COURT FILE NO.: CV-11-0437

DATE: 2015-11-20

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

1468025 ONTARIO LIMITED

Mr. D. Matson for the Plaintiff

Plaintiff

• and -

998614 ONTARIO INC. and GABRIEL MENEI

Mr. M. Harris for the Defendants

Defendants

HEARD in Thunder Bay, Ontario April 20, 21, 22 and 23, 2015 and pursuant to written submissions.

Mr. Justice J.S. Fregeau

JUDGMENT

[1] The plaintiff claims the sum of $142,358.51 from both defendants, being the total principal amount allegedly advanced to or on behalf of both defendants over a number of years.

The plaintiff also claims pre-judgement interest on the $142,358.51 in the amount of $112,378.70.

[2] The plaintiff further claims the sum of $8,575.00 for damages caused by the defendants to equipment owned by the plaintiff.

[3] Finally, the plaintiff claims pre-judgment interest on the $8,575.00 and post-judgment interest on the total amount of $263,312.21.

[4] The parties involved in this action are:

1. 1468025 Ontario Ltd. (“146”) is the plaintiff corporation. Dario Menei (“Dario”) is the President and operating mind of 146;

2. 998614 Ontario Inc. (“998”) is the defendant corporation. Gabriel Menei, the personal defendant, is the President of 998 and the father of Dario;

3. Rivo Menei (“Rivo”) is an employee of 146, the brother of Dario and the son of Gabriel;

4. Karen Menei (“Karen”) is Rivo’s wife.

[5] The head offices of 998 and 146 were located at 1910 John Street Road, Thunder Bay, Ontario (1910”). This property is owned by Gabriel. The property known as 1950 John Street Road, Thunder Bay, Ontario (1950) is vacant land abutting 1910. It is also owned by Gabriel.

[6] On December 31, 2002, Gabriel and 998 entered into an Agreement with 146 (the “Agreement”). The Agreement:

1. Acknowledged that as of December 31, 2002, 146 had advanced the total sum of $132,969.00 to Gabriel and 998;

2. Provided that the funds advanced in the amount of $132,969.00 were to accrue interest at the rate of 7% annually from the dates of advancement;

3. Acknowledged that future advances may be made by 146 to Gabriel “and/or” 998 and that any such future advances were to be paid back in accordance with the Agreement and that such sums shall be secured by whatever security Gabriel “and/or” 998 provide to 146 from time to time;

4. Acknowledged that Gabriel and 998 “shall provide security” to 146 by providing registered mortgages on 1910 and 1950. The mortgages were to “serve as security for any and all events as made by (146) to Gabriel and/or (998) whether now or in the future.” The interest rate on the mortgages was to be 7% annually from the date of advancement of the funds.

[7] The plaintiff alleges that advances or payments in the total amount of $142,358.51 were made by 146 to or on behalf of 998 and/or Gabriel between 2001 and 2007. The plaintiff also alleges that damages in the total amount of $8,575.00 were sustained by vehicles and equipment owned by 146 and left on Gabriel’s property.

[8] The defendant submits, in general terms, that Dario is not credible, that monies allegedly advanced are not corroborated by documentation and that the defendants are not jointly and severally liable for any amounts found owing. In any event, the defendant pleads non est factum in regard to the Agreement, submitting that Gabriel did not understand the agreement and did not understand that he was accepting personal liability for these debts of 998.

A SUMMARY OF THE EVIDENCE

Dario Menei

[9] Dario is the sole shareholder and operating mind of 146, a construction company engaged in sewer and water construction. He described 998 as “my father’s company” and testified that 998 also did sewer and water construction as well as demolition, excavations and landscaping. According to Dario, 998 began operations in the late 1990’s. He was an employee of 998 for 10 to 15 years, ending in 2001.

[10] Dario testified that his father was going through a marital separation in the 1990’s and that 998 was experiencing financial difficulties. As a result, according to Dario, his father began to borrow money from family members, including him. The money was apparently used for “everything from groceries to utilities to payroll, purchases, Receiver General, bank loans.”

[11] In 2001, the Canadian Imperial Bank of Commerce (the “CIBC”) called the loans of 998 and, as secured creditor, took possession of the company’s assets. Dario incorporated 146 in 2001. Dario’s company then purchased the seized assets of 998 from the CIBC for $120,000.00. Dario testified that he also obtained a “worthless” Caterpillar 966 front-end loader directly from 998 at this time.

[12] Dario testified that 146 started to advance money to his father and 998 in 2001. He also testified that he, his father and 998 entered into an agreement about the money advanced. He identified a document dated December 31, 2002 (Exhibit #3) as the Agreement between 146 and 998 and his father.

[13] Dario testified that $132,969.00 had already been advanced by 146 to 998 and/or his father between 2001 and December 31, 2002, the day the Agreement was signed. According to Dario, he did not intend to request repayment until his father’s death. He described the Agreement as “security” for future collection.

[14] Clause #4 of the Agreement contains an acknowledgement that Gabriel and 998 were to provide security to 146 by providing mortgages on 1910 and 1950. Dario testified that 1910 was the head office/yard of both 146 and 998 and that 1950 was an abutting 5 acre parcel of land. When asked what he wanted out of the Agreement, Dario replied, “The properties. The properties meant everything to myself and our families.”

[15] Exhibit #4 is a document entitled, “(146) Amounts due from (998) and Gabriel Menei for the year ended December 31, 2001.” Exhibit #5 is 146’s General Ledger Report, with 11 cheques attached, for the period ending December 31, 2001. Dario identified both documents as having been prepared by his accountant, Paul Plata. The General Ledger Report is identified as a “summary” on Exhibit #4 and is one of several entries comprising the total of $79,980.20 allegedly due to 146 from 998 and Gabriel for the year ending December 31, 2001.

[16] Dario testified that all payments made as listed on the General Ledger Report in the total amount of $15,381.26 were paid by 146 for or on behalf of 998 and or Gabriel because his father “had no means of funds for anything. He used us pretty much as a, a bank for funds to pay for his debts.”

[17] The General Ledger Summary (Exhibit #5) totals $15,381.26. The 11 cheques attached to this exhibit total only $12,656.78. One of these cheques, cheque #0042 dated July 30, 2001 is for $1,000.00 and payable to Cupello and Company, “ Re Rivo’s loan”. Dario testified that “I guess it would be for the legal fees for…” his father in his family law litigation. There are also two entries in the General Ledger Report for October 26, 2001. One is for “Enzo, Dr. D. Blazino ($78.95); the other is for “Drugs, Dario Menei” ($1,063.93).

[18] Included in the 11 cheques attached to Exhibit #5 are three cheques payable to Karen Menei:

1. Cheque #0031, dated July 16, 2001, in the amount of $550.00;

2. Cheque #0063, dated August 15, 2001, in the amount of $640.00; and,

3. Cheque # 0106, dated September 17, 2001, in the amount of $550.00.

[19] In addition to these three cheques, the General Ledger Report includes an additional $2,200.00 entry for “Payments to Karen Menei @ $550 $2,200.00.” Exhibit #13 is a series of four cheques written in 2001 and payable to Karen Menei all in the amount of $550.00.

[20] Dario testified that Karen Menei is married to his brother Rivo. According to Dario, between 1999 and 2001 Rivo and Karen lent Gabriel money. Dario testified that the above payments were interest payments on that debt, paid to Karen by 146 on behalf of Gabriel. Dario testified that these payments and all other payments 146 allegedly made for or on behalf of 998 were made with his father’s knowledge.

[21] Dario was next referred to Exhibit #14, a summary of monies due to 146 from 998 for the year ending December 31, 2002. Four cheques, each in the amount of $1,000.00 and each payable to the “Receiver General” were filed as Exhibit #15 in support of a $5,000.00 entry on Exhibit #14. Dario testified that 146 made these payments on behalf of 998 and with the knowledge of his father. He testified that the fifth $1,000.00 payment was either by way of a bank draft or certified cheque that was not returned to 146.

[22] Dario next identified eight cheques from 2002, all in the amount of $550.00, from 146 payable to Karen Menei in support of an entry for $4,400.00 on the December 31, 2002 statement. Dario testified that these were payments “for interest on the loan that my sister-in-law and brother-in-law took out for my father.” Dario testified that his father “was well aware of the, the monies due and owed to Karen and Rivo.”

[23] Dario next identified five cheques written by 146 in 2002, four to Cupello and Company and one to Erickson and Partners. These five cheques total $10,133.75. The entry (Legal Fees Paid) on the December 31, 2002 statement is for $11,092.97. Dario testified that these were payments 146 made on behalf of his father.

[24] Dario was next shown three cheques totalling $865.52 written by 146 in 2002 that did not appear on the December 31, 2002 summary. Dario testified that these were payments 146 made on his father’s behalf and that were missed by the accountants.

[25] Dario confirmed that the cumulative total on the December 31, 2002 statement ($132,968.05) was the number carried over to the December 31, 2002 Agreement.

