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Supreme Court of Canada

Bankruptcy—Assignment of wages to secure loan—Subsequent assignment in bankruptcy by debtor—Assignee failing to prove in bankruptcy—Unconditional discharge of bankrupt—Whether assignment

[Page 272]

thereafter void and unenforceable—Bankruptcy Act, R.S.C. 1952, c. 14, s. 135(2)—The Wages Act, R.S.O. 1960, c. 421, s. 7(6) [rep. & subs. 1960-61, c. 103, s.1].

In May 1961 the respondent obtained a loan from the appellant credit union and at the same time assigned 30 per cent of his wages to the union. On October 3, 1961, the respondent made an assignment in bankruptcy and on January 11, 1962, an order was made for his unconditional discharge. The credit union did not prove its claim in the bankruptcy. On April 26, 1965, the credit union filed the assignment with the respondent’s employer and requested the latter to act upon it. The respondent then sought a declaration that he was released from all debts and liabilities incurred by him on or before October 3, 1961, and that the assignment of wages was void and unenforceable. He relied on s. 136(2) of the Bankruptcy Act, R.S.C. 1952, c. 14, which provides that “An order of discharge releases the bankrupt from all other claims provable in bankruptcy”. The judge of first instance and the Court of Appeal held in favour of the respondent. With leave, the credit union appealed to this Court.

Held: The appeal should be dismissed.

The borrowing by the respondent from the credit union created a debt provable in bankruptcy. The debt was not proved in bankruptcy, and it was now gone by operation of law. The assignment was given as a means of collection of the debt. The statutory release of the debtor under the Bankruptcy Act rendered the assignment ineffective as a means of collection.

APPEAL from a judgment of the Court of Appeal for Ontario[1], dismissing an appeal by the appellant credit union from an order of Moorhouse J. Appeal dismissed.

N.R.H. Young and R. Atamanuk, for the appellant.

R.H. Frayne, for the respondent.

The judgment of the Court was delivered by

JUDSON J.:—In Holy Rosary Parish (Thorold) Credit Union Ltd. v. Premier Trust Company[2], the Premier Trust Company, as trustee in bankruptcy of one Robitaille, a wage-earner, sought a declaration that an assignment of wages given by Robitaille to the credit union was void and unenforceable against it. This application was eventually dismissed in this Court but, at the same time, the Court said that the effect of the discharge of the bankrupt upon the credit union’s right to obtain a portion of the wages earned by the bankrupt after his discharge was not in issue in the appeal and that the Court expressed no opinion thereon. This problem is now before the Court.

[Page 273]

On May 30, 1961, Bye obtained a loan from Holy Rosary Parish (Thorold) Credit Union Limited and at the same time assigned 30 per cent of his wages. The assignment reads:

ASSIGNMENT OF WAGES

For value received, I hereby transfer, assign and set over unto the Holy Rosary Parish (Thorold) Credit Union Limited, (hereinafter referred to as the assignee), 30 per cent of all wages, salary, commission and other monies owing to me, or hereafter to become owing to me or earned by me in the employ of Overland Transport Co. or any other person, firm or corporation by whom I may be hereafter employed.

AND I HEREBY AUTHORIZE AND DIRECT my said employer or any future employer to pay the said 30 per cent of all wages, salary, commissions and other monies to the assignee, and I hereby constitute the assignee my attorney irrevocable to take all proceedings which may be proper and necessary for the recovery of any amount or amounts above assigned and to give receipts for same, or any part thereof, in my name, and I hereby release and discharge my said employers and each of them from all liability to me for or on account of any or all monies paid in accordance with the terms hereof.

This is the same form of assignment that was under consideration in the Premier Trust case and appears to be authorized by s. 7(6) of The Wages Act, R.S.O. 1960, c. 421, as amended by 9-10 Elizabeth II, c. 103. This subsection reads:

(6) Any contract hereafter made may provide for the assignment by the debtor to the creditor of a portion of the debtor’s wages up to but not exceeding the portion thereof that is liable to attachment or seizure under this section, and any provision of any contract hereafter made that provides for the assignment by the debtor to the creditor of a greater portion of the debtor’s wages than is permissible under this subsection is invalid.

On October 3, 1961, Bye made an assignment in bankruptcy. On January 11, 1962, an order was made for his unconditional discharge from bankruptcy. On April 26, 1965, the credit union filed the assignment with Overland Express Limited and requested them to act upon it. Bye then brought a motion for an order declaring

(a) that he was released from all debts and liabilities incurred by him on or before the 3rd of October 1961; and

(b) that the assignment of wages was now void and unenforceable.

Bye relies upon the Bankruptcy Act, R.S.C. 1952, c. 14, s. 135(2), which reads:

135.(2) An order of discharge releases the bankrupt from all other claims provable in bankruptcy.

[Page 274]

There is no doubt that the borrowing by Bye from the credit union did create a debt provable in bankruptcy. The credit union did not prove in bankruptcy. The debt has now gone by operation of law. The assignment was given as a means of collection of the debt. The statutory release of the debtor under the Bankruptcy Act renders the assignment ineffective as a means of collection. Both the judge of first instance and the Court of Appeal have so held and in my opinion correctly.

The appeal should be dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Young & McNamara, Thorold.

Solicitors for the respondent: Freeman & Frayne, St. Catharines.



[1] (1966), 54 D.L.R. (2d) 590.

[2] [1965] S.C.R. 503, 51 D.L.R. (2d) 591, 7 C.B.R. (N.S.) 169.

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