REASONS FOR JUDGMENT

m.a. code j.

A. OVERVIEW

[1] Giovanni Cartolano (hereinafter, Cartolano) is charged with three counts of fraud over $5,000, contrary to s. 380(1)(a) of the Criminal Code. The three frauds are alleged to have been committed in Toronto in July and August of 2007 and they relate to three cheques totalling $115,000. The three counts in the Indictment are framed broadly and generally and they use identical terms. However, at the start of the trial the Crown provided oral particulars to the effect that the three counts referred to three specific cheques as the fraudulent means by which the offences were committed. See: Criminal Code, s. 587(1)(f); R. v. Cox and Paton, 1963 78 (SCC), [1963] 2 C.C.C. 148 at 151-2 and 160 (S.C.C.).

[2] The three cheques were all drawn on the account of Lillian Williams at a Royal Bank branch in Toronto. She undoubtedly signed the three cheques. There is also no doubt that Cartolano received the monies from these three cheques. One cheque, in the amount of $15,000, was made payable to Cartolano personally. The other two cheques, in the amounts of $45,000 and $55,000, were made payable to a numbered company that Cartolano controlled.

[3] In light of the above facts, there is no issue about the “deprivation” element required to prove the offence of fraud. By negotiating the three cheques, Cartolano caused Lillian Williams to part with $115,000 of her money. The only issue is whether Cartolano used “dishonest means”, as that element is defined in the law of fraud, in order to cause this “deprivation”. See: R. v. Olan et al, (1978), 1978 9 (SCC), 41 C.C.C. (2d) 145 (S.C.C.); R. v. Zlatic (1993), 1993 135 (SCC), 79 C.C.C. (3d) 466 (S.C.C.); R. v. Théroux (1993), 1993 134 (SCC), 79 C.C.C. (3d) 449 (S.C.C.).

[4] The Crown’s theory, based on Lillian Williams’ evidence and on various documents, is that she gave the three cheques to Cartolano in blank but signed them for the purpose of having Cartolano negotiate settlements of certain debts that she owed to third parties. The payee and the amount on each cheque was to be filled in by Cartolano and paid to three of Lillian Williams’ creditors, once he had settled the amounts owing on her behalf. In other words, the Crown’s theory is that Cartolano was entrusted with the cheques as an agent. He was obliged to pay the money to the three creditors and he dishonestly made the cheques payable to himself and to his numbered company.

[5] The defence theory is that only one cheque for $15,000 was made payable to Cartolano for the above purposes and that he substantially carried out or attempted to carry out the agreement between himself and Lillian Williams, to negotiate a favourable settlement of her debts and then pay off her creditors with the $15,000 that she gave him. The other two cheques, totalling $100,000, were made payable to Cartolano’s numbered company because Lillian Williams wished to purchase Cartolano’s pizza and pasta restaurant in Barrie, which was operated by the numbered company. The $100,000 was a down payment on the total purchase price of $285,000. Furthermore, the defence theory is that the three cheques were all filled out and signed in Lillian Williams’ presence. They were not signed by her in blank.

[6] It can be seen that the case turns mainly on the credibility and reliability of the competing versions of events. If Lillian Williams’ account is true, Cartolano undoubtedly defrauded her of any part of the monies that was not used to pay off her debts. If the defence theory is true, or if it leaves a reasonable doubt, there was no fraud as the monies were knowingly paid to Cartolano for legitimate business purposes.

[7] Cartolano represented himself at trial. I initially adjourned this much-delayed trial in order to allow him one last opportunity to retain counsel. This effort was not successful. I then asked the Crown to assist Cartolano by issuing and serving subpoenas on two defence witnesses who he wished to call at trial. I also assisted him during the trial itself with examination and cross-examination of witnesses. I suggested that he call his former lawyer to seek advice about whether to testify, after the Crown had closed its case. Cartolano took up this suggestion and decided not to testify. Finally, I assisted Cartolano in obtaining production of certain documents from the bank witnesses who testified during the trial. These documents had not been produced by the banks and they were relevant to Cartolano’s defence.

B. FACTS

(i) Lillian William’s testimony concerning the Royal Bank personal loan and the three cheques written on her new Royal Bank account

[8] Lillian Williams is the alleged victim of the three counts of fraud. She is a sixty-two year old retiree who now lives in Nova Scotia. She has a grade seven education. She grew up in Nova Scotia and moved to Toronto in 1968. She lived in a rented apartment in Scarborough and raised two children, named Troy and Laverne. She did not own a house and she did not own a car. She worked for twenty-two years as a mail sorter at CANPAR. She moved back to Nova Scotia in 2010, after she retired.

[9] At the time of the alleged fraud, in 2007, she would have been fifty-seven years old. She was still working at CANPAR and living in her apartment in Scarborough. Her mother had died in 1988 and had left Lillian Williams the family home in Nova Scotia. By 2007, Lillian’s son Troy was living in this house in Nova Scotia and was doing some renovations to the house. Lillian’s daughter Laverne was in a relationship with the accused Cartolano and was working as a waitress at Cartolano’s restaurant in Barrie. Cartolano and Laverne were planning to marry.

[10] Lillian Williams first met Cartolano on Mother’s Day, in May 2007, according to her account. Since Lillian did not own a car, her daughter Laverne picked her up and drove her to the restaurant in Barrie. They had dinner at the restaurant, which was called the Riviera, and Lillian met Cartolano over dinner. There were other friends and family present. It was a social occasion and there was no discussion of any business deal, such as purchasing the restaurant. Laverne had called Lillian, prior to this Mother’s Day event, and had asked about the family property in Nova Scotia and about her grandmother’s will. The will had left the property to Lillian but it also provided that, on Lillian’s death, the property was to pass to Troy and Laverne.

[11] The second meeting between Lillian Williams and Cartolano was about two or three weeks later, around June 2007. Again, there had been phone calls prior to the meeting in which Laverne asked Lillian about the property in Nova Scotia and about what she would be receiving under the will. Laverne and Cartolano came down to Toronto for this second meeting and took Lillian out to a Red Lobster restaurant in Scarborough.

[12] Laverne had previously been responsible for causing harm to her mother’s credit rating and there were some difficulties in the relationship between mother and daughter. Lillian herself had various debts owed on three credit cards, as well as a debt that she owed to a finance company. It was at this second meeting, at the Red Lobster restaurant in Scarborough, that Cartolano began to have business discussions with Lillian Williams. There were two separate topics that they discussed. First, Cartolano suggested to Lillian that her credit rating was bad, that she needed to pay off her debts, and that he knew someone at the Royal Bank who could loan her money in order to consolidate her debts and pay them off. Lillian was interested in this idea. She was also thinking, in her own mind, that she could use a personal loan to help pay for the renovations to her house in Nova Scotia and to buy herself a car. She did not mention these further purposes for the loan to Cartolano at the time of the Red Lobster meeting. There was also no discussion about collateral or security for this personal loan. Cartolano suggested that he could get Lillian a $120,000 loan at the Royal Bank.

[13] The second topic they discussed was buying the restaurant in Barrie. Cartolano wanted to move away, either to Mexico or to the U.S., and he was training Laverne to take over and manage the restaurant. Lillian was interested in this idea as it would provide a job and income for her daughter Laverne. Lillian thought that she could also help out in the restaurant by doing some of the cooking. Cartolano said that he knew someone at the Toronto Dominion Bank (hereinafter, the TD Bank) who could provide a business loan to finance the proposed sale of the restaurant. Cartolano told Lillian that the restaurant was doing well and that she and Laverne would make enough money from it to pay off the business loan.

[14] Lillian Williams recalled that she had about $18,000 in debts. She banked at CIBC and BMO and she had three credit cards, two VISA cards with CIBC and one Mastercard with BMO. She thought she owed between $5,000 and $7,000 on these credit cards. She also owed about $8,000 to a finance company, Wells Fargo, that she had used to buy furniture. Finally, she owed about $800 to a lawyer in Nova Scotia who had helped her with the deed to the family home that she had inherited from her mother.

[15] The Red Lobster meeting concluded with Cartolano agreeing to set up appointments for both the TD Bank business loan and the Royal Bank personal loan. These two separate loans were both discussed at the same meeting and they were both proceeding at the same time, but for separate purposes, according to Lillian’s account.

[16] The next meeting, or third meeting, was in late June or early July of 2007. Cartolano set up the meeting at a Royal Bank branch in Etobicoke, in the west end of Toronto. Laverne picked up Lillian at her Scarborough apartment and drove her to the meeting. Cartolano also attended. The three of them met Laura Palumbo at the bank and discussed a personal loan to clear up Lillian’s debts. Ms. Palumbo filled out the loan application and prepared a list of Lillian’s assets and liabilities. Lillian’s assets were the Nova Scotia house and an adjacent lot. She owned both properties free and clear of any mortgage. They discussed using the house as collateral for the personal loan. Ms. Palumbo wanted to get an appraisal done on the house. Cartolano told Ms. Palumbo that she could contact him about the loan. Lillian agreed with this arrangement. She trusted Cartolano, and thought of him as a son, since he was going to marry her daughter. Cartolano would call her “Mum”.

[17] There was no discussion at the Royal Bank meeting about the restaurant sale idea and no discussion about the further plan to go to the TD Bank for a business loan. Cartolano had told Lillian not to mention this to Ms. Palumbo. He knew people at both banks and wanted to go to them separately for the two loans. He told Lillian that if she mentioned the second loan to Ms. Palumbo then she would want to get both loans for the Royal Bank. Lillian trusted Cartolano and went along with his plan. Lillian denied going to the Royal Bank for a business loan, in order to finance the purchase of the restaurant, after first going to the TD Bank and being refused the business loan. Lillian insisted that they went to the Royal Bank first and that it was only for a personal loan.