[26] Exhibit #19 was identified by Dario as the 2003 summary of money owed by 998 to 146. Dario identified cheque #0577, dated February 14, 2003, payable to Plato and Morrill. According to him this was 146’s payment to the accountants for his father’s financial year ends. No supporting invoice was produced.

[27] The 2003 summary also included source deductions of 998 paid in the amount of $3,175.83. Dario identified two 2003 cheques from 146 to the Receiver General to support this claim (Exhibit #21).

[28] Dario next identified 11 cheques from 2003, each payable to Karen Menei and each in the amount of $550.00. Dario testified that these cheques were interest payments on the monies borrowed from Karen and Rivo by his father. Dario identified a cheque dated August 28, 2003, from 146 to Karen Menei, in the amount of $14,000.00 (Exhibit #24) as a lump sum principal payment on the same loan. When asked why this $14,000.00 payment did not appear on the December 31, 2003 summary, Dario testified that “I guess the accountants missed it again.”

[29] The 2004 summary of amounts due from 998 to 146 was entered as Exhibit #25. The December 31, 2004 statement included seven $550.00 payments to Karen Menei by 146, supported by seven cancelled cheques written by 146 to Karen Menei in 2004 (Exhibit #27). Dario again testified that these were interest payments on money lent to Gabriel by Karen and Rivo. The December 31, 2004 summary included an entry noted as “Cheques to Karen Menei – Lump sum October 1, 2004 - $30,376.00.” Dario identified cheque #1082, dated October 1, 2004, in the amount of $30,376.00, from 146 to “Menei Karen” as another principal payment on the loan. When asked if and how his father was made aware of this payment, Dario testified that this cheque, and “every cheque I wrote out I discussed with him.”

[30] Dario identified cheque #0997, dated August 13, 2004, payable to “Rivo and Karen Menei” in the amount of $20,000.00 as a payment made on his father’s loan with Rivo and Karen. When asked why this did not appear on the 2004 summary prepared by the accountants, Dario testified that either the accountants “missed it” or that he chose not to have it included because he had the security of the Agreement. Dario identified cheque #1147, dated November 17, 2004, payable to Karen Menei in the amount of $97.63, “Re Final on Loan”, as payment by 146 to retire the remaining balance on this loan.

[31] The statements of amounts owing by 998 and Gabriel to 146 for the years ending December 31, 2005, 2006, 2007 and 2008 were identified by Dario and entered as Exhibits numbered 32, 33, 34 and 35 respectively.

[32] The summary for the year ending December 31, 2008 is the last summary prepared as to monies allegedly due to 146 from 998 and/or Gabriel. It notes a final cumulative total of $200,437.51. Dario identified the Financial Statements of 1468025 Ontario Ltd. for the year ending December 31, 2010 (Exhibit 36). Dario testified that the entry on the Balance Sheet under Assets and entitled Due from Related Parties (Note 6) in the amount of $200,438.00 represented monies due from his father.

[33] Dario testified that he did not record any money which may have been advanced after 2007. When asked why he kept advancing money when no money was repaid to him or 146 by 998 or his father, Dario testified that, “You do that for your father…you do what you can to help him out. And that’s exactly what I did.” Dario also testified that he knew he had a mortgage and security and that he intended to collect on his father’s death.

[34] Dario testified that in June 2011, he and Rivo were each served with a “Trespass Notice to Prohibited Person” prohibiting both of them from entering onto 1910, the office/yard of 146. Exhibit #27 is a copy of these notices, both dated June 13, 2011 and signed by Gabriel. On direct examination, Dario had no explanation for why he and Rivo were served with these notices.

[35] Dario testified that 146 had personal property and assets stored at 1910 in June 2011, only some of which have since been retrieved.

[36] Dario testified that 146 had purchased a portable gas welder which he had stored at 1910 and that was never returned to him. Dario identified the plaintiff’s cheque #2001, dated June 20, 2007 and payable to “Arthur Morsett” as payment for the purchase of this welder.

[37] Dario identified 146’s ownership certificate for a 1975 Model 900 Kenworth tractor (Exhibit #40). This machine was one of the assets that 146 purchased from the CIBC in 2001. Dario testified that this tractor was left at 1910 when he was ordered off the property in 2011.

[38] Dario testified that 146 also owned a Caterpillar 966C front-end loader and a John Deere 310 loader-backhoe. The front-end loader was the same loader that 146 purchased directly from 998 at the time CIBC called 998’s loans. According to Dario, after 146 acquired this front-end loader, it was repaired by his father with the repairs being paid for by 146 in the approximate amount of $20,000.00.

[39] Dario identified an insurance policy of 998 which listed both the Caterpillar 966C front-end loader and the John Deere backhoe and which stated that “Maximum Amount Insured” for these two items as $20,000.00 and $13,000.00 respectively. This policy was dated August 22, 1995 (Exhibit #42).

[40] The plaintiff next produced a letter to 998 from Ritchie Bros. Auctioneers dated April 23, 2001 (Exhibit #43). Attached to this letter is a list of equipment with corresponding appraised values. A 1977 John Deere 310A loader-backhoe is listed, with an appraised value of $7,500.00.

[41] Dario testified that 998 has obtained possession of the 966C front-end loader. He noticed the engine knocking when he ran the machine. He had it appraised “as is” by Toromont Cat. By letter dated August 5, 2014, this company estimated the market value of the unit to be $7,000.00 to $9,000.00 (Exhibit #44). It was noted, among other things, that the engine had to be repaired (minimum $8,000.00) or replaced ($20,000.00). Dario testified that this machine was “running” when left on the property in 2011 and that his father had used it for the last four or five years.

[42] Dario testified that the John Deere 310 was also in “running condition” when left at 1910 in 2011. The plaintiff has also obtained possession of this unit. Dario had this unit appraised by Nortrax Canada Inc. The estimated retail value was $2,000.00 to $2,500.00 (Exhibit #45, August 2014).

[43] Dario testified that 1910 has now been sold to a third party. The Agreement of Purchase and Sale was identified and marked as Exhibit #46. The purchase price was $225,000.00 and the completion date was June 6, 2014. The Land Titles “PIN sheets” for 1910 and 1950 were entered as Exhibits #47 and 48 respectively. Both properties were registered to Gabriel Menei in 2002. A Certificate of Pending Litigation for both properties was entered as Exhibit #49. There was no mortgage in favour of 146 registered against the title to either property.

[44] On cross examination, Dario confirmed that he began to work for his father around 1990. He testified that he began in the field as a labourer and eventually moved into the administration. He denied that he ran the company for his father, insisting that his father always had the final decision making authority.

[45] Dario agreed that 998 was not active and did not generate any income for a short period of time in and around 2001/2002. He testified that the company resumed a minimal level of activity after 2002, screening and selling topsoil but not doing any contract work.

[46] Dario confirmed that his father was in the midst of family law litigation in the late 1990’s and years following. It was his position that his father’s personal issues and that litigation contributed significantly to 998’s financial problems.

[47] Dario was cross examined on the December 31, 2002 Agreement and the circumstances leading up to it being drafted and signed. After a series of questions, Dario eventually agreed with the suggestion that it had been his idea to attend at Mr. Cupello’s office to arrange to have the Agreement drafted and signed – “It may have been, probably right, yes.” Dario agreed that the Agreement was drafted to reflect that funds had been advanced to both Gabriel personally and to 998.

[48] Dario confirmed that his accountant had prepared the summaries (Exhibits #4,14,19,25,32,33 and 34) entered into evidence on his direct examination. They were prepared after the litigation began. Dario confirmed that he provided the accountant with “year-ends”, ledgers and invoices to enable the accountant to create the summaries.

[49] It was put to Dario that supporting invoices for 146’s claims against his father had not been produced in the litigation but for invoices for fuel and some legal accounts. Dario did not deny this assertion suggesting that “back-up” for the summaries was in the possession of the accountants.

[50] Counsel referred Dario to Exhibit #4 (December 31, 2001 summary) and Exhibit #51 (Financial Statement for 146 for December 31, 2001 year-end). Dario acknowledged that the December 31, 2001 summary indicated amounts due to 146 from 998 in the amount of $79,980.00, while the balance sheet for December 31, 2001 indicated “Due from related parties” in the amount of $83,733.00. Moving to Exhibit #5 (General Ledger Report to December 31, 2001) counsel questioned Dario on attached cheque #42, dated July 30, 2001, in the amount of $1,000.00 and payable to Cupello and Company, the reference line of which read “Rivo’s loan”. Dario had no explanation for this apparent discrepancy.

[51] Counsel also referred Dario to two further entries on this General Ledger Report; a dental expense for “Enzo” (a brother) for $78.95 and a drug expense for “Dario” for $1,063.93. Dario had no explanation for these entries.

