Bank of Montreal v. The Queen, 80 DTC 6024, [1980] CTC 68 (FCTD)

Primrose, DJ:—This is an action tried in Edmonton on November 29,1979 on the following agreed statement of facts.

1. Reliable Trailer Maintenance Ltd (“Reliable”), a company incorporated under the laws of the Province of Alberta granted a general assignment of book debts to the plaintiff, the Bank of Montreal on March 31, 1976. The said assignment was registered at the Central Registry for the Province of Alberta, April 7, 1976. Attached to this agreed statement of facts as Exhibit “A” is a copy of the said assignment.

2. On January 25 and 26 and February 13 and 23 1978, the Director—Taxation, Department of National Revenue, on behalf of the defendant forwarded to various persons indebted (obligants) to Reliable a letter pursuant to section 224 of the Income Tax Act, a specimen copy of which is attached to this agreed statement of facts as Exhibit “B”.

3. At the time of service by the Director—Taxation, of the last letter on the obligants, Reliable was indebted to the defendant in the sum of $18,590.97.

4. As of January 30, 1978, Reliable was indebted to the plaintiff in the sum of $36,446.85, by virtue of 2 demand promissory notes dated April 5, 1977 and December 20, 1977, copies of which are attached hereto as Exhibits “C” and “D”. Demand for payment was made by the plaintiff on May 19, 1978.

5. By April 27, 1978, the defendant had collected $18,657.15 from the obligants as a result of the letters referred to in paragraph 2 hereto.

6. Particulars of the indebtedness of Reliable to the defendant after reconciliation and application of credits are as follows:

7. Reliable’s account with the defendant shows a credit balance of $264.13 after application of the monies referred to in paragraph 5.

8. Prior to May 19, 1978, the plaintiff permitted Reliable to collect its book debts and apply them without consultation with the plaintiff.

9. On May 19, 1978, the plaintiff served notice of the general assignment of book debts on the obligants and attached hereto as Exhibit “C” is a copy of the notice. As of May 19,1978, Reliable was indebted to the plaintiff in the sum of $29,481.64.

10. By letter dated June 14, 1978, addressed to Revenue Canada, the plaintiff gave notice to the defendant of the general assignment of book debts.

11. By letter dated November 23, 1978, the plaintiff demanded payment from the defendant of all monies collected by the defendant.

12. Reliable remains indebted to the plaintiff as of July 15, 1979, in the sum of $31,937.97, particulars of which are as follows:

Promissory note dated April 5, 1977

Principal outstanding	$ 7,123.23
Interest to July 15, 1979	1,652.22	$ 8,775.45
Promissory note dated December 20, 1977
Principal outstanding	19,500.00
Interest to July 15, 1979	3,662.52	23,162.52
TOTAL		$31,937.97

Exhibit “D” provides a copy of the demand on third parties addressed to one of the obligants namely, North Star Transport Ltd in which it is recited that the indebtor Reliable Trailer Maintenance Ltd is indebted to Her Majesty the Queen in the amount of $11,568.58 and that demand was dated January 26, 1978. There was a demand the previous day, namely, January 25, 1978 for $7,022.39, and the two demands total the amount mentioned in paragraph 3 of the statement of facts, namely, $18,590.97. The defendant collected a total of $18,657.15 or an excess of $264.73. That amount should be paid to the plaintiff since it is in excess of the defendant’s claim.

The plaintiff takes the position that it is entitled to all the monies in question by virtue of the assignment of book debts it had received from “Reliable” which assignment was registered on April 7, 1976 (although in the agreed statement of facts the date was originally given as May 4, 1976).

To review the position, it is clear the defendant made its demands in respect of the monies in question here on January 25 and 26 1978 aforesaid pursuant to which by April 27, 1978 the defendant collected $18,657.15 as a result of the demands in the form of letters as required by section 224 of the Income Tax Act.

