The Markham School for Human Development v. Ghods et al. [Indexed as: Markham School for Human Development v. Ghods]
60 O.R. (3d) 624
[2002] O.J. No. 3153
Court File No. 775/2000
Ontario Superior Court of Justice
Divisional Court
Epstein J.
August 15, 2002
Limitations -- Action in debt -- Acknowledgment of debt -- Part payment -- Post-dated cheque -- Post-dated cheque being acknowledgment of debt -- Commencement of limitation period extended to the date when funds withdrawn from debtor's account and payment made -- Limitations Act, R.S.O. 1990, c. L.15, ss. 45(1)(g), 50(1).
A post-dated cheque is an acknowledgment of a debt that will extend the commencement of the limitation period for an action on the debt to the date when the funds are withdrawn from the debtor's account and payment is made.
APPEAL from a judgment in an action on a debt.
Bank of Montreal v. Reinhorn, [1925] 28 O.W.N. 476; Hansen v. Randa, [1996] B.C.J. No. 1654 (S.C.), not folld Other cases referred to Bank of Baroda, Ld. v. Punjab National Bank Ld., [1944] A.C. 176, 114 L.J.P.C. 1, 60 T.L.R. 412, 88 Sol. Jo. 255 (P.C.); Keyes v. Royal Bank, 1947 26 (SCC), [1947] S.C.R. 377, [1947] 3 D.L.R. 161, revg 1946 226 (AB SCAD), [1946] 2 W.W.R. 187, [1946] 3 D.L.R. 179 (Alta. C.A.); Lewis v. Jay, 1934 125 (ON CA), [1934] O.R. 307, [1934] 3 D.L.R. 228 (C.A.), affg 1933 139 (ON SC), [1933] O.R. 682, [1933] 3 D.L.R. 763 (H.C.J.); McGlynn v. Hastie, (1918), 1918 486 (ON CA), 46 D.L.R 20, 44 O.L.R. 190 (C.A.); Reeves v. Butcher, [1892] 2 Q.B. 509, [1891-4] All E.R. Rep. 943, 60 L.J.Q.B. 619, 65 L.T. 329, 39 W.R. 626 (C.A.); Royal Securities Corp. Ltd. v. Montreal Trust Co., 1967 224 (ON CA), [1967] 2 O.R. 200, 63 D.L.R. (2d) 15 (C.A.), affg (1966), 1966 173 (ON SC), [1967] 1 O.R. 137, 59 D.L.R. (2d) 666 (H.C.J.) Statutes referred to Bills of Exchange Act, R.S.C. 1985, c. B-4, ss. 16(1), 34(1), 37(1) Limitations Act, R.S.O. 1990, c. L.15, ss. 45(1)(g), 50(1)
Howard D. Gerson, for plaintiff/respondent. David A. Weisman, for defendants/appellants. [page625]
[1] EPSTEIN J.: -- The defendants appeal from the November 30, 2000 judgment of his Honour Judge Mungovan in which the trial judge granted judgment in the amount of $3,603.01 in favour of the plaintiff. The appeal raises the issue of the effect of tendering a post-dated cheque in repayment of a debt on the commencement of the limitation period.
The Facts
[2] The defendants are the parents of two children who were enrolled in the plaintiff school for the academic years of September 1990 to June 1991 and September 1991 to June 1992. An issue arose between the parties concerning the amount the parents owed to the school for the children's tuition and related expenses. On April 7, 1992, the school provided the parents with a statement of account indicating an outstanding balance of $6,378.69. This amount covered charges for tuition, materials, daycare and transportation.
[3] The parties met on May 4, 1992 to discuss their differences. At this meeting the school presented the parents with an updated statement claiming the parents then owed $7,307.81.
[4] The parents followed up the meeting by sending the school a letter dated May 5, 1992 enclosing four post-dated cheques, each in the amount of $1,000 payable on the 15th day of each of the months of May, June, July and August 1992. In the letter, the parents described the payments as the "final school fees". As well, they noted on each cheque the words "pay off", the names of the two children and that the money related to charges for the years 1991 and 1992. The parents' evidence is that they placed the various notations on the cheques to confirm that they were in full payment of all moneys the school claimed.
[5] For its part, the school sent the parents a letter dated May 6, 1992 in which it advised the parents that in addition to the $4,000, the school reserved the right to "claim the balance of $3,700 in construction or related work to be performed" by the parents who operated a construction business. The school asked the parents to sign the letter to signify their acceptance of the school's proposed terms and return it by May 15, 1992.
[6] Rather than accepting the school's proposal, the parents sent the school a letter dated May 9, 1992 setting out their position that the matter had been resolved on May 4 for $4,000 and if the school did not agree with that position, it should return the cheques.
[7] The school wrote to the parents by letter dated May 24, 1992 to the effect that because they had not acknowledged acceptance of the terms set out in the May 6 letter, the account must be brought up to date or the school would commence proceedings. [page626]
[8] The school negotiated the four cheques as they came due and, in fact, by the time of the May 24 letter, had already deposited the first of the four post-dated cheques. Prior to depositing the cheques, the school crossed the words "pay off" from each cheque. The parents received the cancelled cheques but failed to notice this alteration.