[52] Counsel then directed the cross examination to the issue of the loan from Karen and Rivo to Gabriel and 998. Dario disagreed with the suggestion that this was a loan to 998 alone until he was referred to the evidence he gave on his examination for discovery at which time he testified that it was a loan to 998 to enable 998 to purchase a bulldozer. He then acknowledged that the loan was primarily for the company, but “assumed” that some portion of it was for his father’s personal expenses.

[53] Counsel pointed out to Dario that the December 31, 2001 summary shows expenses to be charged back to 998 pursuant to the December 31, 2001 General Ledger report are in the amount of $15,381.26, yet the supporting cheques, including the cheque marked as Exhibit #6 ($1161.96) total only $13,818.74. Dario responded that the cancelled cheques for the other entries on the General Ledger Report did exist.

[54] Counsel next referred Dario to the December 31, 2002 summary (Exhibit #14) and the Financial Statements for 146 for December 31, 2002 (Exhibit #52). Dario confirmed that the review date on page two of the December 31, 2002 Financial statement was April 14, 2003. The balance sheet noted due from related parties in the amount of $132,969.00. Counsel had Dario confirm that this is the same amount that appears in the Agreement signed December 31, 2002. Dario was asked how that could be if he did not have the financial statement until April 2003. Dario replied that the number must have been provided to him by his accountant and he in turn provided it to Mr. Cupello.

[55] Counsel then addressed the three lump sum principle payments on the loan to Karen; August 28, 2003 in the amount of $14,000.00 (Exhibit #24), August 13, 2004 in the amount of $20,000.00 (Exhibit # 29) and October 1, 2004 in the amount of $30,376.00 (Exhibit #28). Counsel suggested to Dario that the plaintiff’s claim for these payments allegedly made by 146 on behalf of 998 and Gabriel toward the principle on Karen’s loan was concocted as a direct result of the plaintiff abandoning the portions of his claim relating to the Bruno’s Contracting debt (approximately $66,000.00) and the City Taxes and utilities.

[56] Dario responded that he had found evidence of these payments only in 2014 while reviewing documentation in preparation for discovery. He insisted that all were actual payments on the outstanding loan balance. When asked if he had any “paperwork” in regard to this loan, Dario replied that it had been provided to Gabriel and in turn to Gabriel’s family law counsel during the course of his matrimonial litigation to support Gabriel’s claim of that debt in that proceeding.

[57] Turning to the issue of the equipment owned by 146 which was left at 1910 after the trespass notices were served, Dario confirmed that he had “consented” to Gabriel using the Caterpillar 966C front-end loader and the John Deere 310 loader-backhoe on his property after the date of the notices.

[58] Next referring Dario to Exhibit #42, the 1995 insurance policy for 998, counsel had Dario confirm that the Caterpillar 966C loader was worth $20,000.00 in 1995. Dario then qualified this response and reiterated that 146 had expended approximately $20,000.00 when his father rebuilt this unit after 146 had acquired it.

[59] The same insurance policy put the value of the John Deere backhoe at $13,000.00 in 1995. When asked if he felt that this unit was worth $13,000.00 currently Dario did not respond coherently. Dario was next asked to refer to the August 5, 2014 appraisal of the Caterpillar 966C (Exhibit #44). Dario confirmed that the appraised “as is” current market value was stated to be between $7,000.00 and $9,000.00.

[60] Dario agreed that the John Deere loader-backhoe was appraised in 2001 for $7,500.00 (Exhibit #43) and that he estimated its current “as is” market value at $2,000.00 to $2,5000.00, based on the Nortrax Canada Inc. appraisal (Exhibit #45).

Karen Menei

[61] Karen testified that she had advanced Gabriel and/or 998 funds in the “mid-90’s”. The funds came from a line of credit that she and her husband had. A total of “about $65,000.00” was advanced by cheques written on the line of credit.

[62] Karen identified a series of four cheques from 998 payable to her as follows (Exhibit #61):

1. December 2, 1994 $250.00;

2. April 7, 1995 $2,500.00;

3. May 4, 1995 $150.00;

4. September 22, 1995 $2700.00.

[63] Karen testified that these were payments to her by her father-in-law on “the loan”. Karen further testified that after 2001 “the other company… 146” began to make these loan payments. Karen testified that the series of cheques from 146 to her in the amount of $550.00 were all payments on the loan. She was unable to say with certainty what portion of the payments were for interest or principal.

[64] Karen identified Exhibit #24, 146 cheque #0665, dated August 28, 2003, in the amount of $14,000.00, payable to Karen Menei, as a “lump sum payment on the loan.” Karen identified Exhibit #29, 146 cheque #0997, dated August 13, 2004, in the amount of $20,000.00, payable to “Rivo and Karen Menei” as “one lump sum payment on the loan, line of credit.” She did not know why Rivo’s name appeared on the cheque. She also identified Exhibit #28, 146 cheque #1082, dated October 1, 2004, in the amount of $30,376.00, payable to “Menei Karen”, as “payment on the credit line, our credit line.”

[65] On cross examination, Karen indicated that she had tried to get information from her financial institution about the loan for the purposes of the litigation. She testified that “We tried. It was through Household Finance and they only keep records for 10 years…they don’t have ‘em.”

[66] Karen testified that she was “assuming” that the three large cheques which she said were lump sum loan payments were in fact lump sum payments because she did not know what else they could have been for. She testified that all cheques would have been given to Rivo and that she would have deposited them.

Rivo Menei

[67] Rivo testified that he and Karen started personally loaning money to Gabriel and 998 sometime in the 90’s and that the loans were financed through a line of credit from Household Finance, the purpose being to help out the business. The line of credit was used exclusively for this purpose. The total amount advanced was “65, $70 I’m not a hundred percent sure.”

[68] Rivo testified that after 2001 “…we took over the business and the loans still had to be paid so more or less our business paid off my dad’s loan.”

[69] Rivo identified Exhibit #24, the $14,000.00 cheque dated August 28, 2003 as one of the loan payments. He testified that 146 would have been able to make larger payments at this time of the year because large progress payments are generally received by 146 at that time of the year. He also testified that there would have been no other reason for that payment to have been made. Rivo was unable to explain why Exhibit #29, the August 13, 2004 cheque from 146 for $20,000.00 was payable to both he and Karen.

[70] On cross examination, Rivo denied that any of the large payments which he and Karen identified as lump sum payments on the loan were bonus payments to him.

Mr. M. Cupello

[71] Mr. Cupello is a lawyer practising family law and general litigation in Thunder Bay. Going back to 1991 he advised the court that he had opened “quite a few files” for the Menei family. He had no specific recollection of having advised Gabriel Menei in the past.

[72] When shown the Agreement, Mr. Cupello had no specific recollection of it but agreed that he had prepared it because his long-time assistant had witnessed the signatures on it. Again he had no recollection of having advised any of the parties to the Agreement. Mr. Cupello testified that if he had had “any inkling that someone didn’t understand what they were doing (re the Agreement) I would have sent everyone away.” He had no recollection of any party having any difficulty reading or understanding the Agreement or in comprehending “what was going on.”

[73] Mr. Cupello did recall dealing directly with Gabriel Menei on the files he had had with the Menei family. He had no recollection of Gabriel having difficulty comprehending or understanding the subject matters of the files he had with him.

[74] On cross examination, Mr. Cupello testified that he had no specific recollection of who instructed him in the preparation of the Agreement. He also testified that he never “understood” that any of the parties to the Agreement obtained independent legal advice.

Gabriel Menei

[75] Gabriel was born in Italy on November 26, 1934. He was 68 years old when the Agreement was signed. Gabriel testified that he has a grade one education and that he spent four years in grade one. He emigrated to Canada in 1956 and settled in Port Arthur, Ontario. Gabriel and his family eventually moved to 1910 John Street Road, Thunder Bay, Ontario in 1984.

[76] Upon arriving in Canada, Gabriel worked in construction as a labourer. Beginning in the 1970’s, Gabriel purchased a small machine and starting working on his own as Gabriel Excavating, doing landscaping, then basement excavations. He soon became busier and started doing contract work with the City of Thunder Bay, including demolition and sewer and water line construction.

[77] Gabriel eventually incorporated his business in the early 1980’s, apparently due to the need to obtain bonds for construction projects. The company was in active operation until approximately 2001 or 2002. Gabriel testified that his company did well until 1997 when the City of Thunder Bay went on strike. This apparently caused the company financial problems from which it never recovered.

[78] Gabriel testified that Dario began to work for his company in the late 1970’s, beginning as a machine operator and then moving into the office doing “bookwork.” Gabriel testified that at its busiest, his company employed himself, three of his sons, six or seven labourers and three or four truck drivers. When asked who made the final decisions with respect to company business, Ganriel replied that “Dario was the president and he want to know all the details.”

[79] Gabriel was provided with a Superior Court of Justice Financial Statement signed by him on March 26, 2001 (Exhibit #62). He was the Respondent and Marguerite Dampier, his common law spouse, was the Applicant. He was asked if he “recognized” the document. Without hesitation he replied that he did.