[18] There were two further meetings at the Royal Bank branch. When the loan was approved, Cartolano took Lillian Williams back to the bank to sign the loan agreement. The final meeting was to sign mortgage documents, as collateral for the loan. Once again, Cartolano took Lillian to the Royal Bank branch in Etobicoke and then to the bank’s lawyer’s office, with Ms. Palumbo, where Lillian signed the mortgage papers. At one of these meetings, Lillian opened a Royal Bank account where the loan monies would be deposited. Only Lillian had signing authority on this new account.

[19] The approved amount of the loan and mortgage was $119,000. Lillian planned to use the money to pay off her debts, renovate the home in Nova Scotia, and buy herself a car. If there was any money left over, she would simply pay it back to the bank. She assumed the car she was looking to purchase would cost about $18,000 and she planned to spend about $30,000 on the house renovations. She had to re-shingle the roof, a back wall was caving in and had to be re-built, the basement had to be finished, and there were windows, front steps and interior trim that had to be replaced. The $119,000 loan was about $50,000 more than Lillian needed to pay off her debts, complete the renovations, and buy the car. Cartolano had told her to get a loan for $120,000. She had never had a mortgage before and she thought she could just pay it back if she did not need all the money. The loan payments were about $800 a month. Her gross annual income from her job at CANPAR was about $54,000, or about $2,500 net per month, so she felt that she could afford the loan.

[20] At one of Lillian’s meetings with Cartolano in July 2007, he told her that he could arrange to settle her debts with her creditors for less than the amounts she owed. He told her to call the creditors – VISA, Mastercard, and Wells Fargo – and tell them that Cartolano was in charge of her debts and that he would be making a settlement proposal. This idea appealed to Lillian as it meant that she would pay less to her creditors. Cartolano told her that he would need cheques to pay the creditors, once he reached settlements with them. He also said this to Ms. Palumbo, at the second meeting at the Royal Bank branch, and so Ms. Palumbo gave Lillian five cheques. The cheques were drawn on Lillian’s new Royal Bank account. At the time of this second visit to the branch, in July 2007, the loan had been approved but the mortgage documents had not yet been signed and the loan monies had not been advanced into the new account. The cheques were not personalized, with her name and address, but they had her new Royal Bank account number on them. The only purpose for getting this small number of non-personalized cheques, at this early stage, was to facilitate Cartolano’s dealings with Lillian’s creditors.

[21] Sometime later, Cartolano called Lillian to say that he needed three of these cheques to pay the creditors. He did not specify which creditors but she assumed that it was VISA, Mastercard, and Wells Fargo. These were the creditors who Cartolano had told her to call, to authorize settlement of her debts. Lillian had made the calls to the creditors in July 2007, they had agreed to negotiate her debts with Cartolano, and she called Cartolano to advise him that she had taken these steps. It was at this point that he asked for the cheques and came by her apartment to pick them up. It was still July when Cartolano came by to pick up the cheques from Lillian Williams. It was a rushed visit and Laverne was not with Cartolano. Lillian gave him three signed cheques. She did not fill in the name of the payee or the amount payable. Cartolano said that he would fill in the cheques once he met with the creditors and settled the debts. Lillian forcefully denied the suggestion, put to her in cross-examination, that Cartolano filled in the cheques in her presence because she did not know how to do it. Lillian testified that Cartolano did not discuss the restaurant sale with her on this occasion.

[22] In late July 2007, Cartolano called Lillian Williams to say that the money was in the bank account. Cartolano had told Ms. Palumbo to call him, once the money was advanced, and Lillian assumed this was how Cartolano learned that the money was in her new account. The Royal Bank did not call Lillian to tell her that the money was now in her account. The bank records show a deposit of $119,600 going into Lillian Williams’ new account on July 31, 2007. It was on that same day that Cartolano called her to advise that the mortgage monies had been advanced. Lillian recalled that he said, “you can go crazy now”.

[23] The next day, August 1, 2007, the three cheques that Lillian had given to Cartolano were all negotiated. A total of $115,000 was withdrawn from Lillian’s account at the Royal Bank, leaving a balance of $3,600. Lillian had withdrawn $1,000 herself at a bank machine, that same day, and had deposited it into her sister-in-law’s account in Nova Scotia, in order to pay off the taxes owing on Lillian’s Nova Scotia home. The next day, August 2, 2007, Lillian again withdrew cash from her new account, at a bank machine, for some personal expenses. She noticed the new balance in the account and was alarmed that her money was gone. When she got home she called her daughter Laverne. Lillian assumed that Cartolano had withdrawn the money from her account, because she had given him the three cheques, but Laverne knew nothing about it. Lillian called Cartolano and asked him why he took all the money from the Royal Bank account. He replied, “don’t worry about it Mum, I’ll pay the money back.” She did not ask him why he took the money. She was upset and disappointed but she trusted him to pay the money back. He would call her “Mum”, and say that they were all “family”, and he was still in a relationship with Laverne. It did not change Lillian’s relationship with him that he had taken the money. She still felt good about him and believed that he would put the money back into her account.

[24] The three cancelled cheques, totaling $115,000, are all signed by Lillian Williams. The other writing on the cheques is not hers. The three cheques are all dated August 1, 2007. They are not pre-printed personalized cheques, as Lillian Williams’ name and address have been handwritten on the cheques by someone. The $45,000 cheque is payable to Cartolano’s numbered company, 1668192 Ontario Inc., and “DEPOSIT TO OFFER” has been written on the memo line. The $55,000 cheque is also payable to the numbered company and has the same “DEPOSIT TO OFFER” notation written on the memo line. The $15,000 cheque is payable to Cartolano personally, it was certified at the bank, and there is a notation “called and verified” written on the cheque. It has nothing written on the memo line. Lillian Williams testified that she never authorized these three payments to Cartolano and to his company.

[25] The three signed and cancelled cheques are numbered 997, 998, and 999 in the top right corner. Lillian had two more blank non-personalized cheques numbered 998 and 999, for her Royal Bank account, which she later gave to the police. She recalled that Ms. Palumbo gave her five cheques, she gave three cheques to Cartolano after signing them, and she kept two cheques which were not signed. A sixth cheque, numbered 997, was produced to her. It was blank but had her signature on it. She did not recall giving this fourth signed cheque to Cartolano, in case other debts had to be settled. In total there were six of these non-personalized cheques for the Royal Bank account. Four of them were signed by Lillian Williams, three of them were negotiated by Cartolano, and two of them were completely blank and remained in Lillian Williams’ possession until they were given to the police.

(ii) Lillian William’s testimony concerning the TD Bank business loan and the purchase of the Riviera restaurant

[26] Around the same time period as the above events were unfolding, all relating to the Royal Bank account and Lillian Williams’ personal loan and mortgage, a parallel set of events was taking place at the TD Bank. Lillian Williams testified that Cartolano and Laverne took her to a meeting at a TD Bank branch, in July 2007, in order to apply for a business loan. The purpose of the loan was to allow Lillian Williams to buy the Riviera restaurant in Barrie from Cartolano.

[27] The timing and sequence of this first meeting at the TD Bank was the subject of considerable dispute at trial. Lillian Williams testified that it took place about a week after the first meeting at the Royal Bank. She was adamant, when pressed in cross-examination, that the first Royal Bank meeting was prior to the first TD Bank meeting. Lillian, Laverne and Cartolano met with Rukhmani Reddy at the TD Bank branch, told her the purpose of the business loan, and filled out a loan application. Lillian had no prior bank account with TD Bank and so they opened a new TD account that same day. Both Laverne and Lillian had signing authority on the new TD account which would receive the monies from the business loan, once it was approved. Cartolano had told Lillian that it would cost $185,000 to buy the restaurant and so she asked to borrow this amount. However, Ms. Reddy told Lillian that the bank had a “promotion” going on and that she could ask for $285,000. Lillian agreed to request this larger amount. She did not understand that the business loan program involved a government guarantee of part of the loan. Lillian had never been in business before. She knew she would have to pay back the larger loan amount but she did not understand that she would have to pay more interest. She had not looked into the restaurant business and had not seen any income statements from the Riviera. She assumed that Cartolano owned the building where the restaurant was located, and that she was buying the building, although she agreed that Cartolano never said this. Both Lillian and Laverne signed the business loan application as it was Laverne who was going to run the restaurant, if the loan was approved.

[28] Ms. Reddy asked Lillian to return to the TD Bank branch with her T4 income slips. There was no discussion about the Royal Bank loan or about the house in Nova Scotia or about Lillian’s credit card debts, according to Lillian’s recollection. There was no collateral or guarantee for the TD Bank business loan. Lillian and Cartolano returned for a second meeting with Ms. Reddy at the TD Bank branch and provided the T4 income slips. Lillian was not counting on the $285,000 business loan being approved, as she had a job already and Laverne had a job. But if it was approved, Lillian understood that she would buy the restaurant and become the owner and Laverne would become the manager. Cartolano said that the business was booming. There were rental apartments on the second floor of the building, above the restaurant, and Lillian assumed there would also be rental income from these apartments.

