BANK OF MONTREAL v. BARBEAU *
Eric Smith **
Section 21 (5) of the Bills of Exchange Act I declares that where
the payee of a bill of exchange is “a fictitious or nonexisting
person, the bill may be treated as payable to bearer”. “Bearer” means
the person in possession of a *bill or note that is payable to bearer
s. 2(d); such person is the “holder” –
s. 2(h). The ostensible
significance of this provision is that if applicable, the acceptor of
the bill (or drawee if no acceptance is necessary) cannot impugn
the title of the person demanding payment from him on the ground
that, since the bill is on its face an order instrument and the payee
is ‘fictitious’, there could be no valid endorsement to the holder.
The provision has, however, another significance –
if the acceptor
has paid the holder out of monies in his hands belonging to the
drawer, or if he has a right of recovery against the drawer, the
latter can neither plead that the acceptor has paid the wrong per-
son and hence claim reimbursement nor that his adversary has
lost his right of recourse, as the case may be.
While the policy of the provision is intelligible, its application
has resulted in considerable litigation. Perhaps it can now be said
that its construction is a matter of settled law. If so its application
should not give rise to any greater difficulty than that ordinarily
created by the special facts of a particular case.
Nevertheless, the application of the doctrine to cheques, a
species of bills of exchange but distinguished from the genus by
the special relationship existing between the drawer and drawee,
has presented certain difficulties flowing from its almost sui gene-
ris character. The recent decision of the Quebec Court of Appeal
in Bank of Montreal V. Barbeau2 illustrates those difficulties and
the manner in which the judicial process influences the develop-
ment of the positive law.
The facts of the Barbeau case although not in dispute, are
extremely important. Mr. Barbeau who was interested in buying
* [1963] B.R. 755.
** Of the Junior Board of Editors, McGill Law Journal, Second Year Law
Student.
1 R.S.C. 1952, C. 15.
2 (1963) B.R. 755.
No. 3]
CASE AND COMMENT
real estate in Montreal appointed G6rard Tousignant, a truck driver
and old acquaintance, his agent. The latter reported an offer of
sale of a property for $8,500, which he said belonged to L6o Maher
but which in fact belonged to Dame Rath. As a result of this
information Mr. Barbeau signed an offer to purchase this property
for $8,500 and gave Tousignant as deposit a cheque for $1,000
drawn on the Canadian National Bank and payable to Ldo Maher.
Tousignant had the cheque certified at the Canadian National Bank
and then went to the Bank of Montreal with a friend named Ldo
Maheu. Upon entering the bank, Maheu remained in the background
and was unable to see or hear the events which followed.
Subsequently Tousignant endorsed the cheque using L6o Ma-
her’s name. This cheque was presented to Tousignant’s half-sister
who worked in the bank. Upon recognizing her brother she asked
who L6o Maher was; when Tousignant pointed to Maheu in the
distance, the cheque was cashed. Maheu was not asked to identify
his signature nor was Tousignant asked to endorse the cheque in
his own name. Later the Bank of Montreal collected payment from
the Canadian National Bank. A few days later when Barbeau dis-
covered the fraud, he notified both banks and sued the Canadian
National Bank for not fulfilling its mandate to pay L6o Maher,
the Bank of Montreal being brought in as surety.
Whether the bank was to sustain the loss depended on whether
L6o Maher was considered to be “fictitious or non-existing” within
the meaning of the Bills of Exchange Act. If the bank could estab-
lish this relying on section 21(5).
“Where the payee is a fictitious or non-existing person, the bill may be
treated as payable to bearer.”
it would successfully defend the action. On the other hand, if Bar-
beau was to win his case it was necessary to show that the Cana-
dian National Bank had wrongfully paid the Bank of Montreal.
The only way to arrive at this conclusion was to make the cheque
an “order cheque” with an invalid endorsement. 3 To do this it would
be necessary for the court to reject the defence that the payee was
“fictitious or non-existing.”
The learned trial judge, Ferland, J., upheld 4 plaintiff’s action
on two separate grounds. (1) Regarding the question of the exist-
ence of L6o Maher, he concludes that Maher was in fact Maheu.
