Robert Cameron v. Her Majesty the Queen, [1990] 2 CTC 299, 90 DTC 6489

Muldoon, J.:—The plaintiff, by an ill-drafted amended statement of claim, filed October 31, 1988, in effect, alleges that the Department of National Revenue garnished from the debtors of a corporation, Perrin Turner Ltd., moneys which were owing to him. This, he alleges, comes about because he, the plaintiff, alleges that he holds a general assignment of book debts and accounts receivable from and of Comcap Factors Inc., having an office in Toronto.

The statement of claim continues:

3. The Plaintiff further says and the fact is that pursuant to a certain Factoring Agreement [dated when?] made between the said Comcap Factors Inc. and a company known as Perrin Turner Ltd., the said Perrin Turner Ltd. sold and assigned to Comcap Factors Inc. all of its accounts receivable created in the regular course of its business which Comcap Factors Inc. held as security for payment of monies advanced to Perrin Turner Ltd.

4. The Plaintiff further says. . .that on or about the first day of July, 1977, Perrin Turner Ltd. defaulted in payment of monies due to Comcap Factors Inc. under the aforementioned Factoring Agreement and consequently Comcap Factors Inc. made demand against Perrin Turner Ltd. for all monies due and owing as at the date being the sum of Fifty-Nine Thousand and Fifty-Three Dollars and Sixty-Three ($59,053.63) Cents.

5. The Plaintiff further says. . .that on or bout [sic] the 6th day of February, 1979, Comcap Factors Inc. filed a petition against Perrin Turner Ltd. pursuant to the provisions of The Bankruptcy Act which petition was presented before the Registrar of the Supreme Court of Ontario in Bankruptcy on the 25th day of September, 1979, at which time the application was adjourned sine die. The application has not since been brough [sic] back on for hearing.

6. The Plaintiff says. . .that between the first day of January, 1981 and the 31st day of December, 1981, Revenue Canada, Taxation, sent Third Party Notices to account debtors of Perrin Turner Ltd. demanding payment of those accounts to it in satisfaction of arrears of taxes assessed against Perrin Turner Ltd. Details of the source of taxes are not known to the Plaintiff but are fully within the knowledge of the defendant.

7. The Plaintiff says. . .that the following accounts receivable payable to Perrin Turner Ltd., which accounts had previously been assigned to Comcap Factors Inc. as hereinbefore described, wre [sic] collected by Revenue Canada, Taxation

[untotalled sums, whose total is $55,226.52]

8. The Plaintiff says. . .that Comcap Factors Inc. was entitled to obtain payment of the aforementioned accounts receivable in priority to the defendant and that by reson [sic] of the assignment of book debts and accounts receivable he holds from Comcap Factors Inc., he is entitled to receive payment of monies collected by Revenue Canada, Taxation, as hereinbefore described.

(trial record: pages 1 to 3)

The plaintiff claims $55,856.52 and interest and costs. On cross-examination when confronted with Exhibit B-6, he admitted that the alleged date of Perrin Turner's default, July 1, 1977, is incorrect in paragraph 4 of the statement of claim and that it ought to be after December 30,1977. The defendant, represented by the Deputy Attorney General of Canada, in effect, traverses the allegations expressed in paragraphs 2 through 8 of the statement of claim, unless specifically admitted, and asserts alternative denials and defences. The plaintiff stated that the sums appearing on Exhibit 4, showing part of paragraph 7 of his amended statement of claim, are the original sums. In oral argument, the defendant's counsel obviously forgot what he pleaded in answer to paragraph 6 above, until reminded by the Court that the defendant's paragraph 3 is not an unqualified admission of the plaintiff's paragraph 6. Here is the defendant's paragraph 3:

3. Further with respect to paragraph 6 of the Claim, he states that Requirements to Pay ("Requirements") pursuant to the provisions of the Income Tax Act S.C. 1970-71-72 c. 63 were delivered or sent during the period commencing on or about the 21st day of July, 1981, and ending on or about the 18th day of August, 1981, to account debtors of Perrin Turner.

and paragraph 4:

With respect to paragraph 7 of the Claim, he states that pursuant to the Requirements referred to above, payments totalling $34,591.95 were made to the Receiver General of Canada.