[29] Both Lillian and Laverne were contact persons for the TD Bank loan. At some point in July 2007, Laverne told Lillian that the loan had not been approved. Ms. Reddy had not called Lillian Williams to tell her that the loan was not approved. Lillian did not attend any further meetings at the TD Bank. There were no further discussions with Cartolano about the purchase of the restaurant.

(iii) Lillian William’s testimony about the concluding events and reporting the alleged frauds

[30] Lillian Williams continued to have friendly relations with Cartolano and Laverne during August 2007. There were at least two further visits to Cartolano’s Barrie restaurant. On one visit, Lillian’s son came with her and met Cartolano. On a second visit, Cartolano asked Lillian to give her Royal Bank account bank card and PIN to Laverne so that he could put the money that he had taken back into the account. Lillian gave her bank card and PIN to Laverne. Cartolano and Laverne were still in a relationship and Lillian trusted Cartolano to return the money that he had taken. The monthly mortgage payment on the Royal Bank loan was $886 and on October 1, 2007 there was a $900 deposit into the account. Laverne called to tell Lillian that she was making the deposit and that Cartolano had given her the money. There were no subsequent deposits into the Royal Bank account by Laverne or Cartolano.

[31] Cartolano did pay off Lillian Williams’ debt to the Well Fargo finance company, as he had promised. He also paid off the debt to the lawyer in Nova Scotia. He did not pay off the three credit card debts that Lillian owed. She presently still owes debts on these cards that she is trying to pay off. The mortgage on the Nova Scotia house went into arrears in November 2007. Lillian called Cartolano and he said that he would put money into the account by the end of the month but he never did. She was calling him every other week and he would always say, “don’t worry Mum, the money will be paid back”.

[32] At some point, Lillian Williams was no longer able to reach either Cartolano or Laverne. She would call and get messages that their cell phones had been cut off. When she called the restaurant she was repeatedly put into an answering machine. She left Cartolano an angry message, sometime in November 2007, to the effect that she would never have gone to the Royal Bank to get the loan in order to pay off her debts if she knew that Cartolano was going to take all her money. Cartolano never returned her calls. He never explained to Lillian why he took the money from the three cheques.

[33] In December 2007 the Riviera restaurant in Barrie burned down. Lillian first spoke to the police in April 2008, when Detective Carlton of the Barrie Police Service came to speak to her about the Riviera. She told him the whole story. Lillian did not call the police about the three cheques during the fall of 2007 because Cartolano was promising to repay the money, he was still in a relationship with Laverne, and Lillian trusted him. Lillian denied the suggestion that she was trying to obtain the insurance monies after the restaurant burned down.

(iv) The Royal Bank documentary record and the testimony of Ms. Palumbo

[34] The Royal Bank records were introduced pursuant to s. 29 of the Canada Evidence Act. Laura Palumbo also gave evidence about them. She has worked for the Royal Bank for twenty years. At the relevant time, in 2007, she was a senior account manager for personal banking customers at a branch in Etobicoke. She had no business customers and did not do business loans for the bank.

[35] Ms. Palumbo recalled meeting Lillian Williams in July 2007. Lillian came to the branch with Cartolano. Lillian wanted to open a new account and to arrange a mortgage on her house in Nova Scotia. She was referred to Ms. Palumbo by Joe Ianni who was a mortgage specialist at the branch. Since they were discussing Lillian’s personal finances, Ms. Palumbo asked for Lillian’s consent to Cartolano being present. Her consent was given. Lillian described Cartolano as her future son-in-law and explained to Ms. Palumbo that her daughter Laverne and Cartolano were getting married. Laverne was not present at the meeting.

[36] They discussed the purpose of opening the new bank account and arranging a mortgage. Ms. Palumbo understood that Lillian was essentially changing banks, closing out her three CIBC VISA and BMO Mastercard accounts, paying off various debts, and consolidating the debts into a single mortgage with the Royal Bank at a reduced rate of interest. The mortgage monies were to be deposited into the new account and would be used to pay off Lillian’s debts, to pay for renovations to the house in Nova Scotia where Lillian intended to retire, and to pay Lillian’s regular expenses. Ms. Palumbo thought it was somewhat unusual that they came to a branch in Etobicoke, when Lillian Williams lived in Scarborough, but they explained that they wanted to use this particular branch because of the referral from Mr. Ianni.

[37] The above purposes for the new account and the mortgage loan were discussed in Cartolano’s presence. No other purposes were discussed. In particular, there was no mention of buying a restaurant. To get a business loan for this kind of purpose, Ms. Palumbo would have referred them to a commercial banking centre. The bank records confirmed Ms. Palumbo’s evidence on this point as her note for July 4, 2007 stated that the purpose of the Royal Bank loan was to pay out and close out the three named credit card accounts, as well as a Wells Fargo loan, and to pay for home renovations.

[38] This July 4, 2007 note also stated that Lillian “will be opening bank account”. The records indicated that July 4, 2007 was the date when Lillian and Cartolano first came in and applied for the mortgage loan. Ms. Palumbo initially testified that they would have opened the new account that same day but she was not entirely sure on this point. The signature card at the branch indicated that the account was opened on July 16, 2007. This would have been the date of their second meeting, when Lillian returned to the branch after the loan application had been approved, in order to sign the bank’s documentation relating to the loan. The bank records indicated that the loan was approved quickly, on July 5, 2007, so the second meeting would have been after this loan approval date. The third meeting, when Lillian Williams signed the legal mortgage documents at the bank’s lawyer’s office, was on July 27, 2007, according to the date on the mortgage documents. In other words, all three Royal Bank meetings relating to the mortgage, the loan and the new account appear to have taken place during July 2007.

[39] Ms. Palumbo’s recollection was that neither Cartolano nor Laverne attended at the second or third meetings and that Lillian Williams was alone on both occasions. Cartolano was definitely present at the first meeting as Ms. Palumbo recalled him discussing a plan to settle Lillian’s debts. It is common for bank customers to consolidate their debts and reduce their interest payments. The normal practice is for the bank to approve the new consolidated loan and then write to the customer’s creditors, enclosing a cheque from the new loan account, and thereby settling all the customer’s outstanding debts. However, in this case Cartolano told Ms. Palumbo that he would be settling Lillian’s debts because he knew someone who could reduce the amount of the debts. Ms. Palumbo thought this was unusual as payment of debts to creditors like VISA, Mastercard and Wells Fargo are not usually negotiated for less than their face amount, unless they have been sent to a collection agency.

[40] Ms. Palumbo also recalled a discussion at the first meeting about the cheques that she provided to Lillian Williams. It is standard practice to provide three cheques to a new account holder. These initial cheques are always numbered 997, 998 and 999 and they are not personalized. Sometimes three more cheques are provided with the same three numbers. Cartolano asked for the cheques in order to pay off Lillian’s debts, after he had negotiated the debts down to a lower amount.

[41] The exact amount of the mortgage and the loan was determined after the bank had an appraisal done on Lillian’s home in Nova Scotia. The appraisal is dated July 13, 2007 and it concluded that the market value of the house was $152,000. The bank approved a loan at 80% of the appraised value, that is, $120,000. Lillian’s four debts to Wells Fargo, the two VISA cards, and the Mastercard are all listed on the Royal Bank bank loan records. These debts totalled $16,179. Ms. Palumbo questioned Lillian as to whether she needed all of the $120,000 approved loan amount in order to pay off her debts and complete the renovations. Ms. Palumbo reviewed the nature of the renovations with Lillian and they concluded that the full $120,000 loan might be needed. They also concluded that Lillian’s income was sufficient to make the monthly payments.

[42] The mortgage closing date was July 31, 2007 and the monies were advanced into the new account on that day. A new credit card was also issued on the new account. Ms. Palumbo did not have Cartolano’s contact information. When the mortgage monies were advanced into the account on July 31, 2007, Ms. Palumbo was away on holidays. She did not make the call to advise the customer that the money was now in the account. She assumed that a bank official would call Lillian Williams. The bank would not call Cartolano unless he was authorized on the account. Only Lillian Williams had signing authority on the account.

[43] Ms. Palumbo’ impression of Lillian Williams was that she was not very sophisticated. She was an average person who understood the basics. She asked a lot of questions about the mortgage and Ms. Palumbo explained it to her. Ms. Palumbo thought that Lillian Williams understood the general concept of what they were doing. At no point was there any discussion about Lillian Williams buying Cartolano’s restaurant. Ms. Palumbo also did not recall any discussion about Lillian Williams having already gone to another bank to request a loan. This would likely have shown up in the credit check that Ms. Palumbo did on Lillian Williams. There was no indication of a prior bank loan request in the credit check. Although she did not recall any such discussion, Ms. Palumbo conceded the possibility that Lillian had already visited another bank and had been refused a loan. Ms. Palumbo also conceded the possibility that Cartolano stepped out of their meeting at some point to speak to Mr. Ianni.

[44] The three cheques negotiated by Cartolano on August 1, 2007, totalling $115,000, were all cheques that Ms. Palumbo had given to Lillian Williams for her new Royal Bank account. They were all deposited into two accounts that Cartolano and his numbered company held at the Bank of Montreal. The $15,000 cheque, payable to Cartolano personally, had been certified at the Royal Bank. The notation – “called and verified” – that is written on this cheque tends to indicate that when the cheque was certified the bank teller placed a call to Lillian Williams to verify that she had signed the cheque and to advise her of the $15,000 amount that was being certified. This is normal bank practice, according to Ms. Palumbo. The two larger cheques, totalling $100,000, were not certified and Lillian Williams would not have been called about these two cheques.

