CANADIAN IMPERIAL BANK OF COMMERCE PLAINTIFF (DEFENDANT BY COUNTERCLAIM) - v. -, 2003 SKQB 136

2003 SKQB 136 Q.B.G. A.D. 2000 No. 1241 J.C. R. IN THE QUEEN’S BENCH JUDICIAL CENTRE OF REGINA BETWEEN: CANADIAN IMPERIAL BANK OF COMMERCE PLAINTIFF (DEFENDANT BY COUNTERCLAIM) - and - DARYL LOWENBERG DEFENDANT (PLAINTIFF BY COUNTERCLAIM) Deron A. Kuski for the plaintiff David G. MacKay for the defendant JUDGMENT ZARZECZNY J. March 25, 2003 INTRODUCTION

[ 1 ] Canadian Imperial Bank of Commerce (“CIBC”) commenced an action May 1, 2000 against the defendant Daryl Lowenberg (“Lowenberg”) seeking to recover the balance due and owing by Lowenberg on his Visa account. The amount claimed was $16,676.99 but with interest stood at $20,283.62 as of January 13, 2003, the date the trial of this action commenced. [ 2 ] The defendant Lowenberg subsequently defended and counterclaimed in the sum of $179,847.27.

He alleged that between October 16, 1998 and June 30, 1999 payments were made by cheques drawn upon his corporate or personal farm accounts totalling this amount payable to Visa which were in fact credited to the Visa account of his then common law spouse and business administrator, Caron Oderbien (“Oderbien”). Lowenberg’s defence and, more to the point, his counterclaim are based upon claims of negligence, conversion, breach of contract, breach of constructive trust and estoppel. [ 3 ] The counterclaim became the focus of the evidence presented at the trial.

The parties stipulated that the claim and counterclaim be tried concurrently. Agreement was reached respecting the quantification of the amounts claimed. THE FACTS The Lowenberg Businesses [ 4 ] Lowenberg resides on a farm north of Grenfell, Saskatchewan and has done so since 1977. During times relevant and material to this action, namely, 1998 and 1999, he farmed approximately 4,000 acres of land assisted primarily by his son, Darcy. [ 5 ] He is also the principal shareholder, officer and director of a road construction, landscaping, trenching and excavating company known as Double “D” Construction Ltd.

His two sons Jay and Devon worked along side him in this business. Prior to 1998 Lowenberg’s daughter-in-law, Erin Lowenberg, Darcy’s wife, assisted him in the operations of both businesses by providing bookkeeping, secretarial and administrative services. Lowenberg was primarily responsible for the management and operations.

Both businesses were very much conducted as family operations out of Lowenberg’s farm home. [ 6 ] The banking for the two businesses were conducted through two bank accounts maintained at the Toronto-Dominion Bank in Grenfell, Saskatchewan, one in Lowenberg’s name jointly with the construction company and the other in his name as a Lowenberg Farm Account. Ms. Oderbien [ 7 ] Things changed substantially when Ms. Oderbien came upon the scene. Lowenberg first met her at a gas station in Brandon, Manitoba the community in which she lived in September of 1997.

By Christmas of that same year they mutually agreed that she would move into his farm residence in the Grenfell district which she did. They began a common law relationship which continued until the summer of 1999 when she apparently left to take up a relationship with another man in Manitoba. [ 8 ] When Oderbien moved in she immediately began a major renovation to the farmhouse in Grenfell ultimately spending approximately $60,000.00, much of which Oderbien charged to her personal CIBC Visa charge card.

At the same time Oderbien began to become very involved in doing the bookkeeping, secretarial and administrative work for the two business, to the point of completely taking over these functions to the exclusion of Erin Lowenberg. [ 9 ] Oderbien made all deposits and issued all receipts, paid all the bills, received and handled all of the mail and most importantly to the matters in issue in this case, paid the Visa bills. The CIBC Visa Gold

[ 10 ] On April 21, 1996, Lowenberg filled out and signed an application for a CIBC Ford Gold Visa which he received, used and upon which he made payments. On April 8, 1998, this CIBC Ford Gold Visa account was transferred to a CIBC Visa Gold Account No. 4500 6152 28256. Lowenberg accepts that he likely received, in conjunction with these two charge cards, the standard CIBC Visa Gold agreement although he paid little attention to them at the time. When he received the CIBC Visa Gold the CIBC Ford Visa Gold was no longer used.

