ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-391820

DATE: 20150812

BETWEEN:

Unicer Foods Ltd.

Plaintiff

– and –

Maria Jose Henriques, Tome Alves Henriques and Maria Da Cunha

Defendants

Nicholas C. Tibollo and Lori Marzinotto, for the Plaintiff

Michael Simaan, for the Defendants

HEARD: March 9, 10, 11, 12, 13, and June 22, 2015

AMENDED REASONS FOR JUDGMENT

Pollak J.

[1] The Plaintiff, Unicer Foods Ltd. (“Unicer”), has obtained a judgment in the amount of $283,644.20 ($219,632 principal plus $64,012.20 interest) plus costs against the Defendants Maria Jose Henriques and Tome Alves Henriquesq. In this Action, the Plaintiff claims that a Mortgage registered on January 10, 2008, in favour of the Defendant Maria Da Cunha is void as against the Plaintiff as a fraudulent conveyance within s.2 of the Fraudulent Conveyances Act, R.S.O. 1990, c.F-29 (“FCA”).

[2] The Plaintiff relies on the FCA which provides that:

Section 1

“conveyance” to include a gift, grant, alienation, bargain, charge, encumbrance, limitation of use or uses of, in, to or out of real property or personal property by writing or otherwise;

“real property” includes lands, tenements, hereditaments and any estate or interest therein.

Section 2

Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.

Section 3

Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section.

Section 4

Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon a valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it is protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser.

[3] If a conveyance is made with the “intent to defeat, hinder, delay or defraud creditors or others” of their debts, the conveyance is void unless it is made for good consideration and in good faith to a person without notice or knowledge of such intent.

[4] Although it is unusual to find direct proof of intent to defeat, hinder or delay creditors, there may be evidence of suspicious facts or circumstances from which a Court may infer a fraudulent intent. Certain suspicious facts referred to as “Badges of Fraud,” can raise a presumption of fraud. In such cases, the burden of explaining the circumstantial evidence of fraud is on the defendant, who must prove that the conveyance was done for good consideration, in good faith and without notice.

[5] The Defendant, Ms. Da Cunha, submits she had an “existing debt” when the Promissory Note, which provided for the registration of the Mortgage in the event of default, was given by Mr. Henriques. The Mortgage in favour of Ms. Da Cunha was registered in the amount of $195,000.00. The Plaintiff, however, argues that the alleged “existing debt” was not actionable when the Promissory Note was signed. It is submitted that to justify the registration of the Mortgage, the limitation period must not have expired, when the Promissory Note was signed or it cannot be considered as “good consideration.”

[6] The Plaintiff relies on the evidence that when the work was done by Ms. Da Cunha’s husband, or one of the contracting companies, the parties did not talk about securing payment for the work with a Promissory Note or a Mortgage. The Promissory Note and Mortgage was the suggestion of and offered by Mr. Henriques without any forbearance by his creditors.

[7] The Plaintiff argues that these acts by the Henriques Defendants, in circumstances where there was no actionable debt and when the Plaintiff had already taken legal action against the Defendants, raises a reasonable inference that the Mortgage was given with the intent to “defeat, hinder, delay or defraud” the Plaintiff. These acts of Mr. Henriques had the effect of securing the debt for the work that was done in favour of the Defendant Ms. Da Cunha (a non-contracting party), which also effectively protected Mr. Henriques’ house from seizure to satisfy the Plaintiff’s judgment.

[8] It is submitted that Mr. Henriques knew about the Plaintiff’s claim against them for theft and misappropriation when he offered the Mortgage to Ms. Da Cunha. Through the granting of the Mortgage, Mr. Henriques made Ms. Da Cunha a secured creditor, giving her priority over any unsecured Judgment in favour of the Plaintiff. It is argued that Mr. Henriques’ intent of such actions is obvious -- the Mortgage was given with the intent to defeat, hinder, delay and defraud Unicer.

