A-685-88
Cumberland Properties Ltd. (Appellant) (Plain-
tiff)
v.
The Queen (Respondent) (Defendant)
INDEXED AS: CUMBERLAND PROPERTIES LTD. V. CANADA
(CA.)
Court of Appeal, Heald, Hugessen and Desjardins,
JJ.A.—Fredericton, May 25; Ottawa, June 13,
1989.
Crown — Creditors and debtors — Appeal from dismissal
of action to recover income tax refund — Crown pleading
payment — Cheque issued and mailed c/o individual signing
1978 return as secretary for company — Individual, no longer
signing officer, endorsing cheque in own name and negotiating
same — Individual dead and estate insolvent — Prior to
issuance, 1979 return filed indicating company's new address
— Prior to negotiation, letter sent reiterating correct address
— Appeal allowed — Crown not discharging burden of prov
ing actual or ostensible authority — As Revenue Canada not
having dealings with individual acting on behalf of company
prior to issuance of cheque, authority determined from face of
income tax return — Name as part of address of Head Office
not entitling individual to receive money in own name in
discharge of debt due company — Description of position as
secretary not vesting authority to receive payment — State
ment authorized signing officer limited to certification of
return — Authority to receive documents for company revoked
prior to issuance of cheque by filing 1979 return.
Agency — Corporate taxpayer's 1978 income tax return
indicating head office address as "c/o John Church" followed
by P.O. Box number — Church then was corporate secretary,
authorized signing officer — 1978 income tax refund cheque
mailed to company to Church — Church, when no longer
corporate official, endorsing cheque in own name and negotiat
ing it — Church dead and estate insolvent — Prior to cheque
being sent, corporation having advised Revenue Canada of new
head office address — Crown pleading payment as defence to
corporation's action to recover refund — Trial Judge finding
church clothed with ostensible, if not actual, authority to deal
with cheque and Crown not put on inquiry — Crown not
establishing holding out by company from which Church's
authority to negotiate cheque could be inferred — Limited
authority given Church withdrawn before cheque issued.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Bills of Exchange Act, R.S.C., 1985, c. B-4, s. 165.
Federal Court Rules, C.R.C., c. 663, R. 337.
Income Tax Act, S.C. 1970-71-72, c. 63.
CASES JUDICIALLY CONSIDERED
DISTINGUISHED:
Bank of Montreal v. R.J. Nicol Construction (1975) Ltd.
(1981), 121 D.L.R. (3d) 230 (Ont. H.C.); Bank Canadi-
an National et al. v. Gingras, [1977] 2 S.C.R. 554.
REVERSED:
Cumberland Properties Ltd. v. Canada (M.N.R.)
(1988), 88 DTC 6284 (F.C.T.D.).
COUNSEL:
D. Leslie Smith, Q.C. for appellant (plain-
tiff).
Michael F. Donovan, Halifax, for respondent
(defendant).
SOLICITORS:
Graser, Smith & Townsend, Fredericton, for
appellant (plaintiff).
Deputy Attorney General of Canada for
respondent (defendant).
The following are the reasons for judgment
rendered in English by
HUGESSEN J.A.: 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"' on November 24, 1980,
payable as follows:
Cumberland Properties Ltd
C/0 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
authorized 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 pay
ment on behalf of the company. Mr. Church is
now dead and his estate is insolvent.
Although the instrument describes itself on its face as a
"cheque", it is not one since it is not drawn on a bank. (See
Bills of Exchange Act, R.S.C. 1985, c. B-4, s. 165.) It appears
to be a draft on the Government, drawn by the Deputy
Receiver General, addressed to the Receiver General; since
drawer and drawee are effectively the same, it is probably an
instrument which can be treated as either a bill or a note (s.
25). Nothing seems to turn on the point and I shall continue to
refer to the instrument as a cheque.
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
KIA 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
H BA/g l
(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 fol
lowing the receipt of the letter and prior to the
negotiation of the cheque.
In the Trial Division [(1988), 88 DTC 6284],
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
authorized 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 authorized 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 Con
struction (1975) Ltd.,' relied on by the Trial
Judge.'
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 pay
ment by exhibiting a receipt in the name of John
z (1981), 121 D.L.R. (3d) 230 (Ont. H.C.).
' It is also clearly distinguishes it from the factual situation
in the Supreme Court case of Bank Canadian National et al. v.
Gingras, [1977] 2 S.C.R. 554, relied on by respondent's coun
sel. That case concerned a claim made on behalf of a company
against a person who, at a time when he was actively involved
as president of the company, converted to his own use a cheque
payable to it; the case has nothing to do with ostensible
authority.
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
1, 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 "Secre-
tary". 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 certifica
tion 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 succeed
ed 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 pur
pose 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 Govern
ment 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 Receiv
er 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 [S.C. 1970-71-72, c. 63]; if the parties are
able to agree 4 on such rate and period, one of them
may move for judgment pursuant to Rule 337
[Federal Court Rules, C.R.C., c. 663]; if there is
no agreement, one of them should move to have
the question determined on a reference.
HEALD J.A.: I concur.
DESJARDINS J.A.: I concur.
° In their memoranda, the parties state that they are in
agreement but there is, in fact, a minor difference in the
compound daily interest factor mentioned by each of them.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.