Bank of Montreal v. Union Gas Company of Canada Limited , [1969] CTC 686, 69 DTC 5441

JESSUP, J.A.:—This is an appeal from the judgment of Hartt, J. dismissing the action with costs.

William 8. Salmon Limited (hereinafter called the contractor ) is a company carrying on business in the London area as a contractor. On May 15, 1959 the contractor executed a general assignment of book debts in the following form in favour of the plaintiff and the assignment was duly registered :

THE UNDERSIGNED WM. S. SALMON LIMITED for valuable consideration HEREBY ASSIGNS AND TRANSFERS to the Bank of Montreal, herein called the Bank, all debts, claims, demands and choses in action, including without limiting the generality of the foregoing all book debts, now due or hereafter to become due, together with all judgments and other securities for the said debts, claims, demands and choses in action and all other rights and benefits in respect thereof which now are or may hereafter become vested in the undersignd.

AND the undersigned undertakes and promises to furnish to the Bank at any time and from time to time on demand a list of all its debtors with the amounts owing by each and the securities therefor and to assign and transfer the same to the Bank.

AND the undersigned hereby assigns and transfers and agrees to assign and transfer to the Bank all books and accounts, letters, invoices, papers and documents in any way evidencing or relating to all or any of the debts, claims, demands and choses in action hereby transferred or agreed to be transferred, and to furnish the Bank with all information which may assist in the collection thereof.

AND without limiting the generality of the foregoing, the undersigned hereby assigns and transfers and agrees to assign and transfer any and all claims for insurance against loss by fire, water, misappropriation or otherwise to the real or personal property of the undersigned.

THE PRESENT assignment and transfer shall be a continuing collateral security to the Bank for payment of all and every present and future indebtedness and liability of the undersigned to the Bank and any ultimate unpaid balance thereof with interest.

AND the undersigned expressly authorizes the Bank to realize the said debts, claims, demands, choses in action and securities hereby transferred from time to time in such manner and at such times as it may in its discretion deem advisable (but it shall not be bound to realize the same unless it sees fit), and may impute or appropriate the proceeds thereof in its absolute discretion on account of such parts of the said indebtedness and liability whether secured or unsecured as to the Bank may seem best; and such appropriations or imputations may be changed or varied from time to time at the discretion of the Bank; and the Bank before appropriating or imputing the same as aforesaid may deduct all reasonable costs, charges and expenses including’ reasonable commissions for collection.

THE Bank may grant extensions, take and give up securities, accept compositions, grant releases and discharges and generally deal with the said debts, claims, demands, choses in action and securities in its absolute discretion without consent of or notice to the undersigned, and the Bank shall not be responsible for any loss or damage which may occur in consequence of the negligence of any officer, agent or solicitor employed in the collection or realization thereof.

IF the amounts of any of the said debts, claims, demands, choses in action or securities be paid to the undersigned, the undersigned (or such one or other of them as shall receive the same) hereby agrees to receive the same as agent of the Bank and forthwith to pay over the same.

THE UNDERSIGNED hereby undertakes to do such other things and sign such further instruments as may from time to time be required by the Bank or any officer or solicitor thereof to vest in the Bank the said debts, claims, demands and choses in action and the securities hereby transferred or agreed to be transferred, or to collect the same, and the Bank and its Manager or acting Manager for the time being at the Market Branch are and each of them is irrevocably appointed attorneys or attorney to execute in the name and on behalf of the undersigned and the heirs or devisees, executors or administrators of the undersigned any assignment or other instrument for the said purpose and the said power of attorney shall not be revoked by the death of the undersigned.

THIS assignment is in addition to and not in substitution for any former assignment and shall not be merged in any subsequent assignment.

The assignment was given to secure advances by the plaintiff to the contractor. No notice was given to any of the debtors of the contractor until on or about March 25, 1966. Until then all payments by the debtors of the contractor were made to it.

The contractor had undertaken work for the defendant and by March 14, 1966 the work had been completed so that as of that date the defendant owed a sum of money in excess of $10,000.00 to the contractor. On March 14, 1966, pursuant to Section 120 of the Income Tax Act, a demand in writing was made by the Department of National Revenue, Taxation Division, on the defendant for the sum of $8,570.60 plus accrued interest from moneys otherwise payable to the contractor. When such demand was received by the defendant some of the con- tractor’s invoices had been checked and approved by the London office of the defendant and the invoices which had been so checked and approved totalled $2,887.52. While the remaining vouchers were in the course of being checked and approved at the London office of the defendant there is no suggestion in the case that the agreement between the defendant and the contractor made such approvals a condition of liability and it is clear that as of March 14, 1966 the defendant owed the contractor an amount in excess of $10,000.00.

On March 24, 1966 the defendant paid, pursuant to the statutory demand, the sum of $2,887.52 to the Receiver General of Canada. On or about March 26, 1966 the defendant then received from the plaintiff a letter advising the defendant of the general assignment of book debts executed by the contractor on May 15, 1959, and requiring all amounts now owing or becoming due by the defendant to the contractor to be paid to the plaintiff. On March 29, 1966 the defendant acknowledged receipt of the notice ‘from the plaintiff and advised it would make payment to the plaintiff directly for any amounts owing to the contractor. On or about April 13, 1966 the defendant received from the Department of National Revenue a further statutory demand requiring the defendant to deduct from moneys payable to the contractor the remaining balance claimed by the Department of $5,750.58. On April 14, 1966 the defendant paid this balance to the Department. Subsequently the defendant paid to the plaintiff the balance it owed the contractor after deducting the said sums of $2,887.52 and $5,750.58.