(trial record: pages 6 & 7)

The defendant certainly made an admission, but essentially one restricting the time period asserted by the plaintiff in his paragraph 6. At trial the defendant's counsel stated that he was not abandoning the defendant's paragraph 3, but, in effect was no longer traversing the plaintiff's allegation, and concluded lamely: “My Lord, all it says is when the requirements were delivered. It does not say when the funds were collected, but I leave that to your Lordship."

Of course those requirements, being statutory garnishing orders, if they be effective, bind upon service.

Mysterious as counsel's pleadings posture is, the matter can be resolved simply by holding, as the Court now does, that because the defendant led no evidence to contradict that time frame in the plaintiff's paragraph 6 exceeding what the defendant admitted in her paragraph 3, the plaintiff's corroborative testimony serves to establish the veracity of his paragraph 6 in the absence of contradiction. It stands as pleaded. The "third-party notices", “requirements to pay" or "statutory garnishing orders", however they may be described, are found, with the respective counsel's consent, to have been served on the account debtors of Perrin Turner during 1981, however imprecise that finding must be and is. The list of such receivables from those account debtors was provided by Perrin Turner to the Minister. (Exhibit 6: page 7—QQ 30 & 31.)

As above noted, the statement of claim is pathetically coy about pleading precise dates. The plaintiff in testimony asserted that, although an employee of Comcap Factors Inc., who was released with only two months' salary in December, 1977, he, in effect, was its directing mind. He took the assignment of all accounts receivable from the business of Comcap Factors Inc. alleged in paragraph 2 of his claim on July 4, 1983, according to the provisions of the assignment, an original executed copy whereof is Exhibit B-7. That assignment agreement, in its paragraph 1, states that all accounts receivable, above noted, as of June 30, 1983, are shown in Schedule "A". There is no such schedule annexed to Exhibit B-7.

There are two kinds of security taken by the plaintiff's predecessor, Comcap Factors Inc. The first is a type of contract known as a factoring agreement. Two are exhibited, both dated August 13, 1975.

Exhibit B-1 is the written form of such an agreement, whereby Perrin Turner Ltd. is to sell all its accounts receivable in the regular course of its business and to factor all sales, direct and indirect, to Comcap Factors Inc., a Quebec corporation, and the latter binds itself to buy all of the same. The agreement expresses its term of operation to be one year, with automatic renewal for successive year terms, unless either party, at least 90 days prior to the last day of any term gives notice to the other by registered mail. There is another termination provision in paragraph 10 of Exhibit B-1, and it permits Comcap Factors to terminate at its option and without notice if Perrin Turner "commit an act of bankruptcy or become insolvent, or breach any warranty of this agreement, or withhold, conceal or misrepresent etc. etc.". Significant in the interpretation of Exhibit B-1, also in paragraph 10, is the provision that “Rights of [Comcap] Factors arising from transactions having their inception prior to the termination of this agreement shall not be affected by such termination.” Finally, Perrin Turner agrees, promptly, upon request by Comcap Factors, to execute "any other documents that may in the opinion of (Comcap) Factors be required to give full force and effect to the provisions of this Agreement", which is said to be governed by the laws of Quebec.

Exhibit B-2 also dated August 13, 1975, is in the same printed form as is the other factoring agreement above mentioned. In this second agreement, B-2, the vendor of the accounts receivable is Perrin-Turner [sic] Réfrigération Ltée, but it is otherwise identically the same as Exhibit B-1.

A third document dated August 13, 1975, is a typewritten original instrument, exhibit B-3, whereby Perrin Turner Ltd. (with and without the hyphen) pledges to be the guarantor of Perrin-Turner Refrigeration (without acute accents) Ltée in paying to Comcap Factors Inc. the liabilities under which Perrin-Turner Refrigeration Ltée may be responsible, or has incurred or may incur, to Comcap Factors in any manner whatsoever. Here, in Exhibit B-3, paragraph 4 provides that the guarantor "may determine his [sic] or their further liability. . .by 30 days' written notice given to Comcap and this Guarantee shall not apply to any liabilities of Perrin-Turner Refrigeration to Comcap incurred after the expiration of 30 days from the date of receipt of such notice.” The instrument, Exhibit B-3, is expressed to be "supplemental to all other guarantees and/or postponement agreements. . .held by Comcap" and to be "construed in accordance with the laws of Ontario”.