[80] Gabriel agreed that the litigation arising from his separation occurred during the same time period as his company’s financial problems. He testified that Karen and Rivo helped him by lending “us”, “the company” money to buy a bulldozer. Gabriel testified that he had no recollection of the details of the loan, other than the fact that it was for about $46,000.00.

[81] Gabriel testified that he did not recall writing any cheques in regard to the loan. When shown Exhibit #61, four cheques from his company (998) to Karen Menei written in 1994 and 1995 and signed by “G. Menei”, Gabriel denied he had signed the cheques. He testified that Dario would have been signing cheques on behalf of the company at that time.

[82] Gabriel was referred to page 12 of Exhibit #62, the Financial Statement. He was able to read the entry “Loan Rivo Menei” and the value of it at “$47,162.00”. Gabriel testified that his understanding of the entry was that it was the loan from Rivo and Karen for the “dozer”. He also testified that he did not recall signing this statement nor did he give any financial information to his lawyer for the purpose of the statement being prepared, alleging that Dario would have done so.

[83] Gabriel was then shown Exhibit #5, the General Ledger Report for 146 for the period ending December 31, 2001 and attached cheque #31, dated July 16, 2001, from 146 to Karen Menei in the amount of $550.00. Gabriel read the date on the cheque, but denied any knowledge of or discussions with Dario about it. He also denied any knowledge of or discussions with Dario about Dario starting to make payments on this loan.

[84] Gabriel was referred to Exhibit #24, two cheques dated August 28, 2003 and December 10, 2003, both from 146 and payable to Karen Menei, in the amounts of $313.91 and $14,000.00 respectively. He identified the dates of the cheques and the amounts without difficulty. He denied ever having had any discussions with Dario in regard to the $14,000.00 payment.

[85] Gabriel was also shown Exhibits #28 and #29, two cheques from 146 dated October 1, 2004 and August 13, 2004 respectively. The October 1, 2004 cheque was for $30,376.00 and payable to “Menei Karen.” The August 13, 2004 cheque was for $20,000.00 and payable to Rivo and Karen Menei.” Gabriel again denied having had any discussions with Dario about these cheques being written by 146.

[86] When asked if he recalled any of the circumstances surrounding the December 31, 2002 Agreement, meeting with Mr. Cupello or when the Agreement was signed, Gabriel testified that “I have no idea.” He then immediately identified his signature on the Agreement and testified that, “I recall signing the Agreement but I didn’t know what’s it all about.” He testified that the Agreement was not explained to him, that he did not meet with Mr. Cupello to discuss it and that he was never told that he should take it to another lawyer to discuss.

[87] When presented the Agreement, Gabriel testified that he could only read the recitals and that he did not understand the Agreement or the reason for it. He also testified that, prior to the Agreement being signed, he was not told how much money was owed – “Dario was the president of the company and he, he look after that. I’m not aware anything.”

[88] Gabriel agreed that Dario’s company did pay some of his personal expenses between 2000 and the end of 2002 and also paid some of 998’s expenses. He denied ever having had discussions about Dario’s company paying accounting fees on behalf of 998. He agreed that Dario’s company paid some fuel expenses for his company.

[89] Gabriel testified that he initiated a lawsuit against Dario because Dario had failed to pay city property taxes on 998’s behalf, as allegedly agreed upon. He testified that he then issued the trespassing notices against Dario and Rivo. Gabriel testified that the farm has now been sold and the proceeds held in trust.

[90] On cross examination, Gabriel agreed that since he started his own company in the 1970’s he has become familiar with borrowing money commercially. He also agreed that he had signed “insurance contracts” for the purpose of working on the City of Thunder Bay contracts and that he understood what he was signing. This work also required Gabriel to submit tender documents and bids.

[91] When asked how he was aware that his company was doing well financially prior to 1997, Gabriel replied that “Pay all the bills, money in the bank and you – I think you’re doing pretty well.” He testified that he did not see his company’s financial statements, but that he understood what they were about. According to Gabriel, “When we are limited Dario took care of everything…I trust him. He was the president. Whatever he say, whatever he did, I agree with.”

[92] Gabriel was referred to the Agreement by counsel. He agreed that he trusted Dario in 2002, that he trusted Dario that any numbers in the Agreement were right and that he had no reason to dispute those numbers. Gabriel denied that he made the final decisions for 998, as testified to by Dario and Rivo. Gabriel went on to assert that “I wouldn’t know nothing what’s going on 998 because he was, he was doing everything, everything his way and then I trust him.”

[93] Gabriel was then referred to Exhibit #62, his March 26, 2001 Superior Court Financial Statement. He agreed that he understood what the statement was and that it was his from 2001. When referred to the entry on page 12 which indicated a “loan” from Rivo Menei in the amount of $47,142.03, Gabriel testified that “I didn’t even know that (Rivo) bought the machine” and that he had “nothing to do with the deal.” He was then unable to clarify why the debt appeared on his personal financial statement.

[94] Gabriel was then provided with a Ontario Court (General Division) Financial Statement that he immediately identified as another of his financial statements. This May 11, 1998 Financial Statement is Exhibit #63. When referred to page 12, Debts and other Liabilities, Gabriel identified an entry for $65,000.00 as “That’s…the loan they give us, to me.” He agreed that the bulldozer which was purchased with the loan proceeds was used on 998 jobs. When asked about Rivo and Karen having got the money from a line of credit, Gabriel testified that “I don’t know where he got the money from. He give the money, all I see the money, I don’t know the credit line.” Gabriel testified that he had no idea that 146 was paying the loan back to Karen and Rivo on his behalf, despite the fact that the debt appeared on his financial statements.

[95] Gabriel was then shown another Ontario Court (General Division) Financial Statement, dated December 24, 1998 and signed by him (Exhibit #64). He was able to identify an entry on page 12 as a Guarantee – Rivo Menei in the amount of $65,000.00. When asked why it was that his three financial statements and the December 31, 2002 Agreement acknowledged a debt to Rivo but that he had no present recollection of it, Gabriel replied “no”.

[96] Garbriel testified that he knows what a loan is, what collateral is and what interest on a loan is. When asked why he could not understand what the Agreement was about, given that it is simply a loan with interest and collateral, Gabriel replied “Cause I can’t read.” He did understand the figure $132,969.00 and initially indicated that he understood that “We borrowed yes”, but then denied that he was aware that he had borrowed this money from Dario’s company. Gabriel also testified that he had no way to dispute Dario’s evidence that 146 paid the accounts of 998.

Dario Menei

[97] Counsel for the plaintiff was allowed to recall Dario Menei as a result of a late amendment to the Statement of Defence by the defendants.

[98] Dario testified that he explained the Agreement to his father, that his father did not ask any questions and that his father understood it.

[99] When asked by the court how he came to the conclusion that his father understood the Agreement, Dario testified that the contents of the Agreement were discussed in a meeting between him, Gabriel and Mr. Cupello and that he did not recall Gabriel asking any questions of Mr. Cupello following the discussion.

THE POSITION OF THE PLAINTIFF

[100] The plaintiff submits that the Agreement is valid and binding on a joint and several basis on both defendants. The plaintiff submits that both defendants are therefore indebted to the plaintiff, on a joint and several basis, for the debt expressly set out in the Agreement (subject to adjustments made at trial) and for all future advances, together with interest at 7% from the date of each advance, as contemplated by the Agreement.

[101] The plaintiff further submits that the Agreement expressly evidences an intention of the part of all parties that the plaintiff was to receive security for all amounts advanced by way of real property mortgages provided by Gabriel on two pieces of property owned by him personally.

[102] The plaintiff submits that the defendant bears the onus of establishing the requirements of non est factum on a balance of probabilities. It is submitted that to succeed, the evidence must establish the following on a balance of probabilities:

1. That Gabriel had a fundamental misunderstanding as to the nature or effect of the document; and,

2. That Gabriel was not careless in signing the document without attempting to determine its true legal nature.

[103] The plaintiff submits that non est factum is not made out if a party signed an agreement without reading it or requesting an explanation as to its meaning.

[104] The plaintiff submits that the evidence establishes that Gabriel did in fact understand the Agreement. In the alternative, the plaintiff submits that if he did not, he proceeded to carelessly sign the Agreement without making any attempt to determine what it meant.

[105] The plaintiff submits that the evidence of Dario is to be preferred over that of Gabriel in regard to the Agreement. The plaintiff submits that Dario’s evidence confirms the Agreement was explained to Gabriel. The plaintiff submits that Mr. Cupello’s evidence was that it was his standard practice to explain agreements to clients prior to them signing. The plaintiff submits that this evidence is credible and reliable.