[9] On June 16, 1998, the school commenced this action for recovery of school fees and related charges. While the statement of claim sets out the amount allegedly owing as of the date of the claim as being $7,494.26, the school actually claimed the maximum allowed in the small claims court of $6,000.
The Trial Judgment
[10] The trial judge made the following findings of fact, relevant to his disposition of the matter.
The $4,000 figure discussed at the May 4 meeting was a settlement offer the parents made.
The school rejected this offer in its letter of May 6 and advanced a counter-offer.
Accordingly, the parties did not reach an agreement to settle their differences in the course of the May 4 meeting.
The school did not receive the parents' letter of May 9 in which they rejected the counter-offer and demanded return of the cheques.
The school then, on August 15, 1992, sent the parents a revised statement of the debt.
The school delayed commencing the action due to its interest in attracting one of the children back to the school and finally commenced the action when it saw that the parents were doing well, financially.
[11] The trial judge analyzed the parents' main defence that the school commenced this action after the limitation period had expired, in the following way. He noted that the school had sent the parents two accounts of the amount owing, one on April 7, 1992 and the other on August 15 of that year. The difference in the amounts shown on these two accounts related to the accrual of interest and ongoing daycare charges. The trial judge found the second of these two bills to be the "real bill". Accordingly, the cause of action arose in July, the last period covered by the real bill or in the middle of August when the parents received the bill. Since the action was commenced in June of 1998, it was brought within the six-year limitation period.
[12] The trial judge went on to address the possibility that the cause of action may have arisen on April 7 when the school sent [page627] the first bill to the parents. In this part of the analysis, the trial judge found that the post-dated cheques represented the parents' acknowledgment of the April 7 debt. In answer to the question of whether the acknowledgment took place when the cheques were sent on May 4 or when the school negotiated each cheque, the trial judge held that the parents acknowledged the debt on each of the dates of negotiation set out in the post-dated cheques. It followed that the last date of acknowledgment of the debt was August 15, 1992. Under this scenario as well, the action was brought within time.
[13] Since this was the defendants' primary defence, and the trial judge made findings of fact that eliminated all other defences, he had no difficulty granting judgment in the plaintiff's favour.
Analysis
[14] The parents raised a number of issues in support of their appeal but the only issue seriously advanced for consideration in the context of this appeal is the effect of the post-dated cheques on the commencement of the limitation period relevant to the recovery of a debt.
[15] Section 45(1)(g) of the Limitations Act, R.S.O. 1990, c. L.15 (the "Act") provides that an action for the recovery of a debt must be commenced within six years after the cause of action arose.
[16] The case of Reeves v. Butcher, [1892] 2 Q.B. 509, [1891-4] All E.R. Rep. 943 (C.A.) stands uncontested as authority for the proposition that a cause of action runs from the earliest time at which an action could be brought. In the circumstances of this case, that time was May of 1992 when the school became aware that it and the parents had failed to reach a settlement concerning outstanding fees. It would follow that an action commenced in June of 1998 would be statute barred.
[17] However, s. 50(1) of the Act provides that "[w]here an acknowledgment in writing, signed by the principal party or the principal party's agent, is made by a person liable upon an indenture, specialty, judgment or recognizance, or where an acknowledgment is made by such person by part payment", the acknowledgment effectively extends the commencement of the limitation period.
[18] Given the trial judge's clear finding that the parties did not reach a settlement of the matter, the parents' payment of the $4,000 represents a part payment of the debt. Accordingly, the post-dated cheques potentially alter the commencement of the running of the limitation period. [page628]
[19] The dispute is over the effective date of such alteration. The parents submit that a post-dated cheque tendered in payment is an acknowledgment of debt from the time the cheque is delivered and not as of the time it is negotiated. This proposition, if correct, would mean that the limitation period started to run on May 5, 1992 and that the action was commenced out of time. The school argues that when payment is tendered by way of a post-dated cheque, the debt is acknowledged and therefore the limitation period starts to run on the date the cheque is actually negotiated. Since the school negotiated two cheques after June 16, 1992, the action was commenced within the limitation period.
[20] The parents rely on two cases in support of their position that the applicable date of the acknowledgment of a debt in circumstances where payment is made by tendering post- dated cheques, is the delivery date of the cheques. The first case is Bank of Montreal v. Reinhorn, [1925] 28 O.W.N. 476. Mowat J.'s decision on this point was that the "new promise was when the [post-dated] cheque was given". Justice Mowat cited several old authorities in support of this proposition. The decision was appealed, and the Ontario Court of Appeal allowed the appeal and ordered a new trial. Unfortunately, counsel have not been able to provide me, nor have I been able to learn more, about this case, the reasons why a new trial was ordered or the final determination of the matter.