The fourth document dated on August 13, 1975, is a printed form for use by Comcap Factors Inc. in Quebec, a general assignment of book debts, a signed carbon-copy duplicate original of which is Exhibit B-4. Under this instrument Perrin Turner (again, with and without the hyphen) sells and sets over to Comcap Factors “all debts, accounts, claims. . .contracts, securities, bills, notes, hypothecs and all other documents. . .in respect of the said debts, (etc. etc.)." This Exhibit B-4 bears stamped signs showing it was received in the bureau de la division d'enregistrement de Montreal, 15 août 1975 a 2h50m p.m., as no. 2626259. There is no provision for termination, but since the instrument is executed by both parties it may be terminated by mutual consent, which could include the unilateral declaration of termination by one with the other's acquiescence. Registration appears to vivify rank or order of preference for five years according to article 2122 of the Civil Code of Quebec, or for only two years in contemplation of Article 2124. In any event, this assignment of book debts, Exhibit B-4, appears not to avail against third parties under Article 1571, where the debtor has never had domicile in Quebec unless publication of notice be effected pursuant to Article 1571a. No evidence of any such compliance was adduced herein. Further the vendor, Perrin Turner, is not shown in any sense whatever to have a place of business in any registration division in Quebec. To the contrary, such place of business is shown to be in Ontario, which avails naught in contemplation of Civil Code Article 1571d.

Thus, it appears that at all material times, that is, during 1981, the registration effected in Quebec had expired in effect or had otherwise become ineffectual. It is clear on the evidence that this instrument, Exhibit B-4, the assignment of book debts, had never been registered in Ontario pursuant to any law of Ontario.

Early in February of 1979, the plaintiff's predecessor, Comcap Factors Inc., attempted to tip Perrin Turner Ltd. into bankruptcy, and the latter gave notice of its intention to show cause against such bankruptcy, all as indicated sketchily in Exhibit 1, Q. & A. 223-26, the plaintiff's answers on oral discovery. That notice of cause, however, is Exhibit 5, dated principally January 19, 1979, which is impossible, but redeemed by the attached affidavit of Perrin Turner's president, A.J. Paul La Prairie, dated February 19,1979 which seems to be true.

Shown Exhibit 5 on cross-examination the plaintiff testified, as he had testified on examination for discovery (Exhibit 1) when he said he first saw Exhibit 5, that paragraphs 4, 5 and 6 are correct. They run:

4. THAT the said Perrin-Turner, Ltd. received a notice, dated October 7th, 1977, from Comcap Factors Inc., stating that its Factoring Contract would terminate in thirty days.

5. THAT Comcap Factors Inc. subsequently ceased all of its factoring operations.

6. THAT the said Perrin-Turner, Ltd. did continue to operate and to finance its operations from its own current cash flow and some small advances from a Director, but that the tie-up in accounts receivable and work in progress prohibited Perrin-Turner, Ltd. from discharging its indebtedness to Comcap Factors Inc.

The plaintiff testified that he had not seen that "notice of cause against a petition”, Exhibit 5, before his examination for discovery. He said that he believed that Comcap Factors had simply desisted upon the bankruptcy petition as of September 25, 1979. His confirmation of the veracity of paragraphs 4, 5 and 6 is most significant.

Accordingly, along with petitioning Perrin Turner into bankruptcy in the plaintiff's mind, Comcap Factors invoked a hybrid procedure drawn from paragraphs 1 and 10 of the factoring agreement, Exhibit B-1. As noted above, the obvious interpretation of the agreement exacts, by correspondence with paragraph 10 that no rights of Comcap Factors arise at all from Perrin Turner's transactions having their inception subsequent to the termination of the agreement. And terminated it was. Both parties thereafter treated it as terminated.