The Claimed Oderbien Misappropriations [ 11 ] The years 1998-99 were some of the busiest which Lowenberg had in both his farming and construction businesses. He would often work seven days a week and long hours during these days. He trusted Oderbien and left the accounting and administration of the businesses in her hands. However, he retained all signing authorities on both business bank accounts.

In view of his work demands, and because he trusted Oderbien, he would often sign numerous cheques either completely in blank or partly in blank as to one or more of the payee, the amount, the date or the “memo” portion of the cheque. [ 12 ] Between October of 1998 and June of 1999 Lowenberg alleges Oderbien filled out and wrote sixteen cheques, drawn either upon the construction company or the farm account payable to CIBC Visa. These she directed, using automatic teller machines (ATM) or by personal delivery to bank tellers, payments in the total sum of $179,847.27 to her personal CIBC Visa Gold account.

Lowenberg claims that these actions constituted fraudulent misappropriations by Oderbien. It is this amount, and these actions and transactions which Lowenberg now seeks to attribute to the fault of CIBC in his defence and counterclaim. ISSUES [ 13 ] The issues raised by and to be decided in this case are as follows: 1.

Whether or not the application by CIBC Visa of amounts totalling $179,847.27 drawn upon the Double “D” Construction Ltd. or Daryl Lowenberg farm accounts and credited to Karen Oderbein’s CIBC Visa Gold account constitute conversion, negligence or a breach of contract by the bank for which the bank is liable. 2.

Whether the actions of CIBC Visa reversing and crediting to Daryl Lowenberg’s Visa account two specific payments of $9,775.00 and $9,750.00 originally applied to Karen Oderbein’s CIBC Visa Gold account and the subsequent reversal of those transactions constitutes an estoppel operating in favour of Lowenberg. 3. Whether CIBC was a constructive trustee of the funds credited by it to the Oderbein CIBC Visa Gold account and whether CIBC is in breach of trust to Lowenberg.

ANALYSIS [ 14 ] There are two CIBC Visa Gold accounts relevant to this case, namely, the CIBC Visa Gold issued in the name of Daryl Lowenberg (“Lowenberg’s Visa”) and Caron Oderbien’s CIBC Visa Gold card (“Oderbien’s” Visa”). [ 15 ] The evidence established that Lowenberg’s Visa expenditures, during relevant periods of time from September of 1998 until August of 1999 were modest, averaging slightly less than $1,000.00 per month.

They are as follows as outlined by exhibit P-9 filed at the trial: PERSONAL EXPENDITURES ON A MONTHLY BASIS September 1998....................................... $ 160.66 October 1998.......................................... $ 3,398.64 November 1998....................................... $ 325.35

December 1998....................................... $ 4,749.72 January 1999.......................................... $ 628.39 February 1999......................................... $ 316.69 March 1999............................................ $ 418.04 April 1999.............................................. $ 1,060.34 May 1999............................................... $ 120.00 June 1999............................................... $ 385.50 July 1999............................................... $ 7.06 August 1999........................................... $ 277.24 TOTAL: $ 11,847.63 [ 16 ] Equally modest were the payments applied to Lowenberg’s Visa account beginning in and occurring throughout the same period of time (including a large payment made to clear the September 1998 balance).

These are outlined in exhibit P-10 and they are as follows: PAYMENTS APPLIED PERSONALLY September 1998 $ 8,690.98 Aug 28/98 (payment of exact outstanding balance from previous month) October 1998 $ 231.04 Sep 25/98 (payment of exact outstanding balance from previous month) November 1998 $ 99.00 Oct 30/98 December 1998 $ 108.00 Dec 1/98 January 1999 no payments February 1999 $ 500.00 Jan 15/99 March 1999 $ 600.00 Feb 9/99 April 1999 no payments May 1999 no payments June 1999 $ 1,000.00 May 11/99 July 1999 no payments August 1999 600.00 Aug 3/99 TOTAL: $11,829.02 [ 17 ] Average monthly expenditures revealed by P-9 to Lowenberg’s account were $987.30 and the average monthly payments as identified in P-10 were $985.75.

The importance of this information is to identify the relatively modest use Lowenberg made of his Visa and also the modest size of payments made. Modest, in comparison to the amounts paid on Oderbien’s Visa over the same period, namely, October of 1998 until June/July of 1999 totalling the $179,847.27 now claimed by Lowenberg as against CIBC.