[106] The plaintiff submits that Gabriel’s evidence that he did not know what the Agreement was about is simply not credible. Gabriel testified and showed that he can read and comprehend numbers and that he understands when documents are explained to him. The plaintiff also submits that Gabriel acknowledged that he understood the concepts of borrowing and repaying money, loan agreements, collateral, the providing of security and mortgages.

[107] The plaintiff submits that the evidence establishes that Gabriel had significant experience with both personal and commercial borrowing. He started in business in the 1970’s and had borrowed on a commercial and personal basis for over 25 years when the Agreement was executed. Over this period of time he had signed loan agreements, financial statements, tender documents and mortgages.

[108] The plaintiff submits that Gabriel’s evidence that he did not understand anything about the Agreement does not, in considering all the evidence, survive scrutiny. The plaintiff submits that it has not been proven on a balance of probabilities that Gabriel was fundamentally unaware of the nature and effect of the Agreement. The defence of non est factum has not therefore been made out, according to the plaintiff.

[109] In the alternative, the plaintiff submits that Gabriel acted carelessly in signing the Agreement. The plaintiff suggests that Gabriel did not testify that he was misled as to the nature of the Agreement. According to the plaintiff, Gabriel’s evidence was that he trusted Dario and simply signed the Agreement without asking or being given an explanation as to what it was all about.

[110] The plaintiff submits that Gabriel’s evidence does not establish a misunderstanding as to the meaning of the Agreement; rather it establishes a complete lack of any comprehension as to the document because he trusted Dario and saw no reason to ask about what he was signing.

[111] The plaintiff submits that the Agreement is therefore valid and binding on all parties. If this is the case, the plaintiff submits that, pursuant to its terms:

1. The parties agreed that $132,969.00 had already been advanced to the defendant’s by the plaintiff by December 31, 2002;

2. The parties contemplated future advances and agreed that future advances would be encompassed by the Agreement;

3. That all advances would accrue interest at 7% annually from the date of advance;

4. The defendants were to be jointly and severally liable for all funds howsoever advanced; and,

5. The defendants were to provide security to 146 by way of mortgages on 1910 and 1950 John Street Road.

The Loan from Karen and Rivo

[112] The plaintiff submits that a substantial portion of the principal amount owing to the plaintiff is represented by 146’s repayment of the loan owing from 998 to Karen and Rivo.

2001 $2,200.00

2002 4,400.00

2003 20,363.00

2004 54,323.63

Total $81,287.54

[113] The plaintiff submits that the evidence of Karen, Rivo and Gabriel is consistent as to the origin of this debt and as to the nature of the repayment of it, first by 998 and then by 146.

[114] The plaintiff submits that Karen testified that she and Rivo took out a line of credit in the “1990’s” exclusively to advance money to Gabriel and 998. Prior to 2001, Karen testified that 998 made payments to her. She identified four cheques (Exhibit #61) as some of those payments.

[115] The plaintiff submits that Karen’s evidence also establishes that “the other company” (146) began to make the payments after 2001. She identified the cheques in the amount of $550.00, payable to her, as interest payments on the loan. The plaintiff submits that Karen’s evidence also establishes that payments of $14,000.00 in 2003 and of $20,000.00 and $30,376.00 in 2004 were lump sum principal payments on the same loan.

[116] The plaintiff submits that Karen was credible and not shaken on cross examination and that her evidence as to this debt is reliable and should be accepted.

[117] The plaintiff submits that Rivo’s evidence as to repayment of the loan is consistent with Karen’s. The plaintiff submits that Rivo confirmed that he and his wife took out a line of credit to enable them to advance money to the defendants. The line of credit was initially “$65,000.00 to $70,000.00” and the first advance was to purchase a bulldozer for 998.

[118] The plaintiff submits that Rivo’s evidence establishes that interest payments of $550.00 were made payable to Karen because she did all of the couple’s banking. The plaintiff suggests that Rivo’s evidence is consistent with Karen’s as to the lump sum payments made. The plaintiff submits that Rivo’s evidence that the lump sum payments were made in late summer or fall because of increased cash flow for 146 at that time is logical.

[119] The plaintiff submits that Rivo’s credibility was not seriously challenged when it was put to him on cross examination that the $20,000.00 payment made out to “Karen and Rivo Menei” (Exhibit #29) could have been a bonus or dividend payable to Rivo from 146.

[120] The plaintiff submits that Dario’s evidence as to this loan is consistent with that of Rivo and Karen. He testified that Karen and Rivo took out a line of credit of “about $65,000.00” sometime before 2001 to enable them to lend money to Gabriel as he needed it. According to Dario, after 2001, 146 began to make payments on behalf of 998.

[121] The plaintiff submits that Dario’s evidence confirms that this was discussed openly with Gabriel and that he did not object. The plaintiff submits that the fact that all loan payments, from 998 prior to 2001 and from 146 after 2001, are corroborated by cancelled cheques filed in evidence is probative.

[122] The plaintiff submits that Gabriel’s denial of any knowledge of either this loan or the repayment of it by 146 on behalf of him and 998 is simply not credible. The plaintiff submits that Gabriel attempted to deny any knowledge of the loan yet acknowledged that at some point in time a bulldozer had been purchased for him and/or 998. The plaintiff submits that Gabriel’s professed ignorance of who may have purchased a substantial asset for his company is simply incredible, considering that he had been a “hands on” owner/operator of his business for 25 years at that point.

[123] The plaintiff submits that Gabriel’s credibility on this point is further undermined by the fact that he acknowledged this debt three times in sworn financial statements in his matrimonial litigation:

• May 11, 1998 (Exhibit #63)

• December 24, 1998 (Exhibit #64)

• March 26, 2001 (Exhibit #62).

[124] The plaintiff submits that all other amounts claimed as owing in regard to payments made by 146 to or on behalf of 998 and/or Gabriel in 2001 and 2002 have been established by credible evidence supported by documentation filed in evidence. The plaintiff submits that many significant amounts alleged owing from these years are either acknowledged or not disputed by Gabriel, including:

2001 $1,095.00 for repairs to Gabriel’s boat (Exhibit #6)

$10,092.97 for fuel (Exhibit #37)

2002 $11,092.97 for legal fees (Exhibit #14)

$5,000.00 for source deductions paid to CRA (Exhibit #15)

[125] In any event, the plaintiff submits that all amounts which are alleged to have been advanced up to December 31, 2002 are included in the Agreement and acknowledged as owing by both defendants in the Agreement.

[126] The plaintiff submits that the evidence establishes that 146, on behalf of 998, paid the following amounts on account of accounting fees owed by 998:

2003 $2,000.00

2005 $3210.00

2006 $3885.00 and $2,889.00

Total $11,984.00

[127] The plaintiff submits that Gabriel did not deny these payments and tacitly acknowledged them. The plaintiff submits that the payment in 2003 is supported by a cancelled cheque. While no cancelled cheques are in evidence for the other payments, the plaintiff submits that Dario’s evidence that he may have paid them by Visa is unchallenged. It is also submitted that the amounts are relatively consistent from year to year and that Dario’s evidence that he may have paid for two years in 2006 is logical.

[128] The plaintiff submits that Dario was prohibited from entering upon John Street Road property in June 2011 as a result of the trespass notices. This property had served as the yard and head office for 146 for approximately 10 years at that point in time. Various pieces of equipment that 146 owned had been stored on the property.

[129] The plaintiff submits that some of this property was eventually returned to 146 damaged and some has never been recovered. The plaintiff submits that it is entitled to recover monetary damages from the defendants equivalent to the fair market value of equipment not returned and equivalent to the cost of repair for equipment recovered but damaged.

[130] The plaintiff submits that the evidence led by Dario on this issue is the best evidence available on the issue. The plaintiff also submits that their damage claim on this issue takes into account depreciation and betterment.

THE POSITION OF THE DEFENDANTS

[131] The defendants submit that the validity of the Agreement must be considered in the context of the circumstances in which it was executed. The defendants submit that, in 2002, Gabriel was 68 years old with a grade one education and a limited capacity to read English. His business was in precarious financial circumstances, its assets had been seized by the bank and it was not operating. Gabriel himself was in the midst of marital litigation.

[132] Within this context, the defendants submit that Gabriel signed the Agreement, without independent legal advice and without any explanation as to its contents being given to him. The defendants submit that Gabriel simply did not understand the implications of the Agreement, most importantly his personal liability, and signed it only because Dario asked him to do so and he trusted Dario.

[133] The defendants submit that Gabriel did not understand written English sufficiently to comprehend the nature of the obligation he was entering into. In the circumstances, the defendant submits that Gabriel essentially became a guarantor of the debts of his failing company, something that he did not understand and could not have intended.

[134] The defendants submit that the evidence establishes that Gabriel had no knowledge of the alleged loan from Karen and Rivo and no understanding that 146 was paying the loan back to them on behalf of he and his company. The defendant submits that the plaintiff’s failure to submit any corroborating documentation in regard to this loan should cause this court to draw an adverse inference against the plaintiffs on this issue.