It is submitted with all due respect that this belief concerning Tou-
signant’s intention has no basis in fact; on the contrary if Tousi-
3 Bills of Exchange Act, S. 49 (3).
4 C.S., Montreal, No. 405818, 7 January 1963.
McGILL LAW JOURNAL
[Vol. 10
gnant had intended Maheu to be Maher he would have used Maheu’s
name instead of Maher and this would have in no way affected his
plans. Therefore by using Maher he had clearly in mind a person
distinct from Maheu. (2) But the ratio decidendi of his decision
was the bank’s lax behaviour regarding. the cheque; it neither
verified the identity and signature of the presumed endorser nor
required that the bearer endorse the cheque. The Bank of Montreal
was guilty of negligence and was thus to be held responsible.
The judgment of the Appeal Court rendered by Mr. Justice
Choquette (Taschereau and Tremblay, J.J. concurring) also main-
tained the plaintiff’s action, but on different grounds. The learned
judge states that the crucial question to be decided is the inter-
pretation of s. 21 (5).
“Je crois, en effet, que le d~bat se resume h la question de savoir si le
preneur, L~o Maher, est une “personne fictive ou qui n’existe pas”, au sens
de la loi.”5
Referring to Falconbridge and the accepted jurisprudence he
is determined by an
concludes that the question of “fictitious”
examination of the drawer’s intention.
“Ici, le tireur, Andr6 Barbeau, a manifestement eu l’intention de faire son
chbque A l’ordre d’une personne existante que Tousignant lui d6clara s’ap-
peler L6o Maher.”G
The determination of “non-existance” he states is a question
of fact not of intention. It is important to note that on the facts
as found by the trial judge, the name Maher did not correspond to
any existing person in so far as the proof of the case was concerned.
In spite of that finding the learned appeal judge went on to link
Maher with Maheu. First he points out:
“Dans son exc~s de confiance, Barbeau aurait tout aussi bien sign6 un chaque
fait A l’ordre de Ldo Maheu ou de toute autre personne que Tousignant lui
aurait d~sign6 comme propridtaire des lieux.” 7
Therefore he held that the word Maher referred to Maheu, the
man who accompanied Tousignant to the bank, there being merely
a misdescription on the cheque. To justify this conclusion he invokes
the provisions of s. 64 of the Act.
“Where, in a bill payable to order, the payee or endorsee is wrongly desig-
nated, or his name is misspelt, he may endorse the bill as therein described,
adding his proper signature; or he may endorse by his own proper signa-
ture.”
5 Op. cit., fn. 2, p. 757.
6 Ibid., p. 757.
7 Ibid., p. 757.
No. 3]
CASE AND COMMENT
However in this context section 64 is irrelevant since it is only
an enabling provision referring to the case where a person law-
fully entitled to a bill is wrongly designated on the face of it. In
this express situation the bill or cheque can be negotiated in ac-
cordance with s. 64. However, this section will not cure a defective
title. Therefore, it is respectfully submitted that Choquette, J., by
invoking section 64 as a means of providing Maheu with a good
title to the cheque, was begging the question.s
In addition to having no basis in law, the similarity of Maheu to
Maher, also has no basis in fact. Nothing in the case shows that
Maheu was entitled to the cheque; on the contrary, Tousignant
always used the name Maher and indeed when in the bank, Tousi-
gnant pointed out Maheu as Maher. (Clearly his endorsing as Maher
was not a spelling mistake). Nor is the assumption that Barbeau
would have accepted any name that Tousignant gave him, including
Maheu, relevant. Since he did insert the name Maher it is the conse-
quences which flow from that name that are of concern, not hypo-
thetical situations.
A further difficulty in determining the question of “non-exist-
ence” and whether the name Maher on the cheque can apply to
Maheu is raised by the learned judge:
“S’agit-il d’une personne inexistant? Voilb une question de fait et non
une question d’intention.” 9
Yet his finding that Maher is an existing person is based not
on facts but on an examination of intention.
“II me paralt manifeste que Lo Maheu 6tait la personne que Tousignant
entendait d6signer comme b6n6ficiaire sous le nom de L~o Maher.”‘ 0
In an orthodox bill of exchange, the principal debtor is not the
party who creates the instrument (the drawer) but the drawee.
On the other hand, the significant feature of the cheque is that
the drawer is the principal debtor; the bank, unless it certifies
the cheque, is merely the paying agent. This difference can have
important practical results as seen in the jurisprudence.
