ONTARIO

SUPERIOR COURT OF JUSTICE

Court File No. 08-CV-353114PD3
DATE: 20120206

B E T W E E N:

690536 ONTARIO INC. carrying on business as T.C. BRICKLAYERS Plaintiff

Robert C. Harason for the Plaintiff

• and -

TRIMARK HOMES LTD., NORDEL CONCRETE & DRAIN LTD. formerly known as 1312504 ONTARIO LIMITED and MARCO PEREIRA also known as AMERICO PEREIRA Defendants

Richard Cooper for the Defendants Trimark Homes Ltd and Marco Pereira

HEARD: December 6, 7, 8, 9 and 15, 2011

M.A. SANDERSON J.

Reasons for DECISION

Introduction

[ 1 ] In this case, the Plaintiff Company, carrying on business as T.C. Bricklayers, is suing a homebuilder, Trimark Homes Ltd., for payment for labour and material on four separate verbal contracts, hereinafter, the Royal York, Ruscoe, Melrose and Royal York Repair contracts.

[ 2 ] The Plaintiff claims that $162,502 plus interest is owing to it.

[ 3 ] The Defendant says all monies owing under those contracts have been paid in full.

[ 4 ] It is uncontested that the Plaintiff installed the brick and stone on a total of nine houses built by the Defendant at the Royal York, Ruscoe and Melrose locations and that it did requested repair work on at least 3 houses at Royal York Road.

[ 5 ] The contested issues are (1) the terms of the verbal contracts entered into by the principals of the two companies, Mr. Manuel Costa and Mr. Marco Pereira respectively, (2) whether, and what, if any, cash payments were made by the Defendant to the Plaintiff; and (3) whether Trimark and Pereira are liable for breach of trust.

[ 6 ] I note at the outset that apart from the declarations to which I shall later refer in these Reasons, there were no bank statements or financial records relating to each contract. There was little other contemporaneous documentation available to assist this Court in divining the terms of the contracts, whether the cash payments in question were made by the Defendant to the Plaintiff, in sorting out the credibility issues, in determining whether Trimark was in breach of trust under the Construction Lien Act or at common law, or whether Pereira was personally liable therefor.

[ 7 ] As a result, the resolution of these issues depended to a larger extent than usual on my conclusions about the credibility of Costa and Pereira based on their viva voce evidence, direct and in cross-examination.

Contractual Disputes

[ 8 ] All four disputed contracts were verbal. There are no written contracts.

[ 9 ] Neither Costa nor Pereira made notes recording the terms of their verbal agreements.

[ 10 ] Costa and Pereira were the only participants in the verbal contract discussions. No one else was present.

[ 11 ] I shall later set out the details of the contractual disputes on a contract by contract basis.

Payment Disputes

[ 12 ] Costa gave evidence that invoices were prepared and sent to Trimark for the Plaintiff's unpaid work (Exhibits 10, 11, 12, 13, 32.)

[ 13 ] The Defendant denied receiving Exhibits 11, 12 and 13.

[ 14 ] The Plaintiff denied receiving the cash payments that Pereira said he made to Costa.

[ 15 ] Pereira said he often received substantial cash payments from home buyers when they chose to pay for "extras" in cash. In that event, Trimark did not include the cost of the extras in the purchase prices shown on the written contracts. He deposited the cash received (the "cash cash") in a safe in his office and used it to pay cash to some of the trades, including the Plaintiff on occasion.

[ 16 ] Pereira gave evidence that at the material times, he had at least $100,000 in cash in that safe.

[ 17 ] He said Trimark's bank records do not reflect the "cash cash" received. He never deposited it in Trimark's bank accounts.

[ 18 ] Similarly, he gave evidence that Trimark's financial statements do not reflect cash received from home buyers.

[ 19 ] Pereira said he kept records for Trimark of the costs of building each house, including payments it made for materials and of "cash cash" to the trades. He kept those records in four filing drawers in his office. As time passed and he created newer files for houses Trimark was then building, the office staff would move the older files to the right and then downwards within the four drawers. Once they reached the right of the bottom drawer, they would be destroyed.