[135] In regard to all other categories of payments allegedly made by 146 on behalf of Gabriel and 998, the defendants submit that there are material discrepancies between amounts claimed and the limited corroborating documentation filed at trial. The defendants also submit that discrepancies between amounts claimed at trial and amounts set out in the series of summaries prepared by the plaintiff’s accountants suggest that different documents were given to the accountants than were filed at trial.

[136] The defendants submit that the plaintiff must have had documentation available to them that was not produced to the defendants in the course of this litigation. In light of these material discrepancies and non-production of relevant documents, the defendants submit that an adverse inference should be drawn against the plaintiff and no weight attributed to the evidence of Dario.

[137] The defendants submit that the Agreement, if held to be valid, is ambiguous on the issue of whether or not the defendants are jointly and severally liable. The defendants submit that the express wording of the Agreement leaves it open to interpretation as to the liability each party agreed to assume under the contract. The defendants submit that the Agreement should be interpreted in favour of Gabriel and 998 because the evidence establishes that Dario was responsible for the drafting of it.

[138] As a result, the defendants submit that each individual defendant should only be found responsible for the repayment of their respective debts. If this submission is accepted by the court, the defendants submit that Gabriel should be found liable for only $13,342.80, comprised of payments made by 146 to him or on his behalf between 2001 and 2007:

i. $5,000.00 for legal fees in 2001;

ii. $2,264.86 for repairs to his boat in 2001;

iii. $1,000.00 for legal fees in 2002;

iv. $431.25 paid directly to Gabriel in 2003;

v. $390.00 for windows in 2004;

vi. $2,094.00 for a trip to Edmonton in 2004;

vii. $1,896.37 for a trip to Cuba in 2004; and

viii. $266.32 for payments to Gencor and Boles feeds in 2007;

For a total of $13,342.80.

[139] The defendants submit that the plaintiff has not pled a claim for damages to lost or damaged equipment. In any event, the defendants submit that Dario testified that he consented to Gabriel using any equipment left behind without anything being said about compensation for damage or wear and tear. It is also submitted that when he demanded the return of this same equipment, a consent order was agreed to and the equipment returned.

THE ISSUES TO BE DETERMINED

1. The validity of the Agreement;

2. The amount of payments proven to have been made to or on behalf of the defendants, including damages to equipment.

3. Whether the defendants are jointly and severally liable for advances proven to have been made;

4. The proper rate of prejudgment interest to be applied to advances proven to have been made;

5. Whether the plaintiff is entitled to an equitable mortgage on 1910 and 1950 John Street Road.

DISCUSSION

The Validity of the Agreement

[140] The defendants submit that the Agreement is not enforceable against them because Gabriel did not understand the consequences of signing the Agreement. They have pleaded non est factum in support of their position. The defendants bear the onus of establishing this defence on a balance of probabilities. A review of the authorities suggests that this is not easily done.

[141] In general terms, the defence of non est factum will succeed where a party establishes on a balance of probabilities that the document signed is fundamentally different in nature from that which they believed they were signing such that an “absence of consent” has been proven. The party raising the defence must also establish that they were not guilty of carelessness in signing the document without some attempt made to ascertain its true nature. The defence will generally fail where the evidence establishes that a party is sufficiently literate to allow a court to infer that they understood the general nature of the document.

[142] In Mihajlovic v. General Trust Corp. of Canada (1996), 65 A.C.W.S. (3d) 848, the Ontario Court of Justice (General Division) considered the defence in the context of a Serbian couple seeking to have a residential mortgage declared void. The court stated the law to be as follows:

15. For the claims based on non est factum to succeed the onus rests on Mr. and Mr. Mihajlovic to demonstrate first, that the document which they signed was “fundamentally different, either as to content, character or otherwise from the document that the signor intended to execute: (Marvco Color Research Ltd. v. Harris (1982) 1982 63 (SCC), 141 D.L.R. (3d) 577 (S.C.C.) at 584, per Estey J.), and second, that as between them and General Trust, (the innocent third party), they were not careless in the sense that they signed the document “without [taking] the simple precaution of ascertaining its nature in fact and law”, op. cit. at page 586.

[143] The court noted that the credibility of the plaintiffs was a “most important consideration in assessing whether they can succeed” in establishing non est factum. The court held that the plaintiffs failed to discharge the onus of proof on both factual issues underlying the plea of non est factum. The court was not satisfied that they signed the mortgage documents while unaware of their true nature. The court further stated that if this was not the case, the “only alternative version of the facts leads inevitably to a finding of carelessness which equally disentitles the plaintiffs to the relief they seek.” (See para. 17)

[144] The doctrine of non est factum was considered and applied in Bhuvanendra v. Sivapathasundram, 2014 ONSC 278, a 2014 decision of the Ontario Superior Court of Justice. Although not specifically pleaded, the court chose to apply the defence in dismissing the action against one of three defendants.

[145] The court explained the plea as follows:

[49] Non est factum is a difficult plea to make out. In substance, it requires that the party signing a document have a fundamental misunderstanding as to the nature or effect of the document, and not merely as to its contents, and must not be guilty of carelessness in signing the document without being aware of its contents: see Saunders v. Anglia Building Society, [1971] A.C. 1039 (H.L.); Prudential Trust Co. v. Cugnet, [1956] S.C.R. 915; and Marvco Colour Research Ltd. v. Harris (1982), 1982 63 (SCC), 141 D.L.R. (3d) 577 (S.C.C.).

[146] It is appropriate at this point to comment on and to make findings as to the credibility of the witnesses and the reliability of their evidence.

Dario Menei

[147] Dario’s credibility was challenged primarily on the basis that the documentary evidence, put in almost exclusively through him, was either incomplete or internally inconsistent. In reviewing his evidence, one must bear in mind that he is the owner of a busy construction company tasked with re-creating a paper trail for a great number of varied and miscellaneous payments made between 2001 and 2007. My understanding is that this process did not begin until sometime after 2011, the point in time when his relationship with his father fell apart.

[148] There was a great deal of supporting documentation filed in evidence at trial, resulting in over 60 exhibits, some of which contained multiple documents. It is obvious that this significant paper record is not fully comprehensive. Internal discrepancies are readily apparent in relation to some of the documentation filed. Some have been explained by Dario and some have not.

[149] I found Dario to generally be a credible witness with a relatively good recall of detailed events going back over a number of years. His credibility was not seriously challenged on cross examination. I do not accept the submission of the defendant that an adverse inference should be drawn against Dario and that his evidence should be discounted in its entirety.

[150] I am persuaded that there were errors in some of the amounts claimed and allegedly supported by documentation filed through Dario. These amounts should be discounted or removed from the claim because they have not been adequately proved. However, I am not satisfied that Dario has attempted to mislead the court or that he has intentionally withheld relevant documents from the discovery process such that an adverse inference should be drawn against him and his evidence rejected in its entirety.

Karen Menei

[151] I perceived Karen to be a witness who found herself in a very difficult position, caught in the middle of the Menei family dispute. However, she carefully and accurately recalled what she could from events going back as far as 20 years. Her credibility and the reliability of her evidence were not diminished on cross examination.

[152] I have no reason not to accept her evidence as to the fact that she and her husband took out a substantial line of credit to allow them to advance money to Gabriel and/or his company as needed. She also testified that payments on the loan were first made to her by Gabriel and 998 until 2001. Cancelled cheques payable to her from 998 and negotiated by her were filed in evidence. Karen testified that interest payments and lump sum payments were paid to her by 146 after 2001 until the debt was paid in full. Cancelled cheques payable to her, and one payable to her and Rivo, were filed in evidence and support her testimony.

Rivo Menei

[153] Rivo’s evidence was directed primarily to the loan from him and Karen to Gabriel and 998. I found him to be candid. They obtained the line of credit, the money was advanced and he expected it to be repaid. He testified that he and his wife were not in a position to gratuitously advance $65,000.00 to $70,000.00. According to Rivo, he and his wife expected to be repaid and they were repaid.

[154] On cross examination, it was put to Rivo that the single cheque made payable to “Rivo and Karen Menei” (Exhibit #29, $20,000.00, dated August 13, 2004) could have been a dividend or bonus paid to him by 146 and improperly charged to 998. He replied that it was not, logically explaining that bonuses and dividends could not be paid at that time of the year.

Mr. Michael Cupello

[155] Mr. Cupello was in a difficult position, being asked to testify about a document signed 13 years ago. I found Mr. Cupello to be as helpful as he could be but also appropriately careful in giving his evidence. While not recalling the specific circumstances surrounding the drafting and execution of the Agreement, Mr. Cupello did testify that if he had had “any inkling that someone did not understand the document” he would have sent them away.

[156] Of note, Mr. Cupello did testify that he remembered dealing with Gabriel on other files and that he did not recall Gabriel having any discernible difficulty comprehending or understanding documents involved.

