Traders Finance Corporation Limited v. Levesque

Alleging that a debtor had, within three months of his assignment in bankruptcy, made to the defendant a payment which constituted an illegal preference, and alleging that the trustee had refused to institute proceedings in annulment, the plaintiff was authorized pursuant to s. of the Bankruptcy Act to commence this action in his own name for a declaration that the payment was a fraudulent preference and for recovery of the amount. The plaintiff commenced the action some three years after the payment, but within the year of his obtaining a knowledge thereof. The action was maintained by the trial judge and by a majority judgment in the Court of Appeal. The defendant argued that as the plaintiff was the assignee, under s. of the Act, of the rights of the trustee whose rights had expired by virtue of the second paragraph of art. 1040 of the Civil Code, since he had been appointed more than a year prior to the commencement of the action, the trustee had no rights to assign and the claim was prescribed.

Held: The appeal should be dismissed and the action maintained. Per Kerwin C.J. and Taschereau, Fauteux and Abbott JJ.: A creditor, in the circumstances of this case, is not the assignee of the rights of the trustee. What s. of the Bankruptcy Act gives to the creditor is a right to be preferred over the other creditors; and this right, which the creditor exercises by his action, is given to him by the law and not by the trustee. Since the trustee never had this right, he could not assign it to the creditor.

Assuming, without deciding, that art. 1040 of the Civil Code could apply, the action would not be prescribed as it was taken within the year of the creditor's obtaining knowledge of the payment.

Per Locke J.: Article 1040 of the Civil Code has no application to the cause of action referred to in s. 64 of the Bankruptcy Act, when asserted either by the trustee or under s. by a creditor claiming by virtue of an assignment. It was not "by reason of anything contained in" section 6 of the Code, being arts. 1032 to 1040 inclusive, that the creditor sought to recover and did recover. But it was as the assignee of the right of action conferred by s. 64 of the Bankruptcy Act, which right is given alone to the trustee. The Bankruptcy Act being silent as to the delay within which the action under s. 64 must be instituted, the action, in this case, was not prescribed.

Kerwin C.J. and Taschereau, Locke, Fauteux and Abbott JJ. Appeal Side, Province of Quebec', affirming a judgment of Casgrain J. Appeal dismissed.

J.:-En octobre 1953, la compagnie Garage Causapscal Limit~e, dont les ventes d'automobiles 6taient financ6es par I'appelante suivant la pratique et le mode usuels, faisait cession de ses biens. A peine dix jours avant celui de la cession, I'appelante obtenait de la compagnie un paiement de $5,702.21. Cr6ancier de la d~bitrice pour une somme de $12,000, l'intim6, dont la r6clamation fut d'abord refus~e par le syndic et plus tard admise par jugement de la Cour, n'acquit la connaissance de ce paiement qu'en f6vrier 1956. Consid6rant qu'au regard, particulibrement, des prescriptions de l'art. 64 de la Loi sur la faillite, S.R.C. 1952, c. 14, ce paiement 6tait, en 1'espice, un paiement frauduleux, il somma le syndic de prendre des proc6dures pour en faire d6clarer la nullit6 au b6ndfice de l'actif. Celui-ci ayant refus6 d'agir, 1'intim6 se pr6valut des dispositions de l'art. 16 de la loi pr6cit6e et obtint du tribunal une ordonnance 1'autorisant d'intenter, en son propre nom, des proc6dures contre l'appelante. C'est ainsi qu'apris avoir satisfait aux exigences de l'art. 16 et aux conditions fix6es par l'ordonnance du tribunal, I'intim6 intentait, par voie de requite A la Cour sup6rieure si~geant en faillite, et ce, dans l'ann6e de la connaissance acquise de ce paiement, 1'action en justice conduisant au pr6sent appel.

L'appelante contesta et apris enquate et audition, le Juge de premidre instance fit droit au recours de l'intim6. Port6 en appell, ce jugement fut confirm6 par une d6cision majoritaire dont l'appelante se pourvoit maintenant devant cette Cour, aprbs y avoir 6t6 autoris6e.