[ 20 ] By the time of trial, Pereira no longer had any records eflecting Trimark's costs of building each house covered in the four verbal contracts, apart from the declarations mentioned below.

[ 21 ] Pereira gave evidence that he saw no need for Trimark to retain those files once Trimark had transferred ownership to the home buyers and the trades had been paid.

[ 22 ] He said he had never kept any separate records regarding the "cash cash" received or paid to others, including the trades.

[ 23 ] As mentioned earlier, he said Trimark did keep copies of "declarations" purporting to evidence the "cash cash" payments to the trades.

[ 24 ] Pereira was unable to produce originals of any of the declarations at issue here.

[ 25 ] Counsel for both the Plaintiff and the Defendant were aware well before the commencement of the trial that the declarations could be important evidence at the trial.

[ 26 ] At trial, counsel for the Plaintiff denied the authenticity of the declarations upon which the Defendant was attempting to rely. Costa denied signing any of the declarations in issue or receiving the cash payments mentioned in the declarations. His counsel relied on s. 55 of the Ontario Evidence Act to challenge the admissibility of copies of those declarations.

[ 27 ] Neither counsel for the Plaintiff nor for the Defendants called any expert handwriting evidence, as they said they were of the view that handwriting experts would have insisted on seeing and analysing originals of the declarations, including the signatures purporting to be Costa's. No originals were available for analysis.

[ 28 ] Only the two principals, Costa and Pereira, were present when the alleged cash payments were made.

Individual Contracts

The Royal York Contract

[ 29 ] This verbal contract involved brick and stone work to be done by the Plaintiff on 5 houses at 1534, 1536, 1538, 1540 and 1542 Royal York Road in Toronto.

[ 30 ] Both Costa and Pereira agreed that Trimark agreed to pay the Plaintiff $25,000 per house plus GST for a total of $133,750.

[ 31 ] It was uncontested that the Plaintiff competently did the brick and stone work that was the subject of this contract between September and December 2002.

[ 32 ] The five closings occurred between December 13, 2002 and January 10, 2003 (Exhibits 60-70.)

[ 33 ] On March 18, 2003, the Plaintiff rendered an invoice to the Defendant for $133,750 (Exhibit 32.)

[ 34 ] The Defendant paid $80,250 by cheque dated March 21, 2003 (Exhibit 33.)

[ 35 ] Pereira gave evidence that he and Costa agreed that if Trimark would then pay the Plaintiff $12,000 in cash, the contract price would be revised to $125,000 inclusive of GST . Costa denied that such a discussion took place.

[ 36 ] Pereira gave evidence that on July 4, 2004, Trimark made a $12,000 cash payment to Costa. He pointed to Exhibit 84, a copy of a declaration dated July 4, 2004, purporting to be a receipt of $12,000 cash and signed by Costa.

[ 37 ] In 2010, well after this lawsuit was commenced, pursuant to court orders, Trimark paid $32,750 of principal plus interest and costs on the Royal York contract.

[ 38 ] The Defendant claims that the Royal York contract has been paid in full.

[ 39 ] Costa gave evidence that after the $80,250 cheque was received in March 2003, no more payments were made until the payment mentioned in paragraph 37 above was made.

[ 40 ] Counsel for the Plaintiff submitted it is apparent from its financial statements that Trimark did not have the funds to make any cash payment in July 2004.

[ 41 ] In addition, both Costa and Pereira gave evidence that as of early 2003, Costa had agreed to hold off in demanding payment of the balance owing on the Royal York contract until Trimark had been able to settle its lawsuit with St. Mary's Cement over the supply of defective concrete in respect of four of the five Royal York homes.

[ 42 ] Trimark did not receive settlement funds from that lawsuit until March 2009.

[ 43 ] Counsel for the Plaintiff submitted that given that agreement, taken together with Trimark's precarious financial position as disclosed in its financial statements, it is unlikely that Trimark would have paid any further amounts, in cash or otherwise, on account of the Royal York contract before those settlement funds became available in March 2009 [i.e., would not have paid $12,000 cash in July 2004.]