(v) The Bank of Montreal records relating to Cartolano

[45] Cartolano’s Bank of Montreal records were introduced in evidence, pursuant to s. 29 of the Canada Evidence Act. The numbered company’s records indicated that it was in the business of operating an Italian restaurant in Barrie and that Cartolano was the signing officer on the bank account. The account was in a small negative balance on August 1, 2007, when the two cheques from Lillian Williams were deposited, creating a positive balance of almost $100,000. Throughout the month of August 2007, the banking records indicated that various cheques were written, cash was withdrawn from bank machines, and debit card transactions were processed on this account. All of these withdrawals during the month of August totalled $92,464. There were no other deposits into the account other than the two Lillian Williams cheques. At the end of August 2007, the balance in the numbered company’s account was $7,815.

[46] Cartolano’s personal bank account had a balance of $20 in it, prior to the August 1, 2007 deposit of Lillian Williams’ $15,000 cheque. This deposit created a $15,020 positive balance in the account which was almost immediately depleted as a result of various withdrawals during the first week of August. By August 7, 2007, the balance in the account was $4.86. The only other deposit into the account during the month of August was $500 on August 16, 2007. There was a debit memo from the numbered company’s account on August 16, 2007 in the amount of $500 so this deposit into Cartolano’s personal account may simply have been a transfer from the restaurant’s account. At the end of August 2007, the balance in Cartolano’s personal bank account was $23.89.

(vi) The TD Bank records and the testimony of Ms. Reddy and Ms. Lai

[47] The last set of banking records were from the Toronto-Dominion Bank. They were introduced, pursuant to s. 29 of the Canada Evidence Act, and Rukhmani Reddy and Ellen Lai gave evidence about them. Ms. Reddy was a small business advisor at a TD branch in the west end of Toronto in 2007. She recalled a number of meetings with Lillian Williams about a small business loan for the purpose of buying a restaurant in Barrie. At one of these meetings, Cartolano and Lillian Williams’ daughter Laverne were also present.

[48] Ms. Reddy agreed that the initial meeting with these customers could have been set up by a man named Louis Buttino. He was a TD client who she had helped with business financing and he was also referring customers to her at the time. Ms. Reddy did not remember a lot about her meetings with Lillian, Laverne, and Cartolano and so she relied heavily on the TD bank records. She testified that the normal process with small business loans is for a number of meetings. At the first meeting, information is gathered about the loan request. The customer is invariably sent away to gather documentation required for the loan application. Documents relating to the loan applicant’s income, such as T4 slips, are the most important. Once the necessary documents have been collected, a formal loan application is then prepared by Ms. Reddy, if she is recommending the loan, and the application and supporting documents are forwarded to the bank’s underwriters who either approve or reject the initial loan request. There can be further follow-up steps at this stage, with revisions being made to the loan application, leading to re-submitting the application. The entire process can take a number of months.

[49] The particular small business loan program in this case required the customer to open a TD business account and to deposit fifteen percent of the loan amount as a down payment. The bank would then advance the eighty-five percent balance as a loan. The government guaranteed a portion of the small business loan. The cash down payment by the customer was very important as it showed that they had the ability to start running the business. There was no “promotion” being offered by the bank as part of this loan program.

[50] The bank records indicated that the new TD business account was opened by both Lillian and Laverne Williams on August 15, 2007. The account was in the name of a numbered company, 1742932 Ontario Inc., of which Laverne was the manager and Lillian was the one hundred percent owner and president. Both mother and daughter had signing authority on the account. It was generally agreed by the parties, and by the bank witnesses, that this new business account had to be opened first, before the business loan application could be submitted by Ms. Reddy to the bank’s underwriters. The bank records indicated that Ms. Reddy first recommended and sent the loan application to the underwriters on August 28, 2007, that is, about two weeks after the business account was opened. However, the bank witnesses agreed that the first meeting between Ms. Reddy and the customers could have been some considerable time before these dates in August 2007, due to delays in obtaining all the necessary documentation. In particular, if the numbered company was not yet incorporated at the time of the first meeting, and was subsequently incorporated on August 13, 2007, the date indicated on its articles of incorporation, this would delay opening the new bank account and submitting the loan application until sometime after August 13, 2007.

[51] The loan application submitted and recommended by Ms. Reddy indicated that the requested loan amount was $243,270 and that the application was declined by the bank’s underwriters. Ms. Reddy’s August 28, 2007 notes on the application indicated that Lillian’s numbered company “is purchasing the business” and that Lillian “will be involved in the business part-time” while her daughter would be “running the business full-time”. The daughter Laverne was described as “currently … the service manager at the restaurant”. Ms. Reddy’s notes went on to state that Lillian’s personal guarantee on the loan “will come from the property in Nova Scotia which has 67K in equity so we can put a lien on the property”. The notes also stated that “the client has 30K in the business account for operating expenses and a cushion”. Finally, the notes referred to a “45K initial deposit stated in purchase offer … to cover the goodwill and inventory and legal closing costs”.

[52] Ms. Reddy forwarded the loan application to the bank’s underwriters, together with various documents including the following: an MLS listing for the property; an offer to purchase for the restaurant business; a magazine article about the restaurant; a lease for the premises; financial projections for the business; and the deed to Lillian’s property in Nova Scotia. After receiving the application and supporting documents, the underwriters immediately rejected it on August 29, 2007. They requested further documentation, in particular, a completed business plan and opening balance sheet as well as information as to whether the customer’s down payment on the loan “is to be borrowed”.

[53] Ms. Reddy would have been in contact with either Lillian or Laverne, to get this follow-up information. Both Lillian and Laverne were signing officers and Ms. Reddy could not recall which one was the primary contact who she would have called. On September 11, 17, and 19, 2007, Ms. Reddy re-submitted the loan application to the underwriters, together with the opening balance sheet they had requested, and with the following information in answer to their question about the source of funds for the down payment on the loan:

“Down payment came from equity take out, client re-financing home at 120K … 30K will be deposited to client’s account shortly as this is coming from an equity take out of client’s primary residence … client owns a property in Nova Scotia that was re-financed with Royal Bank and equity was taken out for 120K …”

[54] On September 17, 2007, the underwriters rejected this renewed application, noting Lillian’s and Laverne’s poor credit history, their lack of any real experience in the restaurant industry, the minimal assets they had available, and the absence of any “actual financials” from the vendor of the restaurant. The underwriters concluded on September 20, 2007 that they had “no comfort with any aspect of this request” and stated that they would not consider “a reduced request”. Ms. Reddy would have advised the customers of the rejection of their loan application but she could not recall who she phoned or met with to advise of this final result.

(vii) The sale or sales of the Riviera restaurant and the testimony of the defence witnesses

[55] The above summarized evidence of Lillian Williams, together with the TD bank records and the evidence of Ms. Reddy, made it clear that Lillian Williams was trying to buy Cartolano’s restaurant in Barrie at some point in mid-2007. There were three different sets of documents relating to this proposed purchase and sale of the restaurant.

[56] The earliest documentation was an Agreement of Purchase and Sale dated July 9, 2007 (the first Agreement or July 9th Agreement). It is a four page standard form document issued to real estate agents by the Ontario Real Estate Association. It is used for the sale of businesses in leased premises. The blank spaces on the standard form document have been filled in with handwriting that is very similar to the handwriting found on the three Royal Bank cheques, referred to above at paragraph 24. The terms of this first Agreement were to the effect that Lillian Williams and a company to be incorporated agreed to purchase all the assets of the Riviera Pizza and Pasta House from its owner, namely, Cartolano’s numbered company. The purchase price was $285,000. Both Lillian Williams and Cartolano signed the agreement, and Laverne Williams witnessed the signatures, on July 9, 2007. It will be recalled that the Royal Bank loan was applied for on July 4, 2007 and was approved on July 5, 2007.

[57] Most significantly, in terms of the present case, the July 9, 2007 Agreement stated the following about a deposit required by the Agreement:

Buyer submits herewith $45,000 by negotiable cheque payable to Michael Issacs “Deposit Holder” to be held in trust pending completion or other termination of this Agreement and to be credited toward the Purchase Price on completion. For the purposes of this Agreement, “Upon Acceptance” shall mean that the Buyer is required to deliver the deposit to the Deposit Holder within 24 hours of the acceptance of this Agreement. … Buyer agrees to pay the balance as more particularly set out in Schedule A attached. Schedule(s) 240,000.00 attached hereto form(s) part of this Agreement.

[58] This first Agreement provided that it was “irrevocable by the buyer until 8:00 p.m. on the 9th day of July, 2007, after which time, if not accepted, this Offer shall be null and void and the deposit shall be returned to the Buyer”. The “confirmation of acceptance” clause in the Agreement stated that it was accepted by Cartolano at 7:00 p.m. on July 9, 2007. The “completion date” clause stated that the first Agreement “shall be completed by no later than 6:00 p.m. on the 30th day of July, 2007”, with vacant possession of the restaurant provided to the buyer by that date. At some point, the word “July” in the clause was crossed out and “August” was written in and initialled, thereby moving the “completion date” back to August 30, 2007. The first Agreement was not subject to any conditions, according to the written document. In particular, there was no condition in writing making the Agreement subject to the buyer obtaining financing. There was also no “Schedule A” attached to the first Agreement, setting out terms for payment of the $240,000 balance owing.

