Cumberland Properties Ltd. v. The Queen, 89 DTC 5333, [1989] 2 CTC 75 (FCA)

Hugessen, J.A. (Heald and Desjardins, JJ.A. concurring): —The appellant sued to recover the sum of $8 048.06 as an income tax refund for the year 1978. The Crown did not dispute the debt or the amount; the plea was payment.

At trial the Crown proved that it had issued and sent a refund "cheque" [1] on November 24, 1980, payable as follows:

Cumberland Properties Ltd

C/O John Church

PO Box 6276 Sta A

Saint John NB.

(Appeal Book, at page 10). It was also proved that this cheque had been negotiated on July 24, 1981 by John Church, who had endorsed it in his own name only.

There is no explanation in the record as to the great length of time which elapsed between the issuance of the cheque and its negotiation. The name of the payee on the cheque is taken from three different boxes on the appellant's 1978 income tax return: in the box titled "Name of Corporation (Print)" appears

Cumberland Properties Ltd.

Immediately below, but in a separate box, titled "Address of Head Office” appears

c/o John Church

P.O. Box 6276, Station "A"

followed by, in the next box, the words

Saint John, N.B.

(Appeal Book, at page 13). The certification on page 3 of the return states that John Church is an authorised signing officer of the company and is signed by him as secretary. (Appeal Book, at page 14).

At the time when he endorsed and negotiated the cheque, John Church was no longer secretary or a signing officer of the company, the shares of which had by then been sold to other interests. Accordingly he had no authority to receive payment on behalf of the company. Mr. Church is now dead and his estate is insolvent.

Prior to the issuance of the November 24, 1980 cheque, on August 22, 1980, the company filed its return for the 1979 taxation year. That return shows a different head office address and the question “Has there been a change in mailing address since last return was filed?” is answered by checking the box “Yes”. The return was received by Revenue Canada on September 2, 1980.

Subsequent to the date of issuance of the cheque, but prior to its negotiation, the company wrote to Revenue Canada on February 26, 1981 inquiring about the refund in the following terms:

Revenue Canada Taxation

Ottawa, Ontario

K1A 0L9

Dear Sir:

Re: Cumberland Properties Ltd.

We understand that an income tax credit in the amount of $8,048.06 is due Cumberland Properties Ltd. This company is owned by Resort Estates Ltd.

As advised on our last tax return, our proper and correct address is Cumberland Properties Ltd., c/o Ryan, Graser & Smith, P.O. Box 38, Fredericton, N.B. E3B 4Y2.

We would appreciate having you forward the tax credit cheque along with all future correspondence to the above address.

Yours very truly,

CUMBERLAND PROPERTIES LTD.

(signature)

H. B. Antosko

President

HBA/gl

(Appeal Book, at page 21).

That letter appears to have been received, according to the date stamp on its face, on March 3, 1981. The evidence does not reveal that any inquiries were instituted by the Government following the receipt of the letter and prior to the negotiation of the cheque.

In the Trial Division, McNair, J. dismissed the appellant's action. He found that Church was clothed with ostensible, if not actual, authority to receive and negotiate the cheque. He also found neither the filing of the 1979 tax return on August 22, 1980 nor the receipt of the letter of February 26, 1981 were enough to revoke such ostensible authority or to put the Crown on inquiry. In my opinion, with respect, he was wrong on both scores.

In the first place it must be recalled that, in the way in which the issues were joined, it was the Crown which had the burden of proving its plea of payment. Specifically, on the question of ostensible authority it was for the Crown to show a course of dealing or a "holding out” on the part of the company from which the officials at Revenue Canada could properly infer that Church was authorised to receive and negotiate the cheque. In fact, the only evidence on the point was the 1978 income tax return with its mention of Church's name as part of the head office address and his certification as secretary and authorised signing officer. There was nothing whatever in the way of testimony or correspondence tending to show that Revenue Canada had had any dealings with Church acting on behalf of the company prior to the date of the issuance of the cheque. This fact in itself is enough to distinguish this case from the decision in Bank of Montreal v. R.J. Nicol Construction (1975) Ltd., [2] relied on by the trial judge. [3]