[ 18 ] These amounts, the source of the cheques and the dates they bore applied to Oderbien’s Visa account are as follows: Account Cheque No. Date Amount · Double D Construction 4284 June 30, 1999 $ 9,775.00 · Double D Construction 4283 June 14, 1999 $ 9,750.00 · Double D Construction 3765 May 22, 1999 $ 6,975.00 · Double D Construction 3767 May 5, 1999 $ 6,295.00 · Double D.

Construction 3764 March 19, 1999 $ 10,780.00 · Double D Construction 3679 February 19, 1999 $ 24,795.00 · Daryl Lowenberg Farm 766 February 10, 1999 $ 12,275.00 · Daryl Lowenberg Farm 767 February 9, 1999 $ 11,788.25 · Daryl Lowenberg Farm 768 January 11, 1999 $ 14,765.50 · Daryl Lowenberg Farm 859 December 14, 1998 $ 10,265.00 · Daryl Lowenberg Farm 860 December 10, 1998 $ 16,755.00 · Daryl Lowenberg Farm 722 December 8, 1998 $ 6,975.00 · Daryl Lowenberg Farm 721 December 1, 1998 $ 5,425.00 · Daryl Lowenberg Farm 840 November 13, 1998 $ 14,896.32 · Daryl Lowenberg Farm 820 October 26, 1998 $ 8,462.20 · Daryl Lowenberg Farm 813 October 16, 1998 $ 9,870.00 · TOTAL $179,847.27 [ 19 ] It is unbelievable that such major and significant amounts could be drawn upon the bank accounts of Double “D” Construction and the Lowenberg farm account over such a lengthy period of time without the matter coming to Lowenberg’s attention, however, that is his evidence. [ 20 ] The whole of the evidence establishes some of Oderbien’s methodology and Lowenberg’s inattentiveness and neglect of his business which resulted in the claimed Oderbien misappropriations for which he seeks to blame CIBC.

Lowenberg would sign many cheques either totally in blank (indeed he deposed in an affidavit in an action which he commenced against Oderbien in Manitoba— exhibit P-17 all were signed in blank) or, as he testified at trial, some of which were left in blank either as to one or more of the payee, the amount, the date or as to the “memo” portion on the cheque (where note is made of the purpose for a payment).

In respect of the sixteen cheques which Oderbein directed be applied to the Oderbien Visa account these had the payee as CIBC Visa and were sent in or delivered by her along with her CIBC Visa statement, her CIBC Visa account number or both. These she presented either through the ATM payment facility or by presentation to a bank clerk in person.

In the result, all payments as outlined were credited to her CIBC Visa account. [ 21 ] Lowenberg testifies that these transactions were without his knowledge or authorization and that it was never intended, and certainly he did not intend, that these payments and these amounts would be so applied. [ 22 ] There is reason to hold a healthy skepticism about his evidence. Mr. Kuski, counsel for CIBC, conducted a thorough, detailed and extensive cross-examination of Lowenberg.

Lowenberg accepted that a number of the payments Oderbein made to the credit of her Visa account covered expenditures made by Oderbien relating to the renovations to his farm home. These included $8,800.00 paid by Oderbien’s Visa to Parkland Flooring, January 15, 1999, $16,864.22 paid to Continental Appliances, February 16, 1999, $7,000.00 payable to Continental Appliances, October 30, 1998, $1,912.72, $1,367.32 paid to Castle Furniture, October 29, 1998, $1,801.20 to McKenzie Plumbing and Heating, August 26, 1998, $1,756.86 to Castle Furniture, August 29, 1998, $2,675.96 paid to the Brick, June 1,

1998, together with numerous smaller accounts (see exhibit P-4) . Lowenberg also testified that at one time Oderbien suggested that herVisa account be used to pay the fuel bills so that she could benefit by the accumulation of Aeroplan miles, a suggestion he agreed with. [23] Mr. Kuski, in his cross-examination, was also successful in having Lowenberg accept while these very large amounts werebeing drawn upon his construction and farm accounts he personally or Oderbien on his behalf continued to make the modest paymentson his Visa account.