[21] The second case the parents rely upon is Hansen v. Randa, [1996] B.C.J. No. 1654 (S.C.). In that decision, Boyle J. followed Reinhorn and found that "the date of confirmation by payment is the date the plaintiffs received the cheques."
[22] With respect, I am of the view that, in the circumstances where the decision was overturned, Justice Mowat's reasoning in Reinhorn cannot be relied upon and Hansen was wrongly decided.
[23] In my view, the error in the reasoning advanced in Reinhorn and Hansen lies in the failure to recognize the significance of each of two dates -- the date when a post-dated cheque is tendered for payment and the date when the funds are withdrawn from the debtor's account. Both dates carry the potential of representing an acknowledgment of a debt for the purposes of s. 50(1) of the Act.
[24] I start with the decision of the Supreme Court of Canada in Keyes v. Royal Bank, 1947 26 (SCC), [1947] S.C.R. 377, [1947] 3 D.L.R. 161 in which Estey J. made a number of observations about the nature and characteristics of a post-dated cheque. A post-dated cheque is a negotiable instrument. Just because it is post- dated, it is nonetheless a cheque and is therefore payable on demand on or after its date. However, for some purposes, a post-dated cheque may be treated as a bill of exchange payable at a later date. [page629]
[25] Section 16(1) of the Bills of Exchange Act, R.S.C. 1985, c. B-4 states that a bill of exchange cannot be conditional. Under s. 34(1), the acceptance of a bill of exchange is the signification by the drawee of his assent to the order of the drawer. However, s. 37(1) provides that the acceptance of a bill of exchange can be either general or qualified.
[26] For example, the acceptance of a bill of exchange may be qualified by being dependent on the fulfillment of a stated condition or as to time. Thus, while the tendering of a post- dated cheque is a bill of exchange that acknowledges a debt and cannot be conditional, its acceptance may be qualified by the "ostensible" date on the cheque. It follows that the cashing of the cheque constitutes a payment and therefore a further acknowledgment of the debt.
[27] There is jurisprudence that supports this analysis. In the Keyes decision, Estey J. quotes with approval a passage from the judgment of the Privy Council in Bank of Baroda, Ld. v. Punjab National Bank Ld., [1944] A.C. 176, 114 L.J.P.C. 1. At p. 193 A.C., Lord Wright says:
Certification of a cheque when it is due may have operative effect and be valid as being directed to a cheque due in praesenti, such certification being presumably followed by debiting the drawer's account with the amount. This is particularly apparent when regard is had to the American or Canadian theory, that certification is equivalent to payment. It is impossible to treat the cheque as paid before it is due.
(My emphasis)
[28] Other cases such as McGlynn v. Hastie, (1918), 1918 486 (ON CA), 46 D.L.R 20, 44 O.L.R. 190 (C.A.); Royal Securities Corp. Ltd. v. Montreal Trust Co., 1966 173 (ON SC), [1967] 1 O.R. 137, 59 D.L.R. (2d) 666 (H.C.J.) and Lewis v. Jay, 1934 125 (ON CA), [1934] O.R. 307, [1934] 3 D.L.R. 228 (C.A.) suggest that a cheque is a conditional payment until it is honoured and actual payment occurs.
[29] A post-dated cheque is a bill of exchange that acknowledges the existence of a debt on the date of delivery. However, from the above analysis it can be seen that acknowledgment occurs as well when funds are actually withdrawn from the debtor's account and payment is made.
[30] In the circumstances of this case, each time one of the four post-dated cheques was negotiated and the parents allowed the funds to be transferred, by taking no steps such as a countermand or the depletion of the account to prevent the withdrawal of the funds, payment was made and the time period for the purposes of the Limitations Act was restarted.
[31] To suggest otherwise would not only be inconsistent with the principles set out in the legislation and jurisprudence to which I have referred but also would result in consequences [page630] inconsistent with the purpose of the Act. That purpose is to provide parties certainty with respect to the time period during which actions for claims of various types may be commenced. The purpose is not to give either side an opportunity to manipulate the system and obscure this certainty. If I were to accept the parents' argument, I would effectively be sanctioning such an opportunity. For example, a debtor could agree to pay a debt by way of a number of post- dated cheques, all delivered at the time of the payment agreement, with ostensible dates going beyond the limitation period. Then, after the expiry of the limitation period, the debtor could countermand all remaining cheques and defend the action for the balance owing on the basis that the action was statute barred. This cannot be the state of the law.
[32] On this analysis, the debt arose on April 7, 1992 when the school rendered its account. The parents acknowledged this debt by tendering the four post-dated cheques in their letter dated May 5, 1992. The debt was again acknowledged by part payments made on May, June, July and August 15, 1992. This action, having been commenced within six years of the last date of acknowledgment through part payment, was commenced in time.
Conclusion
[33] The appeal is dismissed. In all of the circumstances of this case including the confusion in the law pertaining to this matter, there will be no order as to costs.
Appeal dismissed without costs.