[59] The “Listing Brokerage” for the first Agreement, and the holder of the deposit cheque, was said to be “Michael Issacs” of Coldwell Banker Case Realty. His phone and fax numbers were typed on the Agreement but his name had been written by hand and inserted into the standard form “deposit” clause. This handwriting, inserting the name “Michael Issacs”, is distinctly different from the other handwriting on the first Agreement.

[60] The Crown called Michael Isaacs as a witness. He had been a residential real estate agent for over twenty years. He worked with Coldwell Banker Case from 1990 to 2009. He had never met Lillian Williams or Giovanni Cartolano. He had never seen this particular Agreement of Purchase and Sale dated July 9, 2007, until the police showed it to him. He had never heard of the Riviera restaurant in Barrie and he does not do commercial business sales or commercial real estate sales. His name was misspelled on the first Agreement but the phone and fax numbers were accurate. There was no other “Michael Issacs” at Coldwell Banker Case Realty at the time.

[61] Mr. Isaacs testified that he never received the $45,000 deposit cheque. His interpretation of the first Agreement was that it would be null and void unless the deposit was received within twenty-four hours of acceptance of the offer on July 9, 2007. Most Agreements of Purchase and Sale, in his experience, are conditional on inspection and financing but there were no conditions in this Agreement. Normally, Agreements of Purchase and Sale are typed up by a secretary in the brokerage office but this July 9th Agreement was written up by hand.

[62] Mr. Isaacs had known a chartered accountant named Kenwal Kapur for twenty years. He sold Mr. Kapur his first home twenty years ago and Mr. Kapur did Mr. Isaacs’ income tax each year. They had no business relationship. Mr. Isaacs did not think that Mr. Kapur would have had access to the standard form on which the first Agreement was written, as it is only available to licensed real estate agents. Mr. Isaacs had never heard of Mr. Kapur putting Mr. Isaacs name on an Agreement of Purchase and Sale. It would be the first time it ever happened.

[63] Lillian Williams agreed that she signed the July 9th Agreement of Purchase and Sale. Laverne had picked her up and taken her to a café in Toronto at Jane and Sheppard where Cartolano was waiting with various papers for her to sign. They had already been to the TD Bank once, to apply for the loan to buy the restaurant, and Laverne had to go back to the bank a second time in order to provide her T4 income documents to Ms. Reddy. Lillian was having to take time off work, to go to all these meetings, and she understood that by signing the July 9th Agreement she would not need to keep taking more time off work. Cartolano told her that the Agreement was to purchase the Riviera restaurant but only if the TD Bank loan was approved. This was the plan that they had discussed, initially at the Red Lobster restaurant meeting and then at the TD Bank meeting. The whole purpose in trying to arrange the TD Bank loan was so that Lillian would then be able to buy the Riviera. They did not discuss this financing condition when she signed the first Agreement at the café meeting. She simply trusted Cartolano. She did not read the first Agreement before signing it.

[64] Lillian Williams did not know or meet Michael Isaacs of Coldwell Banker Case Realty and she did not give him a $45,000 deposit cheque upon signing the first Agreement. The amendment of the completion date on the first Agreement, from July 30 to August 30, 2007, was initialed by someone using the initials “L.W.” but they were not Lillian Williams’ initials, according to her testimony. It should also be noted that Lillian Williams actually signed two separate Agreements of Purchase and Sale at the time of the meeting at the café. They are identical except that one of the versions referred to “$285,000” as the purchase price but then wrote the amount as “two hundred and eighty thousand dollars” in the same clause. This apparent mistake was not made on the other version of the Agreement. It can be inferred that the parties noticed the mistake and wrote up a second corrected version. More significantly, the erroneous version of the first Agreement is missing its fourth page. This missing fourth page would appear later.

[65] After the first Agreement of Purchase and Sale was signed on July 9, 2007, and presumably after the “completion date” was amended by somebody to provide for a later closing date of August 30, 2007, a second and different set of documents must have been prepared relating to the sale of the restaurant. These documents were only found when the TD Bank loan application file was produced during the trial, after repeated requests for it by both parties.

[66] It will be recalled that the notes made by Ms. Reddy for the TD loan application, dated August 28, 2007, made reference to both an “offer of purchase”, that she forwarded to the underwriters, and to a “45K initial deposit stated in purchase offer”. This offer of purchase (which I will refer to as the second Agreement) was obviously given to Ms. Reddy at some point and was included in the TD loan application documents that she forwarded to the bank’s underwriters on August 28, 2007. This second Agreement is between the same two parties as the first Agreement, it provides for the same sale of all the assets of the Riviera restaurant at the same $285,000 price, and it is hand written on a somewhat similar standard form issued by the Ontario Real Estate Association. However, the second Agreement contained a number of differences from the first Agreement, as follows:

• The $45,000 deposit cheque was no longer payable to “Michael Issacs” but was now to be paid directly to Cartolano’s numbered company, 1668192 Ontario Inc., which was the vendor in the transaction. However, the same terms applied to the deposit cheque as before, that is, it was “to be held in trust pending completion” of the transaction;

• The offer remained irrevocable by the buyer until 8:00 p.m. on July 9, 2007, and it had to be accepted prior to that time by the vendor. The completion date on the second Agreement was now written in as August 30, 2007, without the amendment from the earlier July 30 date that was found on the first Agreement;

• The second Agreement contained more detail than the first Agreement as the $285,000 purchase price was broken down into $170,000 for leasehold improvements, $95,000 for chattels, $10,000 for inventory, and $10,000 for goodwill. In addition, there was a “list of chattels” attached to the second Agreement. None of these details were found in the first Agreement;

• The standard form used in the second Agreement was a five page form whereas the first Agreement utilized a four page form. The new fifth page in the second Agreement contained a clause stating that the “buyer agrees to pay the balance as follows: certified cheque or draft on closing”. The balance owing under this second Agreement would be $240,000. No reference was made, in this regard, to the $55,000 cheque, payable from Lillian Williams to Cartolano’s numbered company with the memo line notation “DEPOSIT TO OFFER”, which Cartolano had cashed on August 1, 2007. This new fifth page in the second Agreement also set out two conditions, requiring the vendor “to transfer all licenses including liquor license” and the “existing lease on or before August 27, 2007”. None of these provisions were found in the first Agreement;

• Finally, the fourth page of the second Agreement looks like it has been removed from one of the two standard forms signed at the time of the first Agreement as it states “page 4 of 4” at the bottom of the form. All of the other pages to the second Agreement state that they are: “page 1 of 5”; “page 2 of 5”; “page 3 of 5”; and “page 5 of 5”. It is only on “page 4 of 4” that Lillian Williams’ full signature is found. All of the other pages are initialed by someone but they do not look like Lillian Williams’ initials.

[67] Also located in the TD Bank loan application file, immediately after this second Agreement, was an apparent photocopy of Lillian Williams’ $45,000 “DEPOSIT TO OFFER” cheque. Immediately after the cheque, her August 2007 bank statement was found. It showed that both the $45,000 cheque and the $55,000 cheque had cleared her account, leaving only a small balance. The $55,000 “DEPOSIT TO OFFER” cheque was not included in the TD Bank loan application documentation nor was it referred to in Ms. Reddy’s notes.

[68] A restaurant review and the restaurant lease were included in the TD Bank loan application file. In addition, Lillian Williams’ deed to her property in Nova Scotia was included. Finally, there were two accounting documents issued to Lillian Williams’ numbered company, 1742932 Ontario Inc. The articles of incorporation show that this company did not receive its certificate, as an Ontario corporation, until August 13, 2007. The next day, August 14, 2007, a firm of chartered accountants known as Newman and Sversky sent Lillian Williams a letter setting out “the terms of our engagement to compile pro forma statement of income” for the new company’s first financial year ending on July 31, 2008. Lillian Williams’ signature was at the bottom of this letter, indicating her agreement with the “terms set out above”.

[69] The two accounting documents provided to the TD Bank for the loan application were prepared by the Newman and Sversky firm. One was a pro forma statement of income for the company’s first year. It was dated August 14, 2007, which is the same date as the letter of engagement that the accounting firm sent to Lillian Williams. The pro forma statement of income was said to be based on “information provided by management”. It projected sales of $350,000, it then set out a detailed list of costs and expenses, leaving a projected net income before taxes of $15,800 for the first year of operation. Somewhat increased sales and increased net income were then projected for the second year of operation. The second accounting document was a pro forma opening balance sheet for the new company. It was dated September 3, 2007. It set out assets of $75,100 made up of $30,100 in cash and a $45,000 investment. It set out liabilities of $75,000 for a “shareholders’ loan payable”. Once again, it was said to be based on “information provided by management”. It purports to be signed by “Lillian Williams” but the signature does not look like hers.

[70] When Lillian Williams was questioned about the incorporation of her numbered company on August 13, 2007, and about the engagement of a firm of chartered accountants the next day to prepare a pro forma statement of income for the new company, she testified that she had little or no understanding of these matters. She identified her signature on the articles of incorporation and on the letter of engagement but she did not know when or how the company was incorporated or when or how the firm of accountants was retained. When it was put to her, in cross-examination, that she incorporated the company and retained Mr. Kapur to prepare a balance sheet for the TD bank loan, she replied that Cartolano and Laverne must have taken these steps without her.

[71] Lillian Williams recalled Cartolano telling her, at the Red Lobster meeting, that it would save her taxes if she incorporated. He said he knew an accountant who could help her. He later gave her Mr. Kapur’s name but she did not recall meeting with him in August 2007. It was much later when she first met Mr. Kapur, in March or April of 2008. She had been receiving tax notices from the government for her numbered company and she took the notices to Mr. Kapur and asked him to help. He told her that he could clear the matter up but that he required a $1,000 retainer. She could not afford the retainer.

