on the act of the agent to prove ostensible authority; (

c) However, when the agent has actual authority, but that authority is subject to limitations, the onus is on the principal to provethat the limitations were conveyed to the third party who relied on the agent: Kohn v Devon Mortgage Ltd., 1985 ABCA 10 at para.3, 37 Alta LR (2d) 20, 65 AR 73(CA); (

d) These general principles apply to the specific situation where a debtor pays money to the agent, rather than directly to theprincipal, as happened in this appeal: Kohn v Devon Mortgage. [24] Mr. Folster cannot clothe himself with authority. He made false representations to NAPA to allow himself to make fraudulentpurchases. Mr. Folster is clearly liable for the purchases he made in the defendant’s name. The only question is: to whom is he liable? To the plaintiff or to the defendant? [25] Mr. Sterner had a trusting business relationship with NAPA.

He promptly paid his monthly bills in full, without requesting tosee each individual invoice to see who had signed for it. It was only when the bill was so high as to cause him concern that he realizedDaniel Folster was charging purchases to his account. As soon as he discovered this, he notified NAPA, and stopped using his account. Mr. Sterner’s employees routinely charged items in the Melfort store, but rarely in the Prince Albert store. When that pattern changed,NAPA should have ensured Mr. Folster had authority to charge on the account before allowing him to do so. [26] I find the fact that Mr.

Sterner paid his bills, including charges incurred by Mr. Folster, before he was aware of the fraud, doesnot amount to “a representation made by the principal to the third party, intended to be and in fact acted upon by the third party in wholeor in part.” Certainly, Mr. Sterner never intended NAPA to act on Mr. Folster’s fraudulent representations. No words or conduct on hispart would induce a reasonable person to believe Mr. Folster worked for him or otherwise had authority to conduct transactions on hisbehalf. Neither did he “permit” Mr. Folster to conduct these transactions. While Mr.

Sterner might have been more diligent in checking

his account for unauthorized purchases, this did not amount to permission, nor to a representation that Daniel Folster had authority to act on his behalf. An ex post facto erroneous payment does not satisfy the plaintiff’s burden of establishing ostensible authority. [ 27 ] I find the defendant, George Sterner Trucking Ltd., not liable for Mr. Folster’s purchases in November and December 2019. The final statement did include legitimate purchases; the defendant must pay for those. The total amount billed on the last statement from NAPA claims Mr. Sterner’s company owes them $12,791.92.

Included in the last statement was “SVC CHG” in the amount of $250.82. The service charge was not explained to the Court, and no evidence was led to support it. I therefore disallow that charge. Discounting Mr. Folster’s purchases on that statement, then, the following represents the status of the defendant’s account: November 2019 $3,662.01 December 2019 +862.50 ROA January 2020 – 209.57 __________ Total $4,314.94 [ 28 ] Counsel for the defendant asks this Court to set off the purchases incurred by Mr. Folster between January and October 2019 and paid in error by the defendant before the fraud was discovered.

The defendant did not counterclaim against NAPA for those amounts, although he did include them in his Third-Party claim against Mr. Folster. The defendant may not now recover from NAPA the amounts previously paid on the account for Mr. Folster’s fraudulent purchases. Those payments were made “in earnest to bind the contract” or in “part payment.” Based on the evidence before this Court, the defendant’s remedy is against Daniel Folster, not UAP/NAPA. I do find Daniel Folster liable to pay the defendant $3,252.07, being the amounts paid to the plaintiff for charges incurred by Mr.

Folster before the fraud was discovered, not including the three Melfort invoices tendered as P-2 on the trial, which may or may not have been an authorized use of the account by Mr. Folster’s father. [ 29 ] Both parties enjoyed a relationship of trust. Sadly, that trust created an atmosphere where a rogue was able to take advantage. Although both parties could have done things differently, both parties are innocent victims of Mr. Folster. CONCLUSION [ 30 ] I order judgment for the plaintiff as against the Third Party, Mr.

Folster, in the amount of $8,226.16, plus interest pursuant to The Pre-judgment Interest Act , SS 1984-85-86, c P-22.2 [ The Pre-judgment Interest Act ] from January 31, 2020, plus $100.00, being the plaintiff’s cost to issue the summons. [ 31 ] I order judgment for the plaintiff as against the defendant, George Sterner Trucking Ltd., in the amount of $4,314.94 plus interest pursuant to The Pre-judgment Interest Act from January 31, 2020. [ 32 ] I order judgment for the defendant as against Mr. Folster in the amount of $3,252.07. Mr.

Folster shall also pay interest pursuant to The Pre-judgment Interest Act from November 30, 2019, as well as $100.00, being the defendant’s costs for issuing the Reply and the Third Party Claim. Dated this 16th day of May, 2022, at the City of Prince Albert, in the Province of Saskatchewan.

__________________________ F.M. Daunt, J