Canada Trustco Mortgage Co. v. Minister of National Revenue, (2011) 418 N.R. 146 (SCC)

• Judge: McLachlin, C.J.C., Binnie, Deschamps, Fish, Abella, Rothstein and Cromwell, JJ.
• Court: Supreme Court (Canada)
• Case Date: July 15, 2011
• Jurisdiction: Canada (Federal)
• Citations: (2011), 418 N.R. 146 (SCC);2011 SCC 36;[2011] 2 SCR 635;418 NR 146

Can. Trustco v. MNR (2011), 418 N.R. 146 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2011] N.R. TBEd. JL.027

Canada Trustco Mortgage Company (appellant) v. Her Majesty The Queen (respondent)

(33422; 2011 SCC 36; 2011 CSC 36)

Indexed As: Canada Trustco Mortgage Co. v. Minister of National Revenue

Supreme Court of Canada

McLachlin, C.J.C., Binnie, Deschamps, Fish, Abella, Rothstein and Cromwell, JJ.

July 15, 2011.

Summary:

A lawyer maintained a trust account and a joint bank account with another lawyer at a bank. The lawyer owed tax monies. Cheques drawn on the trust account, payable to the lawyer, were presented for deposit in the joint account. The Minister of National Revenue issued requirements to pay under s. 224 of the Income Tax Act. The bank did not comply. The Minister assessed the bank for the amount of the cheques. The bank's notice of objection was rejected. The bank appealed.

The Tax Court of Canada dismissed the bank's appeal, finding that the bank was liable when the lawyer "presented the bank with the cheques". The bank appealed.

The Federal Court of Appeal, in a judgment reported [2009] N.R. Uned. 98, dismissed the appeal on the ground that the Tax Court committed no palpable or overriding error. The bank appealed.

The Supreme Court of Canada, McLachlin, C.J.C., Fish and Abella, JJ., dissenting, allowed the appeal and vacated the assessments against the bank. The bank was at no point liable to pay the Minister the proceeds of the cheques.

Banks and Banking - Topic 3484

Cheques and orders drawn on deposits - General - Nature of cheque - [See first Banks and Banking - Topic 3501 ].

Banks and Banking - Topic 3501

Cheques and orders drawn on deposits - Payment of cheques - General - Duty of bank - The Supreme Court of Canada stated that "a cheque operates neither as an assignment of funds in the hands of the payee nor as an assignment of funds in the hands of the drawee. It is a document by means of which a customer orders his or her banker to pay funds the banker owes the customer to a person or to the order of that person out of the account specified on it. In and of itself, a cheque imposes no obligation on a drawee bank to the payee. ... a bank to which a payee delivers a cheque owes no duty to that person as payee and that it is only when the cheque is presented to the bank in its capacity as drawee that it is requested to disburse the funds. Between the time the cheque is issued and the time it is presented for payment, many intervening circumstances are possible: for example, payment could be stopped ..., the cheque could be negotiated to a third party, an excessive delay could occur, or the drawer could become insolvent or incapacitated. In general, a bank does not assume any risks that may be incurred between the time it receives the cheque for deposit and the time it presents the cheque to the drawee for payment. The funds used by the drawee bank to pay the cheque are funds of the drawer. It is the drawer who transfers funds using the cheque mechanism." - See paragraphs 40, 44.

Banks and Banking - Topic 3501

Cheques and orders drawn on deposits - Payment of cheques - General - Duty of bank - A lawyer owed taxes - He maintained a trust account, and a joint bank account with another lawyer, at a bank - When the Minister of National Revenue learned that cheques drawn on the trust account, payable to the lawyer, were being presented for deposit in the joint account, the Minister issued requirements to pay to the bank under s. 224 of the Income Tax Act - When the bank did not comply, the Minister assessed the bank for the amount of the cheques - The bank's notice of objection was rejected - The Tax Court dismissed the bank's appeal, finding that the bank was liable when the lawyer "presented the bank with the cheques" - The Federal Court of Appeal affirmed the decision - The Supreme Court of Canada allowed the bank's appeal and vacated the assessments - The bank was at no point liable to pay the Minister the proceeds of the cheques - Although the lawyer was designated as payee, the instructions were to deposit the funds to the joint account - The funds were not payable to the lawyer - A bank which accepts a cheque for deposit does not do so in the capacity of a drawee even if it also happened to be the drawee - The bank owed no money to the lawyer, because "it was acting as the collecting bank for its customers, the holders of the joint account. It did not collect the proceeds of the cheques as agent for the payee [lawyer]" - The bank's acceptance of the cheques for deposit in the joint account could not result in liability to pay the funds to the Minister, because the bank's obligation was to the holders of the joint account and the Minister conceded that funds in the joint account could not be attached - When the cheques were presented for payment, only the bank had the rights and powers of a holder in due course - The court stated that "presentment for payment and deposit are not synonymous. This distinction is critical to the disposition of this case. ... [the bank] did not receive the cheques as drawee, and the instructions to deposit the funds made it a collecting bank. In that capacity, it was not liable to pay any funds to [the lawyer]." - As the bank was not liable to pay the funds to the lawyer, the bank's obligation to pay the funds to the Minister was not triggered - See paragraphs 1 to 55.

Income Tax - Topic 9233

Enforcement - Collection - Garnishment - Third party demand - Property affected - [See second Banks and Banking - Topic 3501 ].