Au seuil de la consid6ration du m6rite de cet appel, il convient de noter les faits suivants. Il est admis aux plaidoiries que la d6bitrice a bien, dans les dix jours pr6c6dant celui de la cession, fait & l'appelante le paiement en question. Il ne fait aussi aucun doute que si ce paiement doit 6tre retenu comme validement fait, il aura pour effet de procurer A l'appelante une pr6f6rence sur d'autres crean- CNAN ciers, dont l'intim6. Enfin, la preuve au dossier supporte amplement, comme il est express6ment ou implicitement reconnu par les Juges de la majorit6 en Cour d'Appel, la proposition que la pr6somption de fraude 6dict6e en l'art. 64 de la Loi sur la faillite A l'ggard de tels paiements, n'a pas 6t6 repouss6e, ainsi qu'en a jug6 le Juge de premibre instance. Dans cette situation, il reste a considgrer le principal moyen soumis par I'appelante, devant les Cours infirieures et en cette Cour, et voulant que les proc6dures intent6es par l'intim6 soient tardives.

Sur ce point, l'appelante argumente comme suit. L'intim6, dit-elle, qui, au d6faut d'agir du syndic, a obtenu, en vertu de l'art. 16 de la Loi sur la faillite, le droit de prendre des procedures, est cessionnaire des droits du syndic et ne saurait avoir, en cette qualit6, plus de droits qu'en avait le c6dant. Or, poursuit-elle, lorsqu'A la suite de l'ordonnance du tribunal, le syndic, se soumettant aux dispositions de Particle, d6clarait c6der ses droits h 1'intim6, le syndic 6tait et depuis 1'ann6e suivant le jour de sa nomination en octobre 1953, d6chu du droit de poursuivre l'appelante si l'on applique, comme on le doit, le deuxibme paragraphe de 'art. 1040 du Code Civil.

Cet article, visant sp6cifiquement les recours accords au creancier par le Code Civil, dans le cas des contrats et paiements faits en fraude de ses droits, se lit comme suit:

A Mais est-il bien vrai, dans le cas qui nous occupe, que l'intimb soit, d'aprbs 'art. 16 de la Loi sur la faillite, le cessionnaire des droits du syndic. C'est li la premiere question h d6cider. Car si cette pritention, sur laquelle se fonde tout le raisonnement de l'appelante, est mal fond6e, il devient inutile de poursuivre 1'examen des autres questions que soulive ce raisonnement.

Cette pr6tention s'appuie uniquement sur la partie ici soulign6e du premier paragraphe de l'art. 16 qu'il convient CoaRP.LTD. de reproduire au long:

(1) Si un cr6ancier exige que le syndic intente des procidures qui, son avis, seraient h l'avantage de 1'actif, et que le syndic refuse ou Fauteux J. n6glige d'intenter ces proc6dures, le cr6ancier peut obtenir du tribunal une ordonnance l'autorisant h intenter des proc6dures en son propre nom et h ses propres frais et risques, en donnant aux autres cr6anciers avis des proc6dures projeties, et selon les termes et conditions que peut ordonner le tribunal; et lorsque cette ordonnance est rendue, le syndic doit ceder et transporter au cr6ancier tout son droit, titre et intirdt dans les droits incorporels ou dans l'objet des procidures, y compris tout document C l'appui.

(2) Tout profit provenant de proc6dures exerc6es en vertu du paragraphe premier, jusqu'h concurrence de sa r6clamation et des frais, appartient exclusivement au cr~ancier intentant ces proc6dures, et l'exc6dent, s'il en est, appartient h l'actif.

(3) Si, avant qu'une ordonnance soit rendue en vertu du paragraphe premier, le syndic, avec la permission des inspecteurs, d&clare au tribunal qu'il est prit A intenter les proc6dures au profit des cr6anciers, I'ordonnance doit prescrire le dilai qui lui est imparti pour ce faire, et dans ce cas l'avantage r~sultant des proc6dures, si elles sont intent6es dans le d6lai ainsi prescrit, appartient h l'actif.