[72] Kenwal Kapur was called as a defence witness. He is a chartered accountant at Newman and Sversky. He met Cartolano in late 2005 or early 2006 and prepared Cartolano’s personal income taxes. Cartolano also discussed his restaurant business with Mr. Kapur, but Kapur never did the accounting work for the restaurant.

[73] In 2007, Cartolano and Laverne Williams came to see Mr. Kapur about the restaurant. Lillian Williams was not with them. Mr. Kapur testified that he completed a number of tasks as a result of this meeting. First, he submitted the articles of incorporation for Lillian’s numbered company. Cartolano and Laverne brought the incorporation documents to Mr. Kapur, already signed by Lillian, and Mr. Kapur simply forwarded them to the relevant government office in order to obtain a certificate of incorporation. It would have been about two weeks before the August 13, 2007 certificate was issued that Mr. Kapur met with Cartolano and Laverne and sent in the articles of incorporation. Mr. Kapur did not consult with Lillian Williams before carrying out this first task.

[74] The second task Mr. Kapur performed was putting the name “Michael Isaacs” on the July 9, 2007 Agreement of Purchase and Sale. He agreed that this name, written on the real estate agent’s standard form, is in Mr. Kapur’s handwriting. Mr. Kapur knew Mr. Isaacs as he was a client. Mr. Kapur’s evidence varied somewhat as to exactly what he did in relation to this document. His initial account was that Cartolano and Laverne told him about the sale of the restaurant to Lillian and gave him the Agreement, already prepared. Mr. Kapur then added in the real estate agent’s name, as a referral. He would have called Mr. Isaacs, at the time of the meeting with Cartolano, to advise that Cartolano wanted to retain Mr. Isaacs and would be setting up a meeting. After further reflection, Mr. Kapur’s best recollection was that the Agreement was not filled out but was blank when Cartolano brought it to him. He did not think that he would have added Mr. Isaac’s name to an offer to purchase that had already been signed by the vendor and purchaser. He must have written Mr. Isaac’s name on the blank form, called Mr. Isaacs, and made the referral.

[75] The third task that Mr. Kapur performed related to preparation of a pro forma statement of projected income for Lillian’s new numbered company. He remembered mailing the August 14, 2007 letter of engagement to Lillian Williams but he never met with her to discuss carrying out this work. He understood that she was trying to obtain financing for the restaurant purchase, and this is why she needed the accounting work done. Once again, it was Cartolano who was instructing Mr. Kapur but Mr. Kapur needed a letter of engagement from Lillian because she was the company’s sole shareholder. Accordingly, he mailed the letter of engagement to Lillian. Mr. Kapur’s evidence varied somewhat as to whether he ever performed this accounting work for Lillian’s numbered company. Initially, he testified that he did not recall doing the work. He thought that Lillian simply called to engage the firm and that he then sent her the engagement letter. He went on to testify that his firm must have done the accounting work, although he still did not recall doing it himself. He agreed that preparing a pro forma statement of income would require a lot of information from the client and since he never met with Lillian he would have to receive this information by telephone or fax. He did not recall ever receiving the relevant information from Lillian in this manner.

[76] Mr. Kapur testified that he eventually did meet with Lillian in the spring of 2008, when she came to see him about her 2007 personal taxes and about corporate tax notices that she had received from Revenue Canada. Mr. Kapur asked for a $1,000 retainer, in order to do this work, but Lillian could not afford it. As a result, he never was retained to help with Lillian’s corporate tax problem. This is the only time that he met her. He never met her in August 2007 and never gave her advice about the proposed purchase of Cartolano’s restaurant.

[77] The third and final document relating to the sale of the restaurant in Barrie was tendered in evidence through Laverne Williams. She was subpoenaed by the defence and testified about the events leading up to Cartolano’s eventual sale of the Riviera restaurant. This final transaction was on November 9, 2007 and it involved Cartolano selling the restaurant to Laverne and not to Lillian. I will refer to this transaction as the third Agreement.

[78] Laverne Williams testified that she met Cartolano in 2006 and she learned in early 2007 that his restaurant was for sale. Laverne began talking to her mother Lillian, about purchasing the restaurant, at a number of meetings that they held with Cartolano in April and May 2007. Lillian was interested in the idea as a way to make money. She took steps to obtain a loan at the TD Bank, in order to finance the purchase. Lillian and Laverne were jointly involved in the plan to buy the restaurant and Laverne vaguely remembered attending at the first TD Bank meeting. She thought it was around June 2007. The TD Bank official, Ms. Reddy, needed more information and Lillian had to incorporate the new business so the next step was to attend at Mr. Kapur’s office. It was only Cartolano and Laverne who attended at Mr. Kapur’s office, shortly after the TD Bank meeting. They retained him with a payment of $2,000 cash, in order to incorporate Lillian’s new company. Lillian was frustrated at having to attend meetings about this project, as she was missing work. She asked Laverne to act on her behalf, in getting the new business going and in relation to banking matters. Ms. Reddy eventually called to advise that the TD Bank loan had been denied. Laverne thought this was in late June or early July.

[79] The next meeting between Lillian, Laverne and Cartolano was at a café in Toronto at Jane and Sheppard. Lillian still wanted to pursue the business loan and she asked Cartolano if they could go to another bank and if he knew someone else who could help. Cartolano arranged a meeting at the Royal Bank and all three of them attended. Once again, Lillian applied for a business loan in order to purchase the restaurant. She used her property in Nova Scotia as collateral for the loan. According to Laverne’s account, there was a secondary purpose for the loan. Lillian had a number of personal debts that she wanted to settle. This secondary purpose for the loan was entirely separate from the primary business purpose, and Lillian never mentioned it to the woman at the Royal Bank who was handling the loan application. Lillian had simply told Cartolano and Laverne privately that she intended to use some of the loan monies to clear up her debts. Laverne remembered going with Cartolano to Wells Fargo, at some point, in order to settle one of Lillian’s debts for less than what Lillian actually owed.

[80] Laverne knew nothing about the three cheques that Cartolano received from Lillian Williams in July 2007, other than what she was told. She was not present when Cartolano picked up the cheques from Lillian. Cartolano told her, at some point, that Lillian had paid him two installments of $45,000 and $55,000 towards the purchase price and that the balance of $185,000 was to be secured by a mortgage and paid over time with profits from the restaurant.

[81] In cross-examination, Laverne’s account changed in a number of ways. She testified that she could not actually recall the restaurant purchase being discussed at the Royal Bank loan meeting. She simply assumed that this was the purpose for the Royal Bank loan. She may not even have been present when the purpose of the loan was discussed with Ms. Palumbo. She also testified that she may have mixed up the order of the bank loan meetings. She thought that the TD Bank meeting preceded the Royal Bank meeting, and that they only went to the Royal Bank after failing to get the TD Bank loan. However, she adopted her sworn testimony at a prior proceeding to the effect that it was the TD Bank loan that was approved and that provided the monies for the restaurant purchase. It was Cartolano who told her this, in which case it would have been the TD Bank that they went to after first going to the Royal Bank. In re-examination, she changed her evidence again and testified that it was the Royal Bank loan that was approved and that they went to the Royal Bank after the TD Bank. She agreed that she was confused on this point.

[82] Laverne had no recollection of the July 9, 2007 Agreement of Purchase and Sale between Lillian and Cartolano, although she identified her signature as a witness on this document. Similarly, she had no recollection of opening the TD Bank business account with Lillian on August 15, 2007, although she identified her signature on the account signature card.

[83] Laverne’s account of events in the fall of 2007, leading up to the final sale of the restaurant to her on November 9, was to the general effect that she and Cartolano were still living together and running the restaurant. Relations with Lillian were deteriorating but Lillian never lost interest in buying the restaurant. The relationship between Cartolano and Lillian deteriorated because of lack of communication between them about Lillian’s debts. Lillian was calling the restaurant frequently, trying to reach Cartolano. She was concerned about her debts and not about Cartolano having taken her money, according to Laverne’s testimony. Lillian was upset that she could not reach Cartolano and she was upset with Laverne. By the time Laverne signed the third Agreement, on November 9, 2007, she was no longer close to her mother.

[84] Laverne never told her mother Lillian that she was negotiating this third Agreement with Cartolano. Laverne dealt with the landlord to the restaurant premises about the sale, she dealt with the restaurant’s insurance company, she retained and instructed her own lawyer to advise her on the sale, and she arranged transfer of the restaurant’s liquor license, all without informing Lillian. Laverne never told Lillian about the third Agreement, once it was signed on November 9, 2007, nor did she ever show the third Agreement to Lillian. Nevertheless, Laverne testified that she believed her mother Lillian was “involved” in some manner in this final sale of the restaurant. She believed that her mother had obtained a loan to buy the restaurant in the summer and had paid a deposit and that she still had “something to do with it” when the final sale was agreed to on November 9, 2007.

[85] The third Agreement was a formal legal document, prepared by Laverne’s lawyer. The parties to the Agreement were Cartolano’s numbered company, as “vendor”, and Laverne Williams as “purchaser”. There was no reference in the document to Lillian Williams or to Lillian’s numbered company. The Agreement was to sell “all of the assets” of the Riviera restaurant. Laverne understood that she personally became the owner of the restaurant, as of November 9, 2007. Laverne later changed this evidence and testified that she understood it was her, and her mother’s numbered company, who had bought the restaurant and who had become the new owners on November 9, 2007. Laverne was not aware of any earlier sale of the restaurant by Cartolano such as the July 9, 2007 Agreement. The third Agreement made no reference back to this earlier Agreement.