Negotiable Instruments - Topic 4204

Cheques - Rights of holder in due course - What constitutes a holder in due course - [See second Banks and Banking - Topic 3501 ].

Negotiable Instruments - Topic 4301

Cheques - Presentment for payment - General - [See second Banks and Banking - Topic 3501 ].

Cases Noticed:

Minister of National Revenue v. National Trust Co. (1998), 229 N.R. 3; 162 D.L.R.(4th) 704 (F.C.A.), refd to. [para. 11].

Foley v. Hill (1848), 2 H.L.C. 28; 9 E.R. 1002, refd to. [para. 18].

Joachimson v. Swiss Bank Corp., [1921] 3 K.B. 110, refd to. [para. 24].

Bank of Montreal v. Minister of National Revenue, [1992] 1 C.T.C. 2292 (T.C.C.), refd to. [para. 30].

Boma Manufacturing Ltd. et al. v. Canadian Imperial Bank of Commerce, [1996] 3 S.C.R. 727; 203 N.R. 321; 82 B.C.A.C. 161; 133 W.A.C. 161, refd to. [para. 31].

J.C. Creations Ltd. v. Vancouver City Savings Credit Union et al. (2004), 195 B.C.A.C. 72; 319 W.A.C. 72; 236 D.L.R.(4th) 602; 2004 BCCA 107, refd to. [para. 31].

Westboro Flooring and Décor Inc. v. Bank of Nova Scotia et al. (2004), 187 O.A.C. 357; 241 D.L.R.(4th) 257 (C.A.), refd to. [para. 31].

B.M.P. Global Distribution Inc. et al. v. Bank of Nova Scotia et al., [2009] 1 S.C.R. 504; 386 N.R. 296; 268 B.C.A.C. 1; 452 W.A.C. 1; 2009 SCC 15, refd to. [para. 32].

Schroeder v. Central Bank of London (1876), 34 L.T. 735 (C.P. Div.), refd to. [para. 36].

Thomson v. Merchants Bank of Canada (1919), 58 S.C.R. 287, refd to. [para. 40].

Schimnowski v. Schimnowski Estate et al., [1996] 6 W.W.R. 194; 110 Man.R.(2d) 146; 118 W.A.C. 146 (C.A.), refd to. [para. 40].

Capital Associates Ltd. v. Royal Bank of Canada (1976), 17 N.R. 204; 65 D.L.R.(3d) 384 (S.C.C.), affing. (1973), 36 D.L.R.(3d) 579 (Que. C.A.), refd to. [para. 43].

Boyd v. Emmerson (1834), 2 Ad. & E. 184; 111 E.R. 71, refd to. [para. 49].

Westminster Bank Ltd. v. Hilton (1926), 43 T.L.R. 124 (H.L.), refd to. [para. 72].

Macdonald v. Tacquah Gold Mines Co. (1884), 13 Q.B.D. 535 (C.A.), refd to. [para. 80].

Hirschorn v. Evans, [1938] 2 K.B. 801 (C.A.), refd to. [para. 80].

Westcoast Commodities Inc. v. Chen (1986), 55 O.R.(2d) 264 (H.C.), refd to. [para. 80].

Statutes Noticed:

Bills of Exchange Act, R.S.C. 1985, c. B-4, sect. 16(1) [para. 38]; sect. 86(1) [para. 41]; sect. 126 [para. 39]; sect. 129 [para. 44]; sect. 165(3) [para. 74]; sect. 224(1) [para. 62].

Authors and Works Noticed:

Crawford, Bradley, The Law of Banking and Payment in Canada (2008) (2010 Looseleaf Update, Release 2), pp. 10-43, 10-46, 10-51 [para. 25]; 10-78, 24-6 [para. 26].

Ellinger, E.P., Lomnicka, Eva, and Holley, Richard, Modern Banking Law (3rd Ed. 2002), p. 598 [para. 25].

Goode, R.M., When is a cheque paid?, [1983] J. Bus. L. 164, p. 164 [para. 24].

Ogilvie, M.H., Bank and Customer Law in Canada (2007), pp. 288 [para. 24]; 289 to 291 [para. 47].

Ogilvie, M.H., Why Joint Accounts Should Not Be Garnished - Westcoast Commodities Inc. v. Jose Chow Chen (1986-87), 1 B.F.L.R. 267, generally [para. 28].

Ziegel, Jacob S., Geva, Benjamin, and Cuming, Ronald C.C., Commercial and Consumer Transactions: Cases, Texts and Materials, Negotiable Instruments and Banking (3rd Ed. 1995), vol. 2, pp. 362, 363 [para. 26].

Counsel:

R. Paul Steep and Thomas N.T. Sutton, for the appellant;

Wendy Burnham and Michael Lema, for the respondent.

Solicitors of Record:

McCarthy Tétrault, Toronto, Ontario, for the appellant;

Attorney General of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on December 10, 2010, before McLachlin, C.J.C., Binnie, Deschamps, Fish, Abella, Rothstein and Cromwell, JJ., of the Supreme Court of Canada.

On July 15, 2011, the judgment of the Supreme Court of Canada was delivered in both official languages and the following opinions were filed:

Deschamps, J. (Binnie, Rothstein and Cromwell, JJ., concurring) - see paragraphs 1 to 55;

McLachlin, C.J.C. (Fish and Abella, JJ., concurring), dissenting - see paragraphs 56 to 85.