It will be noted that the plaintiff complains only about the defendant's garnishment of accounts receivable owing to Perrin Turner Ltd. in paragraphs 6 and 7 of his statement of claim. The factoring agreement (Exhibit B-2) with Perrin-Turner Réfrigération Ltée and the guaranty agreement (Exhibit B-3), both executed on the same day as was Exhibit B-1, do not enter into consideration here.

The Court is not an accounting or bookkeeping institution and, even so it can be seen that the plaintiff's photocopied accounts end respectively on September 30, 1978 (Exhibit B-5) and on December 30, 1977 (Exhibit B-6). The plaintiff, with his counsel could not explain them clearly, or even understandably, at trial. Fortunately, in one sense, for all concerned it does not appear to be necessary to get to the bottom of those raggedy accounts. Mr. La Prairie, the former president of Perrin Turner Ltd., during cross-examination, perused paragraph 7 of the statement of claim. He swore that some of those shown were new customers of the time when Perrin Turner was no longer being financed by the plaintiff's predecessor, and in the period 1980-81, none of those accounts was outstanding for as long as two years, but rather most were paid up within 60 days, but some customers due to high interest rates then "found it better not to pay their bills and let us finance them". Some of the new customers, to the best of the witness's recollection, never paid, but the longstanding customers paid within 60 days, sometimes at most 90 or 120 days.

The effect of this testimony by Mr. La Prairie is that the plaintiff has failed to prove that any of those sums shown in paragraph 7 of his statement of claim was owing for so long as to be captured by the factoring agreement, Exhibit B-1. That means that the Minister of National Revenue was free to garnish accounts in 1981, because they were not the property of Comcap Factors Inc. This is far different from the circumstances revealed in The Royal Bank of Canada v. The Queen, [1984] C.T.C. 573; 84 D.T.C. 6439 (F.C.T.D.); affd [1986] 2 C.T.C. 211; 86 D.T.C. 6390 (F.C.A), for there the assignment of book debts was in full force and effect, having also been registered pursuant to The Personal Property Security Act of Manitoba. There, accordingly, the taxpayer (assignor of book debts) had utterly no right, title or interest in the receivables and the Crown, therefore, could not take them, because they already belonged to the bank.

Here, as has been demonstrated, the relationship between Perrin Turner and Comcap Factors was severed in November 1977, and the former carried on business and had a new source of financing whose details are not relevant or revealed here. The subject receivables were newly incurred and did not belong to Comcap Factors and, insofar as the instruments, Exhibits B-1 and B-4, are concerned, they evinced no obstacles to the Crown's garnishment in 1981 of those accounts receivable which did indeed belong to the taxpayer, Perrin Turner Ltd. Therefore they were exigible to being diverted pursuant to the Income Tax Act.

There is yet another sort of security upon which the plaintiff relies. These are financing statements (Form 18 Ontario), Exhibits A-2, A-3 and B-8, purportedly evincing registration under the Ontario Personal Property Security Act. They all show Perrin Turner Ltd. to be the debtor and Comcap Factors Inc. to be the secured party. The collateral classification in each of Exhibits A-2, A-3 and B-8 is “book debts”.

Among the plaintiff's authorities are passages from the Personal Property Security Act, R.S.O. 1980, c. 375, under tab 1 thereof. This evinces the correct view of the issues in question here, which profoundly involve property rights in the province, which, in this instance, is Ontario. The Crown should understand that no matter how puissant and pervasive the procedures, powers and remedies in the federal Income Tax Act, the Crown simply must heed property rights for it obviously cannot seize the property of someone other than its debtor-taxpayer. That would be confiscation. Property with which such taxpayer has already parted, whether by federal Bank Act-security or assignment of book debts registered under provincial Personal Property Security Acts, is naturally not exigible to seizure by the Crown as if it were still that taxpayer's property.

The foregoing observation does not conclude this matter, for it must still be determined whether the property right in Perrin Turner's listed receivables inhered in that company or Comcap Factors pursuant to the personal property security legislation. Here are pertinent passages from the cited provincial Act:

40.(2) The account debtor may pay the assignor until the account debtor receives notice, reasonably identifiable with the relevant rights, that the account has been assigned, and, if requested by the account debtor, the assignee shall furnish proof within a reasonable time that the assignment has been made, and if he does not do so, the account debtor may pay the assignor.