[9] Mr. Henriques made only two interest payments. Ms. Da Cunha did not take legal action on the Promissory Note or the Mortgage and Mr. Henriques is still in possession of his home.

[10] Mr. Henriques testified with respect to the alleged “existing debt.” He testified that when he got the invoices for the work performed, it had already been done. The debt therefore was an “existing debt” when the invoices were given. The Plaintiff argues that the limitation period to enforce the “existing debt” started to run, at the very latest, on the date of each invoice, which was as follows:

Date of Invoice: Amount: Limitations Act: Debt Expired:

September 23, 1998 $55,000.00 6 yrs. September 22, 2004

June 14, 1999 $28,000.00 6 yrs. June 13, 2005

July 7, 2000 $42,000.00 6 yrs. July 6, 2006

September 6, 2005 $14,000.00 2 yrs. September 5, 2007

[11] The Plaintiff submits that on January 9, 2008, when the Promissory Note was signed and when the Mortgage was registered, there was no “existing debt” because of the expiration of the limitation period.

[12] It follows that if there was no “existing debt” when the Promissory Note and Mortgage were given, there was no good consideration for the Promissory Note and the Mortgage. The Plaintiff submits that as there was no consideration, the intention of Mr. Henriques and Ms. Da Cunha with respect to the Promissory Note and the Mortgage is irrelevant and does not have to be proven. Rather, the Plaintiff argues that the evidence supports the inference that the Promissory Note and the Mortgage was granted in order to defeat, hinder, delay and defraud Unicer. I agree with this submission.

[13] The Defendant’s/Defendants’ position is that as the validity of the Promissory Note has not been challenged by the Plaintiff in the pleadings, the Plaintiff is not entitled to argue that the Promissory Note is invalid. The Mortgage is the only document which is being challenged. It was signed between two days before or one year and two days after the Promissory Note was signed. The Defendant/Defendants therefore argue/s that there was a valid debt at the time that the Mortgage was registered, that being the Promissory Note, which has not been challenged in this action. Had the Promissory Note been challenged by the Plaintiff, the Defendant/s argue/s that it may have been necessary to lead evidence to set out how the debt was validly extended within the limitation period. However, it is submitted that such evidence was not required as the Promissory Note was not being challenged in this action. I do not accept this argument as the evidence and submissions made throughout this trial clearly showed that the Plaintiff was arguing that there was no valid consideration for the Promissory Note. Further, I do not accept that the pleadings precluded the Plaintiff from taking such a position throughout the trial.

[14] The Defendants did not call any evidence (other than certain “read-ins” of the Defendant, Ms. Da Cunha). The Plaintiff submits that the Defendants have not satisfied their onus that the Mortgage was granted for good consideration, in good faith and without notice and that adverse inferences ought to therefore be drawn against the Defendants.

[15] I agree that the Defendants have not met their burden of explanation, in light of the Badges of Fraud I have referred to above. Further, I find that the Defendants have not met their burden of proving the Mortgage was given for good consideration. I therefore find that the Mortgage is a fraudulent conveyance and is therefore void as against the Plaintiff.

Costs

[16] The Plaintiff has been the successful party on this trial and is therefore entitled to a cost award. If the parties are unable to agree on the cost award, they may make brief written submissions as follows:

The Plaintiff’s costs submissions must be delivered by 12:00 p.m. on August 21, 2015; and the Defendant’s costs submissions must be delivered by 12:00 p.m. on August 31, 2015. In accordance with what the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, provide, the submissions should not exceed three pages in length.

Pollak J.

Released: August 12, 2015

COURT FILE NO.: CV-09-391820

DATE: 20150812

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Unicer Foods Ltd.

Plaintiff

– and –

Maria Jose Henriques, Tome Alves Henriques and Maria Da Cunha

Defendants

REASONS FOR JUDGMENT

Pollak J.

Released: August 12, 2015