Accordingly, whatever authority the company may be held to have given Church must be drawn from the face of the 1978 income tax return and not otherwise. His name appears in two places on that return. The first is as part of the address of the Head Office. While that arguably, indeed probably, clothes him with authority to receive documents, including cheques, addressed to the name of the company, it certainly does not entitle him to receive money in his own name in discharge of a debt due to the company. One may test the matter by asking whether a debtor of the company acting solely on the basis of the address as shown on the 1978 return could successfully plead payment by exhibiting a receipt in the name of John Church. Another way of testing it would be to ask whether, if the payee were an individual so that the first two lines read “John Doe, c/o John Church”, etc., Church could properly endorse and negotiate the cheque. In either case, in my view, the answer must be no.

The other place in which Church's name appears is in the certification on page 3. (Appeal Book, at page 14). This is the Government's own form and reads as follows (the underlined portions have been filled in by the taxpayer, the rest is printed):

Certification

I, John Church of Saint John, N.B.

(Name in block letters) (Address)

am an authorized signing officer of the Corporation.

I Certify that this return, including accompanying schedules and statements, has been examined by me and is a true, correct, and complete return.

I Further Certify that the method of computing income for this taxation year is consistent with that of the previous year except as specifically disclosed in a statement attached to this return.

(signature) John (?) Church

Signature of an authorized signing officer of the Corporation

Secretary

Position or Rank of Officer

Date July 21 1979

(Appeal Book, at page 14).

In my view, no authority to receive payment for the company can be derived from Church's description of his “Position or Rank" as "Secretary". What of the statement that he is "an authorized signing officer"? In my opinion, this authority must be read as being limited to the specific items which follow, namely, the certification of the return and its schedules and the method of computation of income. Any other conclusion would lead to the most startling results. If the Government wants to require that corporate tax returns include the name of a person who can give discharge on behalf of the company, it should say so in language far clearer than that employed here.

I conclude that the respondent has not succeeded in proving that Church had either actual or ostensible authority to negotiate the cheque based upon the 1978 tax return.

It is my further view that even such limited authority as may be held to have been given to Church by the 1978 return, authority to receive documents directed to the company at the address shown, was unequivocally withdrawn prior to the issuance of the refund cheque. It will be recalled that the company's 1979 tax return was filed August 22, 1980; it was received by Revenue Canada the following September 2, some two and a half months before the date of the November 24 cheque. That return makes no mention of Church's name and shows a different Head Office address from the year before; that fact is clearly flagged by the answer to the question regarding change of address. One may legitimately ask what the purpose of that question is if not to alert Revenue Canada officials that whatever information appeared in the previous year's return regarding the address was no longer valid. Since it is the appearance of Church's name as an integral part of the company's address which is the principal source of his alleged ostensible authority, it is simply not open to the Government to rely upon it once the 1979 return has been filed.

I would add that the letter of February 26, 1981, although sent and received after the issuance of the November 24, 1980 cheque, preceded the negotiation of the latter by almost five months. Its terms are more than enough to put the Government on notice and inquiry. The fact that nothing seems to have been done about it for two years is, to say the least, startling and sits ill with the plea of good faith reliance upon ostensible authority. When the instrument was honoured by the Receiver General, the endorsement on it was not that of the payee and it was not in due course: it should not have been paid.

The upshot of all this is that the Government's plea of payment rests solely upon the conversion by John Church, acting in his own name and without authority from the appellant, of a cheque payable to the latter. The plea fails.

For all the foregoing reasons, I would allow the appeal with costs, set aside the judgment of the Trial Division and substitute for it judgment in favour of the plaintiff for $8 048.06 and costs. Plaintiff is also entitled to interest at the rate and for the period prescribed under the Income Tax Act; if the parties are able to agree [4] on such rate and period, one of them may move for judgment pursuant to Rule 337; if there is no agreement, one of them should move to have the question determined on a reference.

Appeal allowed.