Les biens du d6biteur sont le gage commun de ses cr6anciers, et, dans le cas de concours, le prix s'en distribue par contributions, h moins qu'il n'y ait entre eux des causes l6gitimes de pr6f6rence. Dans une faillite ou cession, 'art. 16, au refus du syndic de prendre des proc6dures au bindfice mais aux risques et d6pens de l'actif, accorde au cr6ancier diligent qui d6sire poursuivre en son nom et h ses risques et d6pens, une pr6f6rence exclusive jusqu'A concurrence de sa r6clamation et des frais. C'est ce droit de pr6f6rence que l'intim6 fait valoir par ses proc6dures. Ce droit, c'est la loi et non le syndic, qui le lui confire. Il diff~re, d'ailleurs, essentiellement de celui que le syndic, agissant pour la collectivit6 des cr6anciers, aurait pu faire valoir au b6n6fice de 1'actif. Le fait qu'au soutien des proc6dures qu'il pouvait prendre, en l'espce, le syndic aurait invoqu6, comme l'a fait l'intim6 dans celles qu'il a prises, le caract&re frauduleux du paiement, permet bien de dire qu'ils avaient tous deux un moyen commun mais non un droit et un recours identiques. N'ayant jamais eu le droit et le recours de 1'intim6, le syndic ne pouvait le lui c6der.

Sous l'ancienne Loi sur la faillite, S.R.C. 1927, c. 11, ce m~me droit de pr6f6rence 6tait accord6 au creancier par 1'art. 69; mais c'est le syndic qui le faisait valoir en son nom pour le b6n6fice du crdancier, lequel fournissait un cautionnement pour l'indemniser de ses frais. L'article 16 de la nouvelle loi maintient ce droit de prdf6rence, mais prescrit que Faction pour 1'exercer doit 6tre prise par le cr6ancier personnellement et non plus par le syndic. C'est pour cette raison que le Parlement a, par l'art. 16, oblig6 ce dernier A c6der et transporter au crdancier tout son droit, titre et int6rat dans les droits incorporels ou dans 1'objet des proc6dures, y compris tout document A l'appui, lorsqu'est rendue l'ordonnance autorisant le creancier A poursuivre.

Cette obligation est une cons6quence et non une condition du droit de pr6firence et du droit de poursuivre pour l'exercer.

Aussi bien, et en toute d6f6rence pour ceux qui peuvent avoir l'opinion contraire, la pr6tention de l'appelante ne peut pas 6tre acceptie.

Dans ces vues, il n'est pas nicessaire de d6cider si les dich6ances sp6cifiquement 6tablies en 1'art. 1040 du Code

Civil pour des recours qui, s'apparentant h celui qu'autorise l'art. 16, en diffirent, peuvent recevoir une application en

1'espbce. Mais assumant, sans le d6cider, que tel soit le cas, d'accord avec MM. les Juges Pratte et Choquette, je dirais que le point de depart des d6ch6ances prescrites par cet article varie selon que la poursuite est intent6e par le cr6ancier ou par le syndic. Il s'ensuivrait alors que l'intim6 ayant poursuivi dans 1'ann6e de la connaissance acquise du paiement frauduleux, son action ne saurait 6tre consid6r6e comme tardive aux termes de cet article.

Je renverrais l'appel avec d6pens.

J.:-In my opinion, the provisions of art. 1040 of the Civil Code have no application to the cause of action asserted by the respondent and, on that ground, this appeal should fail.

By the petition addressed to the judge in bankruptcy dated October 9, 1956, the fact of the payment by the bankrupt to the appellant within three months of the date of the bankruptcy was recited. It was alleged that this constitued an illegal preference, that the respondent had asked the trustee to institute proceedings against the appellant which he had refused to do, and asked authority to proceed in the petitioner's own name for the recovery of the amount.

The order made by Dion J., which authorized the commencement of the action, stated that it was made under the provisions of s. 16 of the Bankruptcy Act.

The petition filed on January 23, 1957, alleged that the proceedings were taken pursuant to leave granted by the last c J mentioned order, that within three months preceding the bankruptcy the bankrupt had paid to the appellant the sum of $5,702.01 and that this payment constituted a fraudulent preference, illegal and null as against the trustee, the creditors of the bankrupt in general and the respondent in particular: that at the date of payment the bankrupt was insolvent to the knowledge of the appellant and that the trustee had transferred to the petitioner all his right, title and interest in the claim on January 23, 1957. The claim for relief asked a declaration that the payment was a fraudulent preference and for recovery of the amount so paid, with interest.

The assignment from the trustee, so far as relevant, read: The learned trial judge found that the payment had been made within three months preceding the bankruptcy, that the appellant was aware that the garage company was insolvent and declared that the payment was fraudulent and void as against the trustee and the respondent as his assignee.