[ 44 ] The Plaintiff submits that the balance owing on the Royal York contract is $20,750.

The Ruscoe Contract

[ 45 ] This verbal contract involved brick and stonework by the Plaintiff on two houses Trimark was building at 60 and 62 Ruscoe Crescent, Toronto.

[ 46 ] Pereira gave evidence that he and Costa agreed that Trimark would pay the Plaintiff $25,000 per house, including GST , a total of $50,000.

[ 47 ] Costa gave evidence they agreed the contract price would be $25,000 per house plus GST .

[ 48 ] It is uncontested that the Plaintiff competently did the brick and stone work on the Ruscoe houses between January and March 2003, and that the closings occurred on March 14 and March 20, 2003 (Exhibits 71-74, Exhibit 54.)

[ 49 ] Pereira said Trimark paid the Plaintiff in full.

[ 50 ] He gave evidence that Costa signed declarations acknowledging the receipt of the following cash payments from Trimark:

(a) April 8, 2003 -$20,000 Exhibit 85

(b) April 23, 2003-$8,000 Exhibit 86

(c) June 11, 2003-$10,000 Exhibit 87

[ 51 ] Pereira also gave evidence that Trimark made additional cash payments to Costa totalling $12,000 [for which he has no receipts or declarations.]

[ 52 ] Costa gave evidence he never received any payment in cash or otherwise on the Ruscoe contract. He denied signing Exhibits 85, 86 and 87. He said he held off invoicing Trimark, because if he prepared and sent it an invoice, the GST would have immediately been payable on the invoiced contract, yet Pereira had told him Trimark was not yet in a position to pay the amounts owed. He promised to pay the amounts owing as soon as Trimark was in funds. Costa intended to invoice Trimark as soon as Pereira said he was in funds.

[ 53 ] Costa gave evidence that he called Pereira about every two weeks seeking payment. He did not invoice Trimark for the work until after his falling out with Pereira during the fall of 2007.

[ 54 ] Mrs. Costa gave evidence that on January 12, 2008, she faxed an invoice to Trimark for $53,500 (Exhibit 10, although someone has amended it to $52,500 because $50,000 plus GST is apparently $52,500.)

[ 55 ] Mrs. Pereira denied that Trimark received that invoice.

[ 56 ] Pereira gave evidence that he was not aware of the existence of that invoice until April 2008.

[ 57 ] The Plaintiff claims a balance owing on the Ruscoe contract of $52,500 plus interest.

The Melrose Contract

[ 58 ] This verbal contract involved brick and stonework done by the Plaintiff on two houses at 361 and 363 Melrose Avenue, Toronto.

[ 59 ] Pereira said he and Costa agreed on $15,000 per house: $30,000 cash, no GST.

[ 60 ] Costa said they agreed on $23,000 per house plus $3250 per detached garage plus GST for a total of $55,862.

[ 61 ] Pereira gave evidence that the Plaintiff has been paid in full on this contract. As the declarations that are Exhibits 88 and 89 indicate, Trimark paid $20,000 cash on March 26, 2003 and $10,000 cash on June 20, 2003.

[ 62 ] Costa said the Plaintiff has not received any payments on the Melrose contract.

[ 63 ] He gave evidence that he held off invoicing for the Melrose work as well, again at Pereira's request. He knew the Plaintiff Company would not be paid until Trimark/Pereira had funds. He did not want the Plaintiff to be required to pay GST on an unpaid amount.

[ 64 ] Again, until the fall of 2007, he regularly spoke to his then friend Pereira about when payment would be made. After they had their falling-out, he finally sent an invoice and hired a lawyer to collect the amounts owing.

[ 65 ] Mrs Costa gave evidence that she faxed an invoice for $55,862 to Trimark on October 19, 2007 (Exhibit 11.)

[ 66 ] Counsel for the Defendant submitted that the letter written by counsel for the Plaintiff to the Defendant dated April 3, 2008 showed the amount owing on Melrose to be $32,742. Counsel for the Plaintiff submitted that that was clearly a mistake (Exhibit 40, page 2.)