Gabriel Menei

[157] Gabriel was an interesting and charming witness. I have reviewed the transcript of his evidence in conjunction with the evidence of Mr. Cupello. I also have a clear recollection of his demeanour while testifying. I have come to the conclusion that Gabriel is not as unsophisticated as he would have me believe.

[158] Gabriel would have this court believe that Dario operated 998 from the mid-90’s to 2001 and later without input or oversight by him. According to Gabriel, Dario was “the president” of 998 and did it all, not discussing anything with him. Gabriel wanted me to be left with the impression that he was subservient to Dario, whom he trusted without question. He signed whatever Dario asked him to sign and had a limited understanding of the financial aspects of the business preferring to work in the field and servicing equipment.

[159] Gabriel’s evidence as to his role in 998 around 2002 has to be considered in light of the following uncontentious evidence. Gabriel came to Canada in 1956 and has only a grade one education. After working as a labourer for a number of years, he started his own business. He purchased a piece of equipment and hired himself out doing landscaping. His business grew over the years. More equipment was purchased. Employees were hired. He eventually incorporated. Through the 1970’s, 1980’s and 1990’s his business was successful.

[160] At the time the Agreement was signed in 2002, he had been running his own business for over 25 years. During this period of time, he had negotiated the purchase of numerous pieces of construction equipment, signed purchase documents, negotiated and signed commercial financing agreements, negotiated and signed construction contracts with the City of Thunder Bay and others and negotiated and signed insurance documents regarding liability and construction bonding.

[161] In addition, he had personally purchased and mortgaged multiple pieces of real property. He had also signed three sworn superior court financial statements for the purposes of his matrimonial litigation.

[162] I accept that English is not Gabriel’s first language, that he has a limited education and that his reading skills are limited. He acknowledged that he can read and understand numbers. Of this I have no doubt. Based on all of the evidence and on my observations of Gabriel while testifying, I am not persuaded that he is unable to navigate and comprehend the nature of commercial documents, including the general nature and extent of the obligations that he was accepting in signing the Agreement. Nor am I satisfied that he allowed Dario to “run” 998 without his oversight and input into decisions.

[163] In addition, I found his evidence in regard to the loan from Karen and Rivo entirely inconsistent. At one point, he testified that he had no knowledge of the loan or of any payments made to Karen and Rivo on his behalf. At another point, he recalled the purchase of a bulldozer for his company by some unknown third party. At yet another point in his evidence, he recalled the fact of the loan yet professed ignorance as to its repayment.

[164] His evidence on this point has to be assessed in light Exhibit #61, four cheques payable to Karen Menei for various amounts dated in 1994 and 1995 and appearing to be signed by “G. Menei”. Gabriel was shown these cheques and testified that it was not his signature on the cheques and that Dario must have signed his name because Dario was president of 998 at the time. I found this testimony to be bizarre, particularly in light of the fact that Dario, as president, would have signing authority and could sign his own name on 998 company cheques.

[165] Secondly, Gabriel acknowledged the debt owing to Karen and Rivo on three sworn financial statements used in matrimonial litigation. His evidence that he did not give any information to his lawyers for the purpose of the preparation of these financial statements and that Dario did is simply not credible.

[166] Specifically addressing the signing of the Agreement in 2002, Gabriel testified that he could not and did not read the Agreement, that nobody discussed it with him and that he “had no idea” about the Agreement. In essence, he told this court that Dario asked him to sign it and he did so without question because he trusted Dario.

[167] Dario, in his reply evidence, testified that the contents of the Agreement were discussed in a meeting between him, Gabriel and Mr. Cupello and that Gabriel did not ask any questions. Mr. Cupello had no recollection of advising either Dario or Gabriel. The best that Mr. Cupello was able to offer was that he had never noticed any problems with Gabriel’s comprehension in any other dealings he had with him.

[168] For all of the reasons noted above, I do not find Gabriel credible and I do not accept his evidence on this point. Where it conflicts with that of Dario, I prefer the evidence of Dario.

[169] The Agreement is four paragraphs in length. Paragraph #1 is simply an acknowledgement that 146 has already advanced Gabriel and 998 the sum of $132,969.00. Gabriel testified that he could read and understand numbers.

[170] Paragraph #2 establishes that advances accrue interest at 7%. Paragraph #3 discusses future advances. Paragraph #4 discusses security. Of note, the addresses 1910 and 1950 John Street Road are expressly set out. Given Gabriel’s own evidence, I find that he would have understood that real property owned by him personally was involved in the Agreement.

[171] The Agreement is not complex. I find that the nature of the Agreement was discussed with Gabriel. I also find that Gabriel was literate enough to allow me to infer he was able to and in fact did understand the general nature of the Agreement.

[172] Should I be in error in this conclusion, by Gabriel’s own evidence he signed the Agreement without bothering to attempt to read it and without asking any questions as to its nature despite the fact that he was in the office of a lawyer that he had dealt with on previous occasions and with whom he was presumably comfortable. On this version of the evidence, Gabriel was careless in signing the Agreement.

[173] The defendants have not discharged the onus of establishing non est factum on a balance of probabilities. This defence fails. I find that the Agreement is valid and binding on the parties.

The Amount of payments proven to have been made to or on behalf of the Defendants, including damages to equipment

[174] The Agreement stipulated the amount allegedly advanced by the plaintiff and owing from the defendants to the plaintiff as $132,969.00 as of December 31, 2002. However, that figure has been reduced during this trial to reflect sums no longer claimed. There are also discrepancies in the evidence and supporting documentation which must be addressed. This requires a year by year analysis. Amounts claimed and not specifically addressed below, including the substantial loan from Karen and Rivo to Gabriel and 998, should be considered to have been proven to have been advanced as claimed.

2001

[175] The plaintiff claims the sum of $26,940.21 as advanced in 2001. One component of this total figure is $15,381.26. The plaintiff has filed a general ledger report (Exhibit #5) of 146 for the period ending December 31, 2001 which suggests $15,381.25 was paid by 146 to or on behalf of 998 in 2001. However, included in this figure are payments of $1,000.00 to a law firm for “Rivo’s loan”, $78.95 for “Enzo, Dr. D. Blazino” and $1,063.93 for “drugs, Dario Menei”. None of these are expenses for which Gabriel or 998 should be liable.

[176] The general ledger report summary should therefore be reduced to $13,238.38. I am satisfied that the total principal amount owing to the plaintiff for the year 2001 is $24,797.33.

2002

[177] The plaintiff claims the sum of $20,492.97 as advanced in 2002. Included in this figure is $5,000.00 for “source deductions and arrears pd” as set out in a handwritten summary prepared by the accountant for 146 (Exhibit #14, pg. 2). Only 4 cheques totalling $4,000.00 were filed in evidence in support of this claim. I am not persuaded that $5,000.00 was in fact paid in the absence of a supporting cheque. Further, the plaintiff is claiming it paid $11,092.97 in legal fees on behalf of Gabriel in 2002. No invoices were produced. The cheques produced in support of this claim total $10,133.75. I am satisfied that $10,133.75, consistent with the supporting cheques, was paid in 2002 for Gabriel’s legal fees.

[178] I am satisfied that the total principal amount owing to the plaintiff for the year 2002 is $18,533.75.

2003

[179] The plaintiff claims the sum of $25,970.99 as advanced in 2003. All payments alleged are supported by cancelled cheques filed in evidence (Exhibits #20 - #24).

[180] I am satisfied that the total principal amount owing to the plaintiff for the year 2003 is $25,970.99.

2004

[181] The plaintiff claims the sum of $58,704.02 as advanced in 2004. This figure includes $54,323.63 paid on the Karen and Rivo loan. It also includes $2,094.02 which Dario alleged was the cost of a trip to Edmonton when Gabriel took his four sons to watch hockey. Dario testified that Gabriel could not afford it so 146 paid. I do not understand why, if 146 chose to pay for this they now feel they should be reimbursed. This is not allowed. Similarly I am not satisfied that 146 is entitled to be repaid for the cost of sending Gabriel to Cuba in 2004.

[182] I am satisfied that the total principal amount owing to the plaintiff for the year 2004 is $54,713.63

2005

[183] The plaintiff claims the sum of $3,210.00 as advanced in 2005, being accounting fees. This claim is not supported by either an invoice or a cancelled cheque. One would think that a summary prepared by an accountant would be supported by one or the other corroborating the payment of that same accountant’s fees. I am not satisfied that this payment was paid on behalf of 998 in 2005.

2006

[184] The plaintiff claims the sum of $6,774.00 as advanced in 2006, again being accounting fees paid in two separate amounts. My comments from 2005 apply equally to these alleged payments. They are not allowed.

2007

[185] The plaintiff claims the sum of $266.32 as advanced in 2007 apparently for stud fees and cattle feed. Gabriel did not dispute these payments. I am satisfied that the principal amount owing for 2007 is $266.32.

