COURT FILE NO.: BK-24-02719955-21
DATE: 2024-09-05
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
In the matter of the Bankruptcy of Barbara Lynn Wojciechowski
Mr. Zanni, Trustee in Bankruptcy
Veronica Creglia, Creditor
Barabara Wojciechowski
HEARD: In person at Thunder Bay, August 22, 2024
Madam Justice H. M Pierce
Reasons on Application for Discharge
Introduction
[1] The Trustee in Bankruptcy seeks a conditional discharge of the bankrupt, Barbara Lynn Wojciechowski (“the bankrupt”) upon the payment of surplus income calculated at $2,051.74, payable in minimum monthly installments of $296.46 for six months and a final payment of $272.98. The Trustee took no position on Ms. Creglia’s application.
[2] Veronica Creglia objects to the bankrupt’s debt to Mid-Can Roofing and Sheet Metal Ltd., (“the creditor”) being released. She submits that the debt was incurred by fraudulent misrepresentations, contrary to section 178(1)(e) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (the “Act”). That section provides:
178 (1) An order of discharge does not release the bankrupt from
(e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim
[3] Ms. Creglia seeks a declaration that the debt to Mid-Can, in the amount of $18,600, is not released by Ms. Wojciechowski’s bankruptcy.
The Evidence
[4] Ms. Creglia testified to being the sole owner and operator of Mid-Can Roofing and Sheet Metal Ltd., a small business that she relies on to supplement her government pension after the death of her husband.
[5] Ms. Creglia stated that the bankrupt called her in October 2017 to inquire about repairing a leaking roof, after her insurance company advised that it would cancel her policy until it was fixed. The bankrupt told Ms. Creglia that she would be unable to obtain mortgage refinancing if the property could not be insured. She emphasized the urgency of the repair.
[6] Ms. Creglia dispatched her foreman to inspect the roof and determine what would be required. The creditor gave the bankrupt two estimates: one more expensive option for re-roofing an addition to the home, and one less expensive estimate for a simple roof repair.
[7] The bankrupt called Ms. Creglia to advise that she had discussed the cost with her father, who had offered to help her pay for the repairs. Ms. Creglia was not certain as to whether they had discussed a gift or a loan. However, the bankrupt indicated her reluctance to borrow from her father, advising Ms. Creglia that she would first approach the Credit Union for financing but, if financing was not available, then she would ask her father.
[8] The bankrupt also advised that the addition to the house, which also required a roof repair, could be rented so that she would have rental proceeds to repay her debt.
[9] After receiving the two estimates, the bankrupt told Ms. Creglia that she had reviewed them with the Credit Union and that her financing had been approved. The debtor signed the contract for re-roofing the addition, which obliged her to pay in full within 15 days of the completion of the work.
[10] Ms. Creglia testified that the bankrupt knew, at the time she signed, that she had not secured the funding necessary to pay the contract and, therefore, signed the contract with fraudulent intent. She stated that the debtor lied about her ability to pay when she signed the contract, and deliberately deceived her to get the roofing project done. She noted that no documentation proving the existence of a Credit Union loan was ever produced.
[11] Ms. Creglia also stated that she would never have contracted for the more expensive repair had the bankrupt not misrepresented her ability to pay.
[12] The work was completed, and the debtor invoiced, on December 29, 2017. No payments were forthcoming from the bankrupt, who avoided Ms. Creglia’s calls until early February 2018. When Ms. Creglia blocked her identification on her phone, the debtor then answered her calls. She told Ms. Creglia that there was an issue with funding from the Credit Union but assured Ms. Creglia that she would be paid.
[13] About a month later, the bankrupt advised Ms. Creglia that her funds from the Credit Union were missing, and that the Credit Union suspected an employee had forged the bankrupt’s signature, withdrawn the funds, and quit her employment. The bankrupt indicated that the Credit Union was investigating, but that no funds were available. This explanation was contained in the bankrupt’s text message from April 9, 2018, in answer to Ms. Creglia’s request for a payment on the account.
[14] Ms. Creglia persisted in her requests for information about the Credit Union funding, and proposed payment plans; however, the bankrupt replied that the Credit Union had not restored her funding. Sometimes there was simply no response from the bankrupt at all.
[15] In June 2018, Ms. Creglia asked the bankrupt whether funding was available from her father. Ms. Wojciechowski replied that this was no longer an option. Ms. Creglia’s requests for good faith payments were ignored