[ 67 ] Mrs Pereira denied that Trimark received the invoice for $55,862 before April 2008.

[ 68 ] The Plaintiff claims that $55,862 plus interest is owing on the Melrose contract.

Royal York Repairs Contract

[ 69 ] Unfortunately, when the Royal York homes were being built, the concrete supplied by St. Mary's Cement and used by another trade in pouring the concrete footings in four of the five homes and the basement walls of two of them was so defective that it needed to be removed and replaced.

[ 70 ] The jacking up of the houses necessary to complete the concrete removal and replacement caused damage to the brick and stone work.

[ 71 ] Pereira and Costa gave very different evidence about the severity of that damage and about the extent of the brickwork and stone repairs required.

[ 72 ] Costa said the repairs needed were extensive. His crew of three men took thirteen weeks to make them.

[ 73 ] Pereira said they were minor. Only a few bricks needed to be replaced. Costa's crew was at the Royal York site for only 3-4 weeks.

[ 74 ] Costa gave evidence that Pereira asked him to prepare a written quote so Trimark could submit it to the insurer. They agreed on a contract price of $31,800 plus GST ($33,390) for the repair of the Royal York houses on lots 37, 38 and 39 (Exhibit 19.)

[ 75 ] Pereira gave evidence he and Costa initially verbally agreed on a contract price of $15,000 including GST. Later, when the limited extent of the repairs needed had become apparent, they agreed on $10,000 including GST.

[ 76 ] After their falling-out in the fall of 2007, Mrs. Costa said she sent an invoice on October 19, 2007 to Trimark for $15,000 plus GST, a total of $15,900, for the Royal York repairs (Exhibit 12.)

[ 77 ] On November 19, 2008, Costa sent Trimark a replacement invoice for $33,390 (Exhibit 13.)

Overall Observations on Credibility

[ 78 ] Counsel for the Plaintiff very effectively cross-examined Periera.

[ 79 ] Many of Pereira's answers at trial (in December 2011) were different in significant respects from those he gave at discovery (in May 2009.)

[ 80 ] By the end of his cross-examination, this Court had questioned much of his trial evidence.

[ 81 ] Pereira attempted to explain away the differences between his trial and discovery evidence by referring to the fact that as of the date of the discovery, his wife was ill with a brain tumour and his daughter was facing open heart surgery.

[ 82 ] While I have no reason to disbelieve his explanation, and have great sympathy for anyone in those circumstances, this Court was advised that Mrs Pereira's condition had been diagnosed in 2008, well before the examination for discovery took place. The message about his daughter's surgery was not passed to him at the discovery until after he had given many of the answers from which he was attempting to resile at trial.

[ 83 ] Pereira asserted that after the discovery, he had received correcting information both from his wife Maria [who did give evidence] and from a Trimark employee named Cindy Budden [who did not.]

[ 84 ] I note that neither Cindy nor Maria was present either when the disputed contact terms were being discussed and agreed upon, or when the disputed cash payments were being made.

[ 85 ] Cindy may have prepared some or all of the declarations in question, or dated some of them.

[ 86 ] Maria gave no evidence with respect to the preparation, execution or dating of the specific declarations in issue here.

[ 87 ] The dating of at least one of the declarations [March 26, 2003] was important because Pereira claimed at discovery that he gave Costa $20,000 cash and Costa signed a declaration acknowledging receipt of the $20,000 on that date . In fact, by the trial, counsel for Trimark had conceded that Costa was in Portugal on March 26, 2003 and could not have received cash or executed a declaration on that date.

[ 88 ] At trial, Pereira asserted that he sometimes kept declarations in his truck for several days. Sometimes, Cindy dated them after he brought them back to the Trimark offices.

[ 89 ] At trial, Pereira repeatedly mentioned that he had obtained information from Cindy about who had dated the declarations and when. However, in response to an answer to an undertaking given on Pereira's discovery to ask Maria and Cindy whether they could identify who dated various of the declarations, counsel for Pereira advised they could not.