[86] Most importantly, for purposes of the present case, the third Agreement stated that the “purchase price” was $285,000 and that a deposit of $45,000 “has been paid by the Purchaser to the Vendor … on account of the Purchase Price”. This clause in the third Agreement went on to state that “within 90 days from the date of completion, the Purchaser shall pay … to the Vendor’s solicitors, in trust, the sum of $55,000 by bank draft or certified cheque”. The final balance owing of $185,000 was secured by a promissory note and chattel mortgage, executed by the purchaser, with interest at 6% and with monthly payments to the vendor of $925. No reference was made to the $55,000 cheque cashed by Cartolano on August 1, 2007. Laverne understood from Cartolano that the $45,000 deposit had been paid by Lillian but that the $55,000 installment had not yet been paid and that it was due in ninety days, that is, on February 9, 2008.

[87] The restaurant burned down in December 2007, shortly after Laverne bought it. Laverne denied the suggestion that Lillian asserted an ownership interest in the restaurant at this point and demanded the insurance monies from the fire. Lillian did complain to Laverne, at this stage, that Cartolano had taken money from her account with three cheques.

[88] Laverne Williams was initially charged, jointly with Cartolano, with defrauding her mother Lillian. The charge was withdrawn by the Crown as part of a broader plea agreement. Pursuant to that agreement, Laverne pleaded guilty to defrauding the insurance company, after the fire at the Barrie restaurant. She received a suspended sentence and probation on January 11, 2010. She testified, at the present trial, that she was in fact not guilty of the insurance fraud and that her guilty plea was untrue. She acknowledged admitting the facts that were read in on her guilty plea in court in Barrie. Laverne Williams’ other criminal convictions were as follows: 1990, theft under, suspended sentence; 1997, theft under, suspended sentence; 1998, possession of instruments of forgery, fraud under, and fraud over, suspended sentence and probation.

[89] Laverne testified that her mother Lillian is simple and is not business savvy. However, she is good with money and finances. When asked about her mother’s reputation for honesty, within the family, Laverne testified that Lillian “has lied”. Laverne denied conspiring with Cartolano to defraud Lillian.

[90] When Lillian Williams was asked about the third Agreement, she testified that she was never aware that Laverne had bought or was buying the restaurant from Cartolano. Lillian’s understanding was that she herself was going to buy the restaurant and that Laverne would manage it. Lillian also testified that she was never aware of a mortgage being entered into on November 9, 2007, as part of the third Agreement, providing for terms of payment of the $185,000 balance owing on the sale.

C. ANALYSIS

[91] The central issue in the case is whether Lillian Williams gave Cartolano the three signed cheques in July 2007, drawn on her new Royal Bank account, for the purpose of allowing Cartolano to settle her credit card and finance company debts or for the purpose of paying a large deposit on her agreement to purchase Cartolano’s restaurant in Barrie. Lillian Williams testified that the three cheques were given to Cartolano only for the former purpose and that he dishonestly used the cheques for his own purposes. She conceded that he did use a small amount of the monies from these cheques, as promised, to settle two of her debts (to the Wells Fargo finance company and to a real estate lawyer who she had retained in Nova Scotia). The defence theory is that one of the three cheques, in the amount of $15,000, was given to Cartolano for the purpose of settling Lillian Williams’ debts and that it was largely used for this purpose. The defence submits that the other two cheques, totalling $100,000, were paid to Cartolano’s numbered company pursuant to Lillian Williams’ agreement to purchase the Riviera restaurant from the numbered company.

[92] There is little direct evidence relating to this central issue, other than from Lillian Williams herself, and the defence has vigorously attacked her credibility and reliability. Laverne Williams could not provide any direct evidence about the three cheques. She was not present when they were given to Cartolano or when he negotiated the cheques and received the monies. All she knew about the cheques was hearsay, that is, what Cartolano had told her.

[93] However, there is a substantial body of circumstantial evidence relating to this central issue in the case. The key circumstantial facts, that have been proved to my satisfaction, are the following:

• First, the three cheques totalling $115,000 were all funded by the Royal Bank loan. That loan was undoubtedly a personal loan to Lillian Williams. Its purpose was to consolidate and pay off her various debts and to fund renovations at her house in Nova Scotia, where she hoped to live during her retirement. It was not a business loan for the purpose of purchasing the Riviera restaurant. Lillian Williams’ evidence on this point is credible and reliable because it is supported by Ms. Palumbo and the contemporaneous Royal Bank records;

• Second, Cartolano asked for and received the non-personalized Royal Bank cheques in mid-July 2007, before there were any loan monies deposited in the new bank account, so that he could negotiate a settlement of Lillian Williams’ debts and pay off her creditors. Once again, Lillian Williams’ evidence on this point is credible and reliable because it is supported by Ms. Palumbo. She recalled Cartolano’s offer to negotiate a settlement of the debts, and his related request for these cheques, because it was unusual;

• Third, the writing on the three cheques shows that they were not filled in by Lillian Williams, other than with her signature. Someone else filled in the payee, the amount, and the August 1, 2007 date on all three cheques. It can be inferred that these additions to the cheques, especially the August 1, 2007 dates, were likely written in at a point in time after the loan monies had been received into the new Royal Bank account on July 31, 2007. These facts are consistent with Lillian Williams’ testimony that the cheques were not filled in, when she gave them to Cartolano in mid-July, because he had not yet negotiated settlement of her debts with her creditors. If the cheques were intended to be deposit monies, in relation to the earlier July 9, 2007 Agreement to purchase the restaurant, there would have been no reason to sign them in blank. The existence of a fourth blank non-personalized cheque, signed by Lillian Williams and drawn on her new Royal Bank account, also tends to infer that the cheques were given to Cartolano in blank;

• Fourth, the July 9, 2007 Agreement to purchase the Riviera restaurant referred to a $45,000 deposit cheque but made no reference to a further $55,000 deposit cheque. Both Royal Bank cheques have the same “DEPOSIT TO OFFER” notation on the memo line and yet there is no reference to a $55,000 cheque in either the first Agreement, the second Agreement, or the third Agreement. If the $55,000 Royal Bank cheque was intended to be a deposit payment, in relation to the purchase and sale of the restaurant, it would certainly have been referred to in at least one of these three Agreements;

• Fifth, the $45,000 “deposit”, that is referred to in all three of the Agreements to purchase the Riviera restaurant, is characterized by a number of suspicious features. The first Agreement provided that it was to be held in trust by a broker named “Michael Isaacs” at Coldwell Banker Case Realty. No deposit cheque was ever paid to any such person. The second Agreement provided that the $45,000 deposit cheque was to be paid to Cartolano’s numbered company, that is, to the vendor in the transaction, and it was “to be held in trust pending completion”. The BMO banking records for the numbered company show that the $45,000 cheque was never held in trust. Indeed, all of these supposed “trust” monies were disbursed by the numbered company during August 2007, that is, within the first month after Cartolano deposited the cheque. The third Agreement stated that a deposit of $45,000 “has been paid by the Purchaser to the Vendor … on account of the Purchase Price”. However, the “purchaser” under this third Agreement was Laverne Williams and not Lillian Williams or Lillian’s numbered company. There was no acknowledgment in the third Agreement of any deposit monies having been paid by Lillian Williams;

• Sixth, the TD Bank records indicate that Lillian Williams and her numbered company were trying to obtain what was clearly a business loan, in order to purchase the Riviera restaurant, well after Cartolano had already received $115,000 from the Royal Bank personal loan monies on August 1, 2007. Most of the activity relating to the TD Bank loan took place in August and September, 2007. Indeed, the TD Bank business loan application was not formally recommended and submitted until August 28, 2007 and it was not finally refused until September 20, 2007. This is consistent with Lillian Williams’ testimony, that the first Royal Bank loan meeting preceded the first TD Bank loan meeting, that the Royal Bank loan was a personal loan to pay off her debts and pay for home renovations and a car, and that the TD Bank loan was a business loan to allow her to purchase the Riviera restaurant. The defence theory, that the unsuccessful TD Bank loan meetings preceded the successful Royal Bank meetings and that both loans were business loans, to finance the purchase of the Riviera restaurant, is simply not supported by any of the banking records. If the Royal Bank loan had already resulted in two deposit cheques totaling $100,000 being paid to Cartolano’s numbered company on August 1, 2007, in substantial payment of the $285,000 purchase price for the restaurant, then this would have been acknowledged in the TD Bank loan application on August 28, 2007. Instead, the TD Bank records referred to the earlier Royal Bank mortgage and loan as a $120,000 liability and included documentation referring to a $45,000 deposit and to a $240,000 balance owing on the purchase price for the restaurant. The TD Bank business loan application was in the amount of $243,270 and there was no suggestion that the balance owed by Lillian Williams on the purchase price for the restaurant was $185,000;

• Seventh, and perhaps most importantly, the first Agreement to purchase the Riviera restaurant, signed on July 9, 2007, must have been subject to an understanding between Cartolano and Lillian Williams that it was conditional on financing being obtained. Lillian Williams testified to this effect and Cartolano conceded the point during closing submissions. It would have been obvious to everyone, as of July 9, 2007, that Lillian Williams did not have access to sufficient money to buy the restaurant. In particular, she could not and did not produce the $45,000 deposit cheque which was to be submitted “herewith”, that is, “within 24 hours of the acceptance of this Agreement”, which occurred on July 9, 2007. Accordingly, the first Agreement was not effective and binding until bank financing could be obtained by Lillian Williams, allowing the Agreement to proceed;

• Eighth, and last, Cartolano undoubtedly ended up selling the Riviera restaurant to Laverne Williams on November 9, 2007. This third Agreement made no reference to any earlier Agreement to sell the restaurant to Lillian Williams or to Lillian’s numbered company and made no reference to Lillian Williams having already paid two deposit cheques on August 1, 2007, totalling $100,000, towards the purchase price.