In Vagliano V. The Bank of England,” the British courts were
faced with an unprecedented set of circumstances which required
the formulation of certain definite rules in connection with the
interpretation of the term “fictitious or non-existing” payee. The
facts of this well known decision are unique. Vagliano was a London
s Furthermore, since s. 64 deals with an “order” bill, a fact still undertermined,
he is only circumventing the problem.
9 Op. cit., fn. 2, p. 757.
10 Ibid., at p. 758.
11 (1891) A.C. 107.
McGILL LAW JOURNAL
[Vol. 10
merchant who kept his account with the Bank of England and made
his numerous bills payable there. Among his foreign associates was
Vucina who for several years had drawn a large number of bills
upon him, several of them being to the order of C. Petridi and
Company. His clerk, Glyka, seized on these facts and forged bills
drawn by Vucina payable to Petridi and then procured Vagliano’s
genuine acceptance. The Bank would be instructed to pay the bills
in due course. Glyka would forge the endorsement of C. Petridi and
Co., present the bills and obtain the money. The House of Lords
held that the drawer, Vucina, had no intention to pay Petridi, his
name having been forged. Thus the payee was held to be ‘fictitious’
and the bank was entitled to debit the acceptor’s account with the
sum so paid. The ratio decidendi of the case constitutes the cri-
terion for determining the content of ‘fictitious’. One looks at the
drawer’s intention; if the drawer has named the payee “by way
of pretence only, without the intention that the named payee shall
be the person to receive payment then the payee is fictitious”. 12
However it is important to note that this fact pattern involved
a bill of exchange in which the debtor is invariably the acceptor
and not the drawer. In the case of a cheque the drawer as in the
Barbeau case is invariably the debtor in the transaction and he
naturally intends to pay the person designated,13 unless the drawer
himself is perpetrating a fraud or intending to negotiate the cheque
in the name of the ‘fictitious payee’. 14 The practical results of ap-
plying the Vagliano decision can be seen in the subsequent leading
cases involving cheques.
In Clutton v. Attenborough, 5 where the payee was a non-
existent person the fact that the drawers of the cheque believed
and intended the cheques payable to the order of a real person
resulted in the payee being “non-fictitious” within the meaning of
the Act.’ 6 Similarly in North and South Wales Bank v. Mae Beth 17
where the payee did in fact exist, it was held: “where a cheque
is drawn by a real drawer who designates an existing person as
the payee and intends that that person should be the payee it is
impossible that the payee can be fictitious.”‘ 8
12 Ibid., at p. 152.
13A fraudlent purpose will not be a defence in determining this intention,
‘4 Cf. Bank of Toronto V. Smith (1950) 3 D.L.R. 164.
15 (1897) A.C. 90.
16 Section 7(3) of the United Kingdom Act which is identical with ours
Ibid., at p. 143.
S. 21(5).
17 (1908) A.C. 137; Similarly, Vinden V. Hughes (1905) 1 K.B. 795.
18 MacBeth case at p. 139.
No. 3]
CASE AND COMMENT
Since the drawer of a cheque is invariably the debtor in the
transaction and therefore intends to pay, in nearly all cases the
bank has lost on its plea of fictitious payee. However in one
Ontario decision, London Life Insurance Company v. Molson’s
Bank,19 followed in Metropolitan Life Insurance Company v. Quebec
Bank, 20 a different criterion for determining the question of ficti-
tiousness was put forward. An agent of the insurance company had
policies issued in the names of existing persons but without their
knowledge. He paid the premiums for a time, then submitted a
forged proof of their death and other necessary papers. The com-
pany sent him the cheques in settlement, payable to the order of
the respective claimants drawn on the Molson’s Bank. He forged
the endorsements and obtained the money. The Court of Appeal
held that the payees were fictitious and the cheques were payable
to bearer. The court arrived at its decision not by considering the
intention of the drawer but by deciding whether the payee was
fictitious in relation to the transaction. “… were the payees really
and for all business or practical purposes, fictitious ?”21 i.e. whether
the payee was in fact fictitious for purposes of the transaction.