[ 90 ] Given Pereira's reliance on information he said he had obtained from Cindy, e.g., that Cindy had dated some of the declarations, I pointedly asked his counsel whether Cindy would be called to give evidence. He advised she would not.

[ 91 ] Cindy was not called to give evidence at trial as to when she prepared the declarations, when Pereira returned signed declarations to her, or whether she dated them after they were signed. I draw an adverse inference from her failure to give evidence.

[ 92 ] At trial, Pereira claimed he ALWAYS gave the originals of the declarations to the trades and that he only kept copies.

[ 93 ] However, at discovery, Pereira did not advise that the originals of the declarations were always provided to the trades. When asked whether he had original declarations in his files, he undertook to ascertain whether or not he did. It was only after making inquiries that his counsel advised counsel for the Plaintiff that Trimark did not have originals in its files or in its possession.

[ 94 ] Counsel for the Defendant did not provide formal notice to the Plaintiff under s. 55 of the Ontario Evidence Act that he would be attempting to adduce and rely on copies of the declarations.

[ 95 ] Counsel for the Plaintiff submitted that copies of the declarations were inadmissible for that reason alone.

[ 96 ] This Court allowed the declarations to be entered into evidence as Exhibits. Apart from Pereira's viva voce evidence, they were really the only evidence that could have supported Trimark's defence, at the heart of this case, that the Plaintiff had been fully paid.

[ 97 ] The declarations were important evidence to Trimark This Court did not hold them to be inadmissible on that basis. Should this matter be appealed, this Court was of the view the copies of the declarations, including the dates and signatures alleged to be Costa's, should be available for review by a higher Court.

[ 98 ] Speaking generally, for the reasons outlined above, I prefer Costa's evidence to Pereira's. I reject most of Pereira's viva voce evidence.

[ 99 ] Despite the existence of what purported to be copies of declarations evidencing Costa's receipt of cash, I accept Costa's evidence that he did not sign them. I am satisfied on a balance of probabilities that the cash payments Pereira alleged were made to the Plaintiff were not in fact made.

[ 100 ] I find that the copy of the declaration dated March 26, 2003 does not prove what it purports to show on its face: that Costa received $20,000 cash on March 26, 2003. I am satisfied Costa was in Portugal on March 26, 2003. I find Costa did not receive any cash payments on that date.

[ 101 ] I find, from the dates of shipment (4/09/03 and 4/21/03) (Exhibit 14) of the bricks used on the Melrose houses from the brickyard to the building sites that the brick work on Melrose was not done until after the declaration purportedly evidencing a $20,000 payment for brickwork was allegedly signed by Costa on March 26, 2003.

[ 102 ] I reject Pereira's evidence that he always or even usually gave the originals of the declarations to Costa.

[ 103 ] Counsel for Trimark submitted that had Trimark continued to owe money to the Plaintiff/Costa, Costa would have prepared and sent written demands for payment to Trimark.

[ 104 ] I accept Costa's evidence that prior to the fall of 2007, he and Pereira were friends. I find that when he repeatedly contacted Pereira by telephone, asking when the Plaintiff would be paid, Pereira repeatedly made promises of future payment.

[ 105 ] I find that the terms of the contracts were as Costa alleged in his evidence, except with respect to the contract for the Royal York repairs. Since the Plaintiff Company originally invoiced Trimark on October 19, 2007 for $15,000 plus GST for that work (Exhibit 12), I find that that contract was for $15,000 plus GST.

Trust Claims

[ 106 ] The Plaintiff also claimed against Trimark and Pereira personally based on the trust provisions of the Construction Lien Act , R.S.O. 1990 c. C-30 and also on the existence of a common law trust.

[ 107 ] The Construction Lien Act provides that a contractor who receives cash on account of a contract must use those monies first to pay those who provided services or materials on the project. A failure to do so will constitute a breach of trust for which, in certain circumstances, the directors, officers or controlling minds of a corporate contractor may be held personally liable: see St. Mary's Cement Corporation v. Construc Ltd. 1997 12114 (Ont. Sup. Court.)