Article 1040 of the Civil Code forms part of s. 6 of the third title of the Code and reads:

The learned trial judge considered that the limitation referred to in the first sentence of the article applied and that, as it had been shown that the respondent for the first time obtained knowledge of the payment within one year of the date upon which the action was commenced, the claim was not barred.

It was the contention of the present appellant that this LEVSQUE was error in that it was the second sentence of the article which applied and that, since the trustee had been appointed LockeJ. more than a year prior to the commencement of the action, the claim was prescribed. This argument was rejected by the learned judges of the Court of AppealP, other than by Hyde J. who considered that the appeal should succeed on the ground that the cause of action which the trustee purported to assign had been prescribed before the assignment to the respondent was given, that accordingly the trustee had no rights to assign and the action failed.

Section 64 of the Bankruptcy Act reads in part:

Every conveyance or transfer of property or charge thereon made, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any insolvent person in favour of any creditor or of any person in trust for any creditor with a view of giving such creditor a preference over the other creditors shall, if the person making, incurring, taking, paying or suffering the same becomes bankrupt within three months after the date of making, incurring, taking, paying or suffering the same, be deemed fraudulent and void as against the trustee in bankruptcy.

(2) If any such conveyance, transfer, payment, obligation or judicial proceeding has the effect of giving any creditor a preference over other creditors, or over any one or more of them, it shall be presumed prima facie to have been made, incurred, taken, paid or suffered with such view as aforesaid whether or not it was made voluntarily or under pressure and evidence of pressure shall not be receivable or avail to support such transaction.

The section in terms provides that a transfer of property of the nature and under the circumstances described is fraudulent and void as against the trustee in bankruptcy. The appellant misconceived the effect of the section in alleging in his petition that the transfer was illegal and null as well against the creditors of the bankrupt in general as against himself as a creditor. The right of action conferred by the section is to obtain a declaration that the conveyance is null and void and to recover the property conveyed, and that right is given alone to the trustee. It was as the assignee of that right that the respondent sued and was found at the trial to be entitled to recover. 1 [19601 Que. Q.B. 264.

91992-8--1

S.C.R.

The limitation in art. 1040 is that no payment can be avoided "by reason of anything contained in this section" and it is not by reason of anything contained in section 6, being art. 1032 to 1036 and 1038 to 1040 both inclusive, that the respondent sought to recover and did recover. The article, therefore, in my opinion does not affect the matter. It may be said that provisions similar to those contained in the articles of the Civil Code to which I have referred are to be found in statutes of most of the provinces of Canada. They are to be found in British Columbia in the Fraudulent Preferences Act, R.S.B.C. 1948, c. 132, in Alberta in the Fraudulent Preferences Act, R.S.A. 1955, c. 120, in Saskatchewan in the Fraudulent Preferences Act, R.S.S. 1953, c. 362, in Manitoba in the Assignments Act, R.S.M. 1954, c. and in Ontario in the Assignment and Preferences Act, R.S.O. 1950, c. 26. All of these statutes deal with the rights of creditors to set aside conveyances made by persons in insolvent circumstances, which have the effect of giving a creditor a preference over the others and all of them provide that, in the event of action being brought within a certain period of the date of the conveyance, it is to be held null and void. The remedies thus given are quite distinct from those given to the trustee in bankruptcy under c. 64 of the Bankruptcy Act. The right to enforce such claims by creditors does not depend upon the fact that the person making the transfer has been declared bankrupt and these rights may be enforced under the provincial statutes unless bankruptcy has intervened. This has been held in a number of cases in various provinces, which are to be found collected in the 3rd ed. of Bradford and Greenberg on the Bankruptcy Act, at p. 158 et seq. In Quebec the limitation provided by art. 1040 only refers to proceedings under the articles mentioned.

If it were otherwise and art. 1040 on its face applied to the cause of action referred to in s. 64 of the Bankruptcy Act, when asserted either by the trustee or under s. 16 by a creditor claiming by virtue of an assignment, it would be necessary to consider whether the article was intra vires the Legislature of Quebec. The right of action is one given by a Dominion statute and the right of the trustee and his assignee to resort to the courts is a substantive right. Article 1040, if it applied, would deprive those entitled to assert