[94] The above eight facts give rise to a compelling circumstantial inference that three cheques were signed by Lillian Williams in mid-July 2007 and were given to Cartolano in blank in order to allow him to negotiate a final settlement of debts that Lillian Williams owed to various creditors. These eight facts also infer that the cheques were not given to Cartolano as deposit payments towards the purchase of the Riviera restaurant. In addition, I am satisfied that Lillian Williams’ testimony on these central issues was credible. She undoubtedly has poor recollection or poor understanding of some details relating to the events in question. However, on the main factual issues she was credible and reliable. Her manner of testifying in relation to these issues was persuasive, she appeared to be of good character and, most importantly, her account on the main issues was supported by Ms. Palumbo and by the contemporaneous Royal Bank and TD Bank records. Her daughter, Laverne Williams, was not credible or reliable on the main issues. Her account changed dramatically in relation to these issues, she has a criminal record for dishonesty, and her account was contradicted in important ways by the documentary record.

[95] For all the above reasons, I am satisfied that Cartolano obtained the three Royal Bank cheques from Lillian Williams in mid-July 2007 for the purpose of negotiating a settlement of Lillian’s debts. Lillian Williams was unsophisticated in financial matters. She did not own a car or a house and had never had a mortgage until these events occurred. She had a grade seven education. She believed Cartolano and her daughter were going to be married and they treated each other as “family”. Cartolano was much more sophisticated and experienced than Lillian in business and financial matters. It is understandable that she would trust Cartolano in these circumstances.

[96] At the same time as the above events relating to the three cheques and the personal loan from the Royal Bank were occurring, Lillian Williams was also trying to buy Cartolano’s restaurant in Barrie. Her agreement to buy the restaurant was contingent on obtaining financing through a business loan from the TD Bank. I am satisfied that the efforts to obtain the business loan were more complicated and took a much longer time than the personal loan from the Royal Bank. A numbered company had to be incorporated, two different accounting documents had to be prepared, and the documentation had to be submitted to the bank’s underwriters who then requested further documentation. I am also satisfied that Lillian Williams had little involvement in these ongoing steps relating to the business loan which took place mainly in August and September 2007. The two defence witnesses, Laverne Williams and Kenwal Kapur, conceded that it was Cartolano and Laverne who met with the accountant and who gave the instructions in this regard. Lillian Williams would have had no ability to instruct Kapur in relation to preparation of the pro forma accounting documents. Laverne Williams had signing authority on the new TD Bank business account, relating to the restaurant purchase, and she could instruct Ms. Reddy in relation to the business loan application. Given the delays in obtaining the business loan from the TD Bank, the first Agreement to sell the Riviera restaurant to Lillian Williams had to be amended to provide for a later August 30, 2007 “completion date”. I am not satisfied that Lillian ever initialled this amendment. When the TD Bank loan application was further delayed, a second Agreement was prepared which contained more detail and it was given to Ms. Reddy. I am not satisfied that Lillian Williams ever initialled or signed this second Agreement or that she ever signed the pro forma statement of income that was included in the TD loan application. It is apparent, in all these circumstances, that Cartolano and Laverne Williams took control of the efforts to obtain the TD Bank business loan in August and September 2007 and that their efforts eventually failed.

[97] Cartolano may well have believed that the TD Bank business loan application would ultimately succeed, as Ms. Reddy was recommending it. If the TD Bank loan had been approved, the sale of the Riviera restaurant to Lillian Williams would likely have proceeded. I am satisfied that Cartolano filled in the three blank cheques and took the $115,000 from Lillian Williams on August 1, 2007, presumably because he needed the money. He proceeded to spend almost all of the money during the month of August. When the TD Bank loan was not approved, on September 20, 2007, the sale of the Riviera restaurant to Lillian Williams could not proceed. As a result, Cartolano received no monies from the sale and was unable to repay Lillian Williams the $115,000 that he had already taken on August 1, 2007. He stopped returning Lillian Williams’ phone calls. He eventually sold the restaurant to Laverne Williams on November 9, 2007 because he had failed in his earlier attempts to sell it to Lillian Williams.

[98] In light of the above facts, the Crown has proved all the essential elements of the offence of fraud in relation to the two counts that are referrable to the $45,000 cheque and the $55,000 cheque. Cartolano had no authority or permission from Lillian Williams to take this $100,000 for his numbered company. I am satisfied beyond reasonable doubt that he filled in the date, the payee, the amounts, and the memo line on these two cheques, without authority from Lillian Williams, and that it was a dishonest act. Accordingly, Cartolano is guilty on Counts One and Two in the Indictment.

[99] However, I have a reasonable doubt in relation to the $15,000 cheque for a number of reasons. First, it appears that Lillian’s debts on the three credit cards and her debts to the finance company and to the Nova Scotia lawyer totalled about $17,000. If Cartolano could successfully negotiate reductions of these debts, he would then need a sum of about $15,000 to reach settlements with the creditors. Second, the cheque was made payable to Cartolano personally. There was no dishonest attempt to make the cheque look like it was a “DEPOSIT TO OFFER”, payable to Cartolano’s numbered company, as part of the first Agreement to sell the Riviera restaurant. Cartolano was Lillian Williams’ personal agent, for purposes of settling her debts, and he could properly disburse the monies to her creditors after cashing the $15,000 cheque. Third, and perhaps most importantly, this one cheque was certified at the Royal Bank, unlike the other two cheques. There is a notation – “called and verified” – written on the cheque. Ms. Palumbo testified that it would be normal bank practice for the teller to call Lillian Williams, before certifying the cheque, in order to verify her signature on the cheque and to advise her of the $15,000 amount being certified. The “called and verified” notation has never been identified by any bank teller and Lillian Williams could not recall any such telephone call. Nevertheless, I am satisfied it is likely that the call was made. Fourth, and last, Cartolano did make some efforts to settle Lillian Williams’ debts and he succeeded in settling two of them. The Wells Fargo finance company debt was $8,559 and Cartolano apparently settled it for $7,000. He also paid the Nova Scotia lawyer about $870 that was owed by Lillian Williams. In other words, approximately $8,000 of the $15,000 cheque was used for proper authorized purposes.

[100] In all these circumstances, the Crown has not proved that Cartolano dishonestly filled in this third cheque when he made it payable to himself in the amount of $15,000 on August 1, 2007. There is, at the very least, reasonable doubt as to whether he had proper authority from Lillian Williams to make this one cheque for $15,000 payable to himself in order to use the money when settling her debts. At some point, Cartolano must have improperly used the $7,000 balance, that had not been disbursed to Lillian Williams’ remaining creditors, for his own purposes. This act, whenever it occurred, would likely amount to the offence of theft by conversion. See: R. v. Milne (1992), 1992 86 (SCC), 70 C.C.C. (3d) 481 (S.C.C.); R. v. Smith (1992), 1992 12757 (ON CA), 77 C.C.C. (3d) 182 (Ont. C.A.), aff’d (1993) 1993 77 (SCC), 84 C.C.C. (3d) 160 (S.C.C.); R. v. Konken (1971), 1971 1178 (BC CA), 3 C.C.C. (2d) 348 (B.C.C.A.). However, the Crown has not charged Cartolano with theft by conversion of the $7,000 balance. The Crown alleged that it was a fraud when Cartolano made the $15,0000 cheque payable to himself and then cashed it, by depositing it into his personal account at BMO on August 1, 2007. That offence has not been proved. Accordingly, Cartolano is not guilty on Count Three.

[101] In the result, Cartolano is guilty on Count One (cheque 997 in the amount of $45,000), guilty on Count Two (cheque 998 in the amount of $55,000), and not guilty on Count Three (cheque 999 in the amount of $15,000).

M.A. Code J.

Released: January 4, 2013

COURT FILE NO.: 10-50000771

DATE: 20130104

ONTARIO

SUPERIOR COURT OF JUSTICE

HER MAJESTY THE QUEEN

– and –

GIOVANNI CARTOLANO

Released: January 4, 2013

Her Majesty the Queen v. Giovanni Cartolano, 2013 ONSC 85

Case Summary

REASONS FOR JUDGMENT

A. OVERVIEW

B. FACTS

(i) Lillian William’s testimony concerning the Royal Bank personal loan and the three cheques written on her new Royal Bank account

(ii) Lillian William’s testimony concerning the TD Bank business loan and the purchase of the Riviera restaurant

(iii) Lillian William’s testimony about the concluding events and reporting the alleged frauds

(iv) The Royal Bank documentary record and the testimony of Ms. Palumbo

(v) The Bank of Montreal records relating to Cartolano

(vi) The TD Bank records and the testimony of Ms. Reddy and Ms. Lai

(vii) The sale or sales of the Riviera restaurant and the testimony of the defence witnesses

C. ANALYSIS

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Statutory Provisions 2

Legislation 2