He suggested, at one time in his examination in chief, that he expected that any payments which were made fromthe Double “D” or Lowenberg Farms accounts (applied by Oderbien to the credit of her Visa account) should have been applied by CIBCto his Visa account thereby supporting his argument that CIBC was liable in conversion or breach of trust to him.

This suggestion has nofoundation in the facts nor is such evidence and analysis any more than an after the fact rationalization by Lowenberg to support hiscounterclaim in this action. [24] The simple fact of the matter is that it is Lowenberg, and Lowenberg alone, that authored the financial misfortune whichresulted from his misplaced trust in Oderbien and his complete disregard for prudent business safeguards and practises.

Lowenbergseeks, by reliance upon technical legal arguments and exaggerated characterizations of the transactions involved, to recover a loss fromCIBC for which he is solely responsible. [25] The legal positions argued for on behalf of Lowenberg can be disposed of in short order. [26] There is no evidence to support the claim that the CIBC was negligent in accepting the payments tendered by Oderbien forapplication to her Visa account.

The cheques were payable to CIBC Visa as payee in whose favour the deposits were made and accepted.CIBC accepted the direction of Oderbien with respect to the application of these payments, namely, to her Visa account.

There is noevidence to suggest or support a conclusion that such payments, when tendered, were not, in all cases, accompanied either by the ATMdesignation of Oderbien’s Visa account number at the time she made the ATM deposit to her Visa account and/or that portion of her Visastatement remitted along with the payments made. [27] These procedures and payments were made and accepted in the normal course of CIBC’s Visa credit card business and inconformity with the cardholder agreement and payment directions contained in that agreement, on the Visa statements and upon theremittance envelope sent out with all Visa accounts including those of Lowenberg and Oderbien. [28] CIBC relies upon subsection 165(3) of the Bills of Exchange Act, R.S.C. 1985, c.

B-4 which provides as follows: 165.

(3) Where a cheque is delivered to a bank for deposit to the credit of a person and the bank credits him with the amount of thecheque, the bank acquires all the rights and powers of a holder in due course of the cheque. [29] In the leading case of Boma Manufacturing Ltd. v. Canadian Imperial Bank of Commerce, (SCC), [1996]3 S.C.R. 727, the court held at p. 765 in respect of s. 165(3) as follows: Section 165(3) represents a policy decision with respect to the allocation of risk.

When a collecting bank is presented with a cheque fordeposit to the credit of the payee, the bank is entitled, essentially, to assume that it was truly the intention of the drawer that the payeereceive the proceeds of the cheque.... [30] The case at bar does not present circumstances involving an unendorsed third party cheque as appears to be argued for onbehalf of Lowenberg. The cheques which Oderbien used for deposit to her CIBC Visa account were drawn in favour of CIBC Visa therecipient and depositor of the cheques drawn in their favour.

The cause of Lowenberg’s claimed loss is not the actions of CIBC Visa infailing to endorse the cheques presented to them, or requiring Oderbien to do so (she was not the payee and therefore failure to obtain herendorsement was not negligence nor could it have been contemplated or otherwise considered necessary or appropriate) but it was theactions of Lowenberg in delivering the cheques to her (in blank, in whole or in part) that constituted negligence on his part. [31] As stated in the Boma case, supra, at p. 766: ... [T]he likelihood of fraud is dramatically higher when a person presents a third party cheque, particularly when it bears no

endorsement. A collecting bank is not permitted to assume that the transaction is genuine in the face of circumstances that are so clearlyprone to fraud. This is why the collecting bank is required, in the case of third party cheques, to ensure that they have been endorsed.... [32] The court in Boma recognized that in some circumstances a bank has a duty to determine the genuineness of a transaction incases where fundamental legal requirements such as third party endorsement of cheques is overlooked.

Conversely the bank is entitled toaccept as genuine transactions where legal requirements do not present themselves and are not overlooked. [33] Nor is CIBC liable in breach of contract as Lowenberg claims. CIBC’s contract in the circumstances is to accept paymentmade in accordance with the requirements for payment applicable to the administration of Visa accounts. These, as pointed out, arecontained in the cardholder agreement, monthly Visa statement and accompanying documentation including the directions on thepayment envelope.