In the interim the plaintiff while it held as aforesaid the registered assignment of book debts, had permitted Reliable to carry on business and collect its book debts in the usual course of business. It was not until May 19,1978 that the plaintiff served notice of the general assignment of book debts on the obligants, at which time Reliable owed the plaintiff $29,481.64. By letter dated June 14,1978 the plaintiff notified the defendant of the general assignment of book debts. The plaintiff is relying on its general assignment of book debts to support its position that it has a prior claim to the defendant, on the basis that it had an equitable assignment of the debts in question although it had given no notice to any of the obligants until some time after the money had been paid over by them to the defendant. The defendant takes the position that payment vested the money in the defendant.

The plaintiff relies on AG Can v The Royal Bank, [1979] 1 WWR 479 where it has held that a prior equitable assignment in favor of a bank took priority over a so-called garnishee order under section 224 of the Income Tax Act. The ratio decidendi of the appeal was that the Crown did not acquire an equitable interest in the indebtedness by virtue of a demand under section 224, (ie) the Crown does not become a holder of a security by virtue of that section.

Reference was also made to Bank of Montreal v Union Gas Co of Canada Ltd, 7 DLR (3d) 25; [1969] CTC 686; 69 DTC 5441; the decision of the Ontario Court of Appeal. It was held:

Thus it is argued the Crown is in the position of a garnisheeing creditor and can have no higher claim to the moneys in the hands of the defendant than the assignor-contractor under the assignment. But while the priority mentioned in Halsbury of an assignee who has not given notice can be asserted in derogation of the rights of a subsequent garnisheeing creditor while the fund in question is in being as, for instance, upon payment into Court by the fundholder, or perhaps in an action against the garnisheeing creditor, the law is clear that a debtor who has not received notice of an assignment can pay the assignor with immunity and will not be liable to pay over again to the assignee: cf 4 Hals, 3rd ed, p 498; J C Vains, Personal Property, 4th ed, p 259; W R Warren, Choses in Action, 1899, p 87; J Williams, Principles of the Law of Personal Property, 18th ed, p 38.

In my view these authorities do not really touch on the situation in the present case since the money in question was paid to the defendant before the obligant had received notice of the assignment. In the Bank of Montreal v Union Gas case (supra) Jessup, JA expressly deals with such a situation. The plaintiff served a notice on the obligants under its assignment of book debts, which they had authority to do at any time, prior to the letter demand served by the defendant under section 224 of the Income Tax Act. A different situation might exist if the monies were paid into court and this was an issue to determine entitlement, but as indicated, the money having been paid over to defendant, in the present case, the “bird has flown the coop” and there is no recovery. In the same way, had it been paid to the plaintiff, the defendant would have been too late to recover.

The plaintiff raises another argument which seems to have more substance, that the defendant is not entitled to collect the whole of the amount owing to it from the obligants namely, $18,392.42 because the demand on the third parties (see Exhibit B) dated January 26, 1978 was in the sum of $11,568.58. I questioned counsel for the defendant as to why there were demands for different amounts and counsel conceded there was some confusion in the defendant as to the amount owing, which accounts for two different demands of different sums. It is clear there was a demand dated January 25,1978 for $7,022.39 and the following day there was a demand for $11,568.58 making the total of $18,392.42.

In my view when the defendant is given extraordinary powers under a section of the Income Tax Act to recover monies which normally by any other creditor would have to be attached by way of receivership or garnishment or other proceedings, the defendant must strictly and accurately set out its claim and could not demand from day to day different amounts all aggregating the total now claimed. That is exactly what was done here, ie $7,022.39 was demanded on one day and $11,568.58 the next day. The plaintiff does not argue that the demands are void but takes the position that the defendant can only recover the one amount ie $11,568.58 being the amount of the second demand which should be inclusive of any liability owing by the debtor to the defendant for tax at that time. I accede to this argument and find that part of the sum in issue was improperly paid, and limit the defendant to the recovery of $11,568.58, in lieu of the amount claimed, namely, $18,392.42. There will therefore be judgment for the plaintiff in the sum of $6,823.84 and for the credit balance remaining in Reliable’s account referred to in paragraph 7 of the statement of facts, $264.13 making a total of $7,087.97 together with costs to be taxed.