If this reasoning were to be followed then every bill, the draw-
ing of which was induced by fraud, would be considered ‘fictitious’
and thus always payable to bearer. This case does not reflect the
principles followed today and in fact was overruled in both Bank
of Toronto v. Smith 2 2 and Harley V. Bank of Toronto 23 which
adopted the reasoning of the Mac Beth case,24 now the leading
authority. In this latter case Lord Loreburn discussing the ques-
tion of ‘fictitious’ payee distinguished the Vagliano case.
“Since the Vagliano case is not a case in which the drawer intended the
payee to receive the proceeds of the bill”…25
Regarding the question of “non-existing”, the Courts have con-
sistenly held it to be a question of fact. In Clutton v. Attenborough 26
since the payee was a non-existent person the court held that no
one either could or did intend him to be the recipient of the pro-
ceeds of the cheque which as a result was treated as payable to
bearer. 27
19 (1904) 8 O.L.R. 238.
20 (1916) 50 Que. S.C. 214.
21 London Life Insurance Op. cit. at p. 244.
22 (1950) 3 D.L.R. 169.
23 (1938) O.R. 100.
24 (1908) A.C. 137.
25 Ibid., at p. 140.
2 6 Supra.
27 Cf. Canadian Bank of Commerce v. Rogers (1911) 23 O.L.R., p. 109 at 120.
McGILL LAW JOURNAL
[Vol. 10
Therefore jurisprudence has authoritatively settled the issue of
the ‘fictitious’ or non-existent payee. The question that remains to
be answered is how sound is the Barbeau decision in the light of
the foregoing principles.
In view of Barbeau’s intention to pay Maher, it is submitted
that the finding of ‘non-fictitious’ was rightly decided in law. How-
ever with all due respect, exception must be taken to the decision
of the learned appeal judge regarding the question of “non-existing”,
for clearly in law and in fact the payee L~o Maher was non-existent
and on this basis Barbeau’s action should have failed.
The difficulties which arise from the finding that L~o Maher
did exist cannot be reconciled in law. The conclusions of the court 28
that Maher existed in Tousignant’s mind would mean that Tousi-
gnant was entitled to endorse as Maher; and therefore there was
no forgery and therefore Barbeau had no action.
However one may argue that the basis for the decision is not
to be seen in law but rather in the special circumstances of the
case; namely that the Bank of Montreal’s bad banking practice was
not to be encouraged.
The Bank by arranging to honour Barbeau’s cheques undertook
to pay the named payees or their order. It was bound to do so
only upon being furnished with proper evidence of the identity of
the payees or of the genuineness of their endorsements and of
subsequent endorsements, if any. Consequently the Bank was pe-
nalized for being negligent in not taking the ordinary precautions
any Exchange Bank should take.2 9 But to do this it was necessary
to find the cheque payable to order and thus Tousignant’s endorse-
ment should be a forged one and Barbeau could recover from the
Canadian National Bank
(section 49(3)). Subsequently in view
of section 50(1), the Canadian National Bank would recover from
the Bank of Montreal which was to be ultimatley responsible.
Although on the surface the court’s decision may appear arbi-
trary, it is submitted that equitable considerations, derived from
the special circumstances of the case, provided the motivation. But
clearly the decision is not founded on the accepted principles found
in our jurisprudence. It is thus impossible to extract any ratio
decidendi which might be useful in interpreting section 21(5).
2 S Supra, at p. 758.
29 Clearly one might question this, since the fact that Maheu was pointed out
in the background as Maher shows the Bank’s caution and good faith.
No. 3]
CASE AND COMMENT
With this in mind and in view of the doctrine of stare decisis it is
submitted that sec. 21(5) be amended by the competent legis-
lature.80
The unfavourable position of Banks under the present law sug-
gests not only an amendment to section 21 but also to the sections
on forgery. Perhaps they should be afforded the same protection
as is given British Banks 31 that have acted in good faith and in
the ordinary course of business.
30 The rule applied in the case of an orthodox bill cannot equitably apply to
cheques. For a discussion as to the differences between a bill of exchange and
a cheque cf. Mullick v. Radakissen, (1854), IX Moore 76; 14 E.R. 223, FALcoN-
BRIDGE, Banking and Bills of Exchange. 6th Ed. pp. 871-874.
3145 and 46 Vict., c. 61; s. 60.