No circumstance was presented by Lowenberg in his evidence or argument upon the case to suggest that CIBC had acontractual obligation to protect Lowenberg from himself, and his negligent handling of his business affairs or the misplaced trust hereposed in Oderbien. [34] The series of sixteen cheques drawn upon the accounts of either Lowenberg’s construction company or Lowenberg’s farmaccount in substantial amounts which she directed for deposit and payment to her Visa account were presented over a period of ninemonths. In some of these months two or three large cheques were paid to the credit of Oderbein’s Visa.

These transactions occurredconsistently over that period of time. As testified to by Ms.

Margaret Roth, a branch manager with CIBC, a pattern of payments such asthis would not likely raise any suspicions or interventions by the personnel processing the payments, the latter of whom are concerned toconfirm that the cheque itself is in an acceptable form (for example that the figure in writing and numbers are the same, that the chequeis dated currently and not stale dated, and that it is signed). [35] Lowenberg did not communicate with anyone at CIBC Visa raising any concerns about any of these matters throughout theperiod of nine or ten months during which these claimed misappropriations took place until Oderbien had left Lowenberg and he then,for the first time, took action with respect to the two $9,000.00 payments later dealt with in this judgment. [36] In Canadian Banking Law, 2nd ed., (Toronto: Carswell, 1998), the author, M.

H. Ogilvie, states at p. 625: ... The general standard of care required of banks in collection is that of reasonable care so the usual method of collection in common usein the banking world for the cheque in question would satisfy that standard. (See also Kelly Funeral Homes v. Canadian Imperial Bank of Commerce (1990), (ON SC), 72 D.L.R. (4th) 276 at283-84 (Ont.

S.C.)). [37] In the Kelly Funeral Homes case the court observed at pp. 284-185: In conclusion, given the volume of transactions which pass through a bank daily and present-day computerized cheque-processingsystems which do not read signatures, it is not economically feasible to expect a bank to scrutinize every transaction that passes througha customer’s account.

It surely makes sense, therefore, to shift the burden of monitoring its cheques to the customer who generally hasfar better opportunities of uncovering irregularities on the part of its employees.... [38] Upon the facts of this case CIBC is not liable for breach of constructive trust insofar as Mr. Lowenberg’s account isconcerned.

Having regard to the nine month pattern established during which these large payments were made by Oderbein to the creditof her Visa account and in the absence of any notice given or other inquiry made by Lowenberg to CIBC to alert CIBC to an irregularity,CIBC did not fail in any duty it might have had to avoid the claimed Oderbien misappropriations. (See Canadian Banking Law, supra, atp. 634). [39] Finally, Lowenberg claims that when he did discover Oderbien’s deceit he called CIBC Visa and demanded that two recentpayments which they credited, in the usual manner as directed by Oderbein to Oderbien’s Visa on June 14 and 30 (in the sums of$9,750.00 and $9,775.00 respectively) be reversed and credited to his account.

This was done by a lower positioned employee at CIBCbut subsequently further reversed by his supervisor. It is argued on behalf of Lowenberg that these events gave rise to an estoppel.Lowenberg argues that he was entitled to the benefit of the reversal and deposit to his credit as first occurred.

[ 40 ] There is nothing in the facts to distinguish CIBC Visa’s processing of these two cheques from all of the other transactions initiated by Oderbien similar in circumstance. If, as the Court has found, those were processed in the normal course and properly by CIBC so too must this conclusion apply to these two cheques. The reversal of the transactions by a bank official was clearly in error, an error very soon corrected by his supervisor.

These circumstances do not raise an estoppel but rather fall within a number of authorities that support the legal principle that an error made by a bank or banking official can be corrected. Nor does an error made and corrected work as an estoppel against the bank. (See Collins v. Dominion Bank (1915), 8 O.W.N. 432 (Ont.

H.C.) , Canadian Banking Law, supra, at p. 656). [ 41 ] In the result, this Court finds and holds that the claim of the plaintiff CIBC against the defendant Lowenberg for judgment in the sum of $20,283.62 being the balance due and owing as of January 13, 2003, on Lowenberg’s Visa together with interest thereon at the CIBC Visa rate from that date to the date of this judgment succeeds. The plaintiff may enter judgment accordingly. [ 42 ] The counterclaim of Daryl Lowenberg is dismissed in its entirety. [ 43 ] The plaintiff shall have its costs throughout on a party and party basis pursuant to column 4,

Schedule 1“B” of the Queen’s Bench Tariff of Costs, the same to be taxed unless agreed to. J.