[ 108 ] In that case, Molloy J wrote at para. 9:

The duty of the trustee to preserve the trust fund for the benefit of workers and suppliers is a continuous one and does not cease until … all suppliers have been paid amounts owing by the trustee.

[ 109 ] I have found the Plaintiff has proved the existence of a trust under the Act, that Trimark received monies on account of its contract for each of Royal York, Ruscoe and Melrose. The Plaintiff supplied labour and materials in respect of each. I have found that Trimark owes the Plaintiff on account of those services and materials.

[ 110 ] Trimark has not satisfied the onus of proving that it has complied with its obligations as trustee by establishing that payments made out of trust funds were to beneficiaries of the trust or within the exceptions enumerated by the Act. Trimark is liable for breach of trust.

[ 111 ] The Defendants did not produce financial records in respect of each contract.

[ 112 ] In Emco Supply v. Guegan (1987), 25 C.L.R. 229 , Salhany J. wrote:

First of all, I am convinced that what the legislation had intended in Pt. II of the Act was to provide that there be a separate and distinct trust for each contract. Section 8 speaks in terms of amounts received by a contractor "on account of the contract or sub-contract price of an improvement … and not all contracts with respect to all projects carried out by the contractor.

[ 113 ] In St. Mary's Cement, supra , Molloy J. wrote at para 35:

In my view, the language of s. 8(2) of the Act, which sets out the obligations of the trustee, is mandatory. It provides that the trustee shall not use the trust funds for any purpose inconsistent with the trust until all trades and suppliers are paid all amounts owed to them. Section 8(1) specifically provides that the trust fund is held for the benefit of persons who supplied goods and services to the improvement and who are owed money. In my view it is the clear intention of the statute that trust funds be used only to pay the claims of the beneficiaries until such time as all of them have been paid in full.

[ 114 ] At p. 36:

…in my opinion the Act contemplates a separate trust fund for every project in which the contractor is involved and a separate accounting for every trust fund…

[ 115 ] Indeed, on the evidence it appears that Trimark used proceeds from one contract to satisfy liabilities owed the trades on others.

[ 116 ] In part from the closing and payment dates, I find that Trimark used funds received in respect of Royal York to satisfy obligations owed on houses in Georgetown. It used funds paid in respect of the Ruscoe houses to pay for liabilities on Royal York. It made no payments to the Plaintiff for materials and labour supplied on Melrose and Ruscoe, despite its receipt of trust funds in respect of those contracts sufficient to cover its outstanding liabilities to the Plaintiff.

Personal Liability of Marco Pereira

[ 117 ] Counsel for the Plaintiff submits liability should be found against Pereira personally in respect of all four contracts.

[ 118 ] I find that Pereira, the directing mind of Trimark, engaged in conduct that he knew amounted to breach of trust.

[ 119 ] Pereira is personally liable under s. 13(1) of the Act for Trimark's breaches of trust mentioned earlier.

[ 120 ] Pereira is jointly and severally liable with Trimark for those breaches of trust.

Disposition

[ 121 ] Therefore, judgment will go in favour of the Plaintiff against Trimark Homes Ltd. and Marco Pereira also known as Americo Pereira for $20,750 plus interest from December 1, 2002, plus $52,500 plus interest from March 1, 2003, plus $55,862 plus interest from May 30, 2003, plus $15,000 plus interest from June 5, 2004.

[ 122 ] Counsel may make written submissions on costs on or before March 10, 2012.

M.A. SANDERSON

Released:

Court File No. 08-CV-353114PD3

DATE: 20120206

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: 690536 ONTARIO INC. carrying on business as T.C. BRICKLAYERS Plaintiff - and – TRIMARK HOMES LTD., NORDEL CONCRETE & DRAIN LTD. formerly known as 1312504 ONTARIO LIMITED and MARCO PEREIRA also known as AMERICO PEREIRA Defendants REASONS FOR DECISION M.A. SANDERSON J.

Released: February 6, 2012