The loan from Karen and Rivo

[186] I am satisfied on a balance of probabilities that Karen and Rivo advanced money to Gabriel and 998 as alleged. I am also satisfied that it was repaid by 146 on behalf of Gabriel and 998 as alleged by Karen, Rivo and Dario who’s evidence on the issue I prefer over Gabriel’s.

Damages to equipment

[187] The plaintiff testified that he was unable to retrieve all of his equipment from the John Street Road property at the time when his father barred him from that property. He testified that some was subsequently returned damaged and that some was never returned. Gabriel gave no evidence on this issue.

[188] Dario purchased a welder in 2007 for $1,575.00 that was left on the property and never returned. I find that it is appropriate to depreciate this by 50% and therefore allow $787.50 as damages for the welder.

[189] Dario left a Kenworth tractor on the property that was never returned. It was valued at $5,800.00 in 2001 (Exhibit #43). The plaintiff claims $1,000.00 as the fair market value of this item. I find this to be reasonable and allow it.

[190] Dario testified that 146 owned a 966c Caterpillar loader that the company paid $20,000 to repair in the years after 2001. This was left at the John Street property and eventually returned damaged. Based on the evidence filed, the claim for $5,000.00 damage to this unit is reasonable.

[191] A John Deere 310A loader was also left at the John Street Road property. It was valued at $7,500.00 in 2001. Dario testified that it was in operable condition in 2011. The evidence suggests that it was worth only $2,000.00 to $2,500.00 in 2014. The plaintiff’s claim for $1,000.00 for damage and depreciation is reasonable and I allow it.

[192] The total damage award for equipment is $7,787.50.

Are the Defendants jointly and severally liable for advances proven to have been made?

[193] The interpretation of a contract involves determining the intention of the parties. I begin from the premise that the parties to a contract intend what they say in the contract, according to the plain and ordinary meaning of the words used.

[194] The recitals of the Agreement set out the background in plain language. Money has been advanced to both defendants. It is anticipated that the defendants will ask for more money to be advanced in the future. All parties intend that money advanced to Gabriel “and/or” 998 will be repaid in full with interest. It is agreed that the defendants will provide security for money advanced.

[195] There are four paragraphs in the Agreement. Consistent with the recitals, they provide as follows:

1. All parties acknowledge that the plaintiff has advanced a certain sum of money to Gabriel “and to” 998;

2. All parties agree that monies advanced will accrue interest at 7% per year and that payments shall be made to the plaintiff by “Gabriel and by 998”;

3. All parties agree that any future advances made by 146 “to Gabriel and/or to 998” shall be paid back in accordance with the Agreement; and,

4. All parties agree that “Gabriel and 998” shall provide security by way of mortgages on 1910 and 1950 John Street Road. The registered mortgages are to serve as security for “any and all (advances) made by 146 to Gabriel and/or 998”.

[196] The Agreement makes no attempt to segregate money advanced to Gabriel from that advanced to 998. The Agreement nowhere indicates or suggests that Gabriel is liable only for advances to him personally or that 998 is liable only for advances to 998. The Agreement quite clearly provides that all past and future advances to Gabriel and/or 998 were to be secured by mortgages registered to Gabriel personally.

[197] Returning to the premise that the parties to a contract mean what they say according to the plain and ordinary words used, nowhere in the Agreement is there any indication of an intention that Gabriel would be liable only for money advanced to him. The Agreement simply does not support the interpretation suggested by the defendants.

[198] Reading the Agreement as a whole, I do not find it ambiguous on this issue. I find that it is more probable than not that the parties intended that the defendants would be jointly and severally liable for all funds advanced to either by 146.

The proper rate of prejudgment interest to be applied to advances proven to have been made

[199] Pursuant to section 128 of the Courts of Justice Act, R.S.O. 1990, Chap. C.43, a party who is entitled to an award for the payment of money is entitled to claim and have included in the order an award of interest. A party has a prima facie entitlement to prejudgment interest on the award. It is to be viewed as compensatory and should not ordinarily be reduced.

[200] Section 130 (1) of the Courts of Justice Act states that a court may, where it considers it just, disallow or vary prejudgment interest. For the purpose of doing so, section 130(2) sets out the factors that court “shall” take into account. In determining a rate of prejudgment interest in actions involving the payment of a loan, absent exceptional circumstances, the interest rate that governed the loan before the breach is the appropriate rate to govern the post-breach loan. (See Pizzey Estate Ltd v. Crestwood Lake Ltd., 2004 36108 (ON CA), [2004] O.J. No. 246).

[201] This action was started in November 2011. Pursuant to section 127 of the Courts of Justice Act, the presumptive rate of prejudgment interest would be 1.3%. The plaintiff is claiming prejudgment interest of 7% because that is the rate prescribed in the Agreement.

[202] In my opinion, considering all the circumstances of this case it is just to award prejudgment interest at a rate above that prescribed by section 127 of the Courts of Justice Act, but well below the 7% sought by the plaintiff. The amounts claimed and which will attract interest go back over 13 years. Market interest rates have remained historically low over the same period of time. The rate sought is well in excess of the prevailing market rates over this period of time and a very substantial amount of money is involved. In my opinion, these are exceptional circumstances.

[203] The plaintiff shall be entitled to prejudgment interest at the rate of 3.5% per year.

Is the Plaintiff entitled to an equitable mortgage on 1910 and 1950 John Street Road

[204] In Elias Markets Ltd., Re (2006), 47 R.P.R. (4th) 32, the Ontario Court of Appeal noted the lack of recent jurisprudence in Ontario on the concept of equitable mortgages. The Court therefore felt it appropriate to review the law on the nature of an equitable mortgage and the manner in which one is created.

[205] The Court stated that:

In essence, the concept of an equitable mortgage seeks to enforce a common intention of the mortgagor and mortgagee to secure property for either a past debt or future advances, where that common intention is unenforceable under the strict demands of the common law. (See para. 65).

[206] The Court further stated that:

Equitable mortgages…are created by some instrument or act which is insufficient to confer a legal estate, but which, being founded on valuable consideration, shows the intention of the parties to create a security; or in other words, evidences a contract to do so.

[207] The Court then proceeded to review relevant passages from Falconbridge, Law of Mortgages, 4th ed. at p. 80 and approved the following statement:

An agreement in writing duly signed to execute a legal mortgage is an equitable mortgage, operating as a present charge on the lands described in the agreement.

[208] In my opinion, it has been established that the fact situation in this case is squarely within the above statement of the law such that an equitable mortgage, in essence a present charge, was created on 1910 and 1950 John Street Road when the Agreement was signed on December 31, 2002.

[209] The Agreement has been found to be valid. The parties intended that Gabriel would provide mortgages on both properties to secure a “past debt” and “future advances”. The terms of the proposed mortgage were set out in the Agreement. Dario’s evidence that he assumed the mortgages had been registered is consistent with his evidence that he never intended to call the debt until after his father’s death, knowing that he could then enforce against the John Street Road properties.

[210] The property at 1910 John Street Road has been sold and the net proceeds of sale are being held in trust pending the outcome of this litigation. The plaintiff is entitled to a declaration that it has had, since December 31, 2012, an equitable mortgage on 1910 and 1950 John Street Road, Thunder Bay, Ontario.

[211] The plaintiff shall have first priority on the net proceeds of sale of 1910 John Street Road up to the amount of the judgment in this action. Should the amount of this judgment exceed the net proceeds of sale, the plaintiff shall have and be entitled to register an equitable mortgage for the balance of the judgment against the title to 1950 John Street road, consistent with the terms set out in the Agreement.

CONCLUSION

[212] The plaintiff shall have judgment against the defendants in the amount of $184,211.58 calculated as follows:

1. 2001 - $24,797.33 plus PJI of $12,053.20;

2. 2002 - $18,533.75 plus PJI of $8,359.99;

3. 2003 - $25,970.99 plus PJI of $10,805.71;

4. 2004 - $54,713.63 plus PJI of $20,849.64;

5. 2007 - $266.32 plus PJI of $73.52

6. Damages to equipment - $7,787.50

Total - $184,211.58

[213] The plaintiff shall have first priority to the net proceeds of sale of 1910 John Street Road, currently held in trust, up to the total amount of this judgment.

[214] I declare that the plaintiff has an equitable mortgage on 1950 John Street Road for the balance of the amount of this judgment after the payment of the net proceeds of sale of 1910 John Street Road to the plaintiff. The terms of this equitable mortgage shall be as set out in the Agreement. The mortgage shall be registered against the title to 1950 John Street Road.

[215] The judgment shall carry post judgment interest at the prescribed rate.

[216] If the parties cannot agree on the costs of this trial, they shall make written submissions as to costs, not to exceed five pages, exclusive of Bills of Costs. The plaintiff’s costs submissions shall be filed within 21 days of the release of this judgment; the defendants’ within 7 days thereafter.

The Hon. Mr. Justice J.S. Fregeau

Released: November 20, 2015