The account debtor may also be required to pay the revenue to the same extent that it may pay the assignor (Perrin Turner). Once Comcap Factors declared the relationship to be at an end in late 1977, Perrin Turner clearly acquiesced by ceasing to stamp its invoices to customers with notations to pay Comcap Factors directly, and Perrin Turner went about its business until 1982 with different financing arrangements. On this basis, the Crown, and not the plaintiff's predecessor, was entitled to intercept the subsequent accounts receivable of Perrin Turner.

Are Exhibits A-2, A-3 and B-8 the financing statements of some moment, or not? The Ontarian legislation further provides:

65. (1) Except as otherwise provided herein, this Act applies only to a security agreement made on or after the 1st day of April, 1976, and does not apply to a security agreement made before that day.

(2) Subject to section 66, a security agreement made before the 1st day of April, 1976, that required a registration in order to comply with The Assignment of Book Debts Act, The Bills of Sale and Chattel Mortgages Act or The Conditional Sales Act continues to have such force and effect as if those Acts had not been repealed if a financing statement was registered pursuant to this Act within ninety days after the execution of the security agreement, and section 64 applies, with necessary modifications, in respect of any extension of such time.

66. (1) Where a security interest was covered by an unexpired filing or registration under The Assignment of Book Debts Act, The Bills of Sale and Chattel Mortgages Act or The Conditional Sales Act, and in respect of which a financing statement was filed before the 1st day of April, 1976,

(a) the financing statement and any filed financing change statement relating thereto shall be deemed to be registered; and

(b) the security interest to which the financing statement relates shall be deemed to be perfected.

under this Act and, subject to this Act, the effect of the prior filing or registration is continued for the unexpired portion of the filing or registration period.

There is no evidence whatever before the Court that the assignment of book debts (Exhibit B-4), the security agreement creating Comcap Factors Inc.'s purported security interest, was ever registered pursuant to Ontario's The Assignment of Book Debts Act as it ought to have been, as mentioned in sections 65 and 66 above recited. That instrument was registered in Quebec, but the plaintiff does not plead or otherwise invoke the law or statutes of Quebec. There was just no filing or registration of that instrument, expired or unexpired, under the appropriate Ontario statute. It cannot be saved or qualified pursuant to subsections 65(2) or 66(1) of the Personal Property Security Act.

Nor can the plaintiff rely on the exhibited registered financing statements. They constitute notice of an interest and, if registered or renewed within the three-year limitation period, perfection of an interest; but for security agreements made before April 1, 1976, as the exhibited instruments herein all were, the registered financing statement does not itself create the security interest. The perfection of the Comcap Factors security interest would have required, in 1975, registration under The Assignment of Book Debts Act of, and in, Ontario. There is no evidence of such filing or registration in Ontario. Accordingly the registered financing statements, registered respectively October 6, 1975, December 12, 1978 (a period of longer than three years) and February 2, 1982 (another period exceeding three years), do not secure the plaintiff's predecessor Comcap Factors Inc. They are ineffectual to pass any property to it in any book debts whatever, from August, 1975 to the present, because no security agreement (assignment of book debts) was ever registered in Ontario prior to April 1, 1976, nor after.

The plaintiff is flogging dead horses which could not be, and were not, resurrected or revivified by the post mortem agreement which he made with Commerce Capital Corporation Ltd. and Comcap Factors Inc. (Exhibit B-7) on July 4, 1983. Those other two parties could assign only what they had which, by then and indeed much earlier, was nothing. Nemo dat quod non habet. That "nothing" which the plaintiff received could not impede the defendant's garnishment of what were Perrin Turner's own receivables. The defendant did not intercept or take any property of the plaintiff's predecessor nor anything at all upon which he could succeed in this action, as formulated, on the evidence tendered.

The plaintiff's action is dismissed along with his various claims, with costs in the defendant's favour. Costs ordinarily follow the outcome, and no exception comes to mind here.

Appeal dismissed.