The plaintiff’s claim in this action was for $5,750.58, the amount of the payment made by the defendant to the Department on April 14, 1966.

Section 120 of the Income Tax Act under which the defendant purported to act provides in part :

120. (1) When the Minister has knowledge or suspects that a person is or is about to become indebted or liable to make any payment to a person liable to make a payment under this Act, he may, by registered letter or by a letter served personally, require him to pay the moneys otherwise payable to that person in whole or in part to the Receiver General of Canada on account of the liability under this Act.

(2) The receipt of the Minister for moneys paid as required under this section is a good and sufficient discharge of the original liability to the extent of the payment.

(4) Every person who has discharged any liability to a person liable to make a payment under this Act without complying with a requirement under this section is liable to pay to Her Majesty an amount equal to the liability discharged or the amount which he was required under this section to pay to the Receiver General of Canada, whichever is the lesser.

The defendant also relies on Section 123(1) of the statute:

123. (1) No action lies against any person for withholding or deducting any sum of money in compliance or intended compliance with this Act.

The principles on which the plaintiff founds its case are stated in Halsl)ury s Laws of England, 3rd ed. Vol. 4, page 498 :

1026. Notice not necessary as between assignor and assignee. As between the assignor and the assignee, an equitable assignment, whether voluntary or for value, is absolute and complete without notice having been given to the debtor or fundholder, for notice does not render the title perfect, and formerly was not even a step in the title. Moreover, notice is not necessary as against third persons who stand in the same position as the assignor, such as persons claiming under a subsequent assignment as volunteers, or a creditor who has obtained a charging order, or an order appointing a receiver, or a garnishee order, even though in the last case the judgment creditor gives notice to the trustee before the assignee, or the trustee in bankruptcy of the assignor. (as amended by 1968 Cumulative Supplement)

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. Halsbury, 3rd ed., Vol. 4, page 498 ; Vaines, Personal Property, 4th ed., page 299; Warren, Choses in Action, page 87; Williams, Personal Property, 18th ed., page 38. It follows as a matter of principle and elementary justice that neither will he be liable to the prior assignee where he pays, in the absence of notice, according to the order of a Court issued at the instance of a garnisheeing creditor or under the compulsion of a statutory duty such as imposed by Section 120(1). Thus the plaintiff could not assert a claim to the sum of $2,887.52 paid by the defendant to the Department on March 14, 1966 and before the plaintiff had given notice of the assignment which it held although counsel for the plaintiff took the position that it was a matter of grace no such claim was made in the present action. In my opinion Section 120(1) is intended to preserve and continue such immunity of a. fundholder or debtor even after he has received notice of a prior assignment. It creates a charge not on moneys owing or accruing due as in the case of an attaching or garnishee order but on ‘‘moneys otherwise payable” at the time of delivery of the demand. It seems to me the construction I adopt is necessary to give effect to the plain words of the statute. The charge created by the section, in my view, is a continuing charge crystallized by the state of affairs at the time of delivery of the statutory demand, and accordingly it is not affected by the subsequent knowledge of a debtor upon whom a demand under the statute has been made that the funds so charged have previously been assigned away to a third party.

Alternatively the plaintiff relies on the fact that notice of its assignment had been given to the defendant before the second statutory demand was delivered and it is argued the force of the first statutory demand was spent or nullified by the second. I cannot accept that argument. While neither of the statutory demands is an exhibit there is no suggestion in the evidence that the second demand purported by any words to vitiate the force of the first and there is no authority in the statute by which it could have such a purported effect. In my opinion, Section 120(1) of the statute, from the time of delivery of the first demand, imposed a continuing duty which was not discharged until the amount mentioned in such demand, including the interest mentioned, was paid to the Crown. The second demand can be regarded as having been delivered ex abundanti cautela.

Moreover, I conclude there is an alternate ground which defeats the plaintiff’s claim. In my view Section 120(1) creates a charge in favour of the Crown, upon delivery of a demand under the section, which is an equitable charge. I take this to be also the view of Munroe, J. expressed in Attorney-General of Canada v. Workmen’s Compensation Board of British Columbia, 67 D.L.R. (2d) at pages 19-20. Quoad the fund of debt in question here the plaintiff’s assignment is of a debt to become due in the future and the assignment is therefore an equitable one: Fdward Talby v. The Official Receiver (1888), 13 App. Cas. 523. As between two claims founded in equity and on the basis ofthe principle in Dearle v. Hall (1828), 3 Russ. 1. in my opinion priority must go to him who first gives notice. Dearle v. Hall, it is true, was a contest between competing equitable assignments and Lord Macnaghten in Francis Ridout Ward and Charles Pemberton v. Thomas Matthew Duncombe et al., [1893] A.C. 369 was of the view that the rule in Dearle v. Hall ought not to be extended to a new case. But as Lord Reid observed in B.S. Lyle Ltd. v. Rosher et al., [1959] 1 W.L.R. at page 19—

. . . that must, I think, mean a case where there is a significant distinction from the position in Dearle v. Hall.

In my view there is no such significant distinction in the facts of this case and they are embraced in the principles which provide the ratio in Dearle v. Hall.

In view of the conclusions I have reached, it is unnecessary to consider the further defence raised that the assignment to the plaintiff was in substance and operation simply a floating charge or to consider whether in any event Section 128(1) of the statute is a bar to the plaintiff’s claim.

I would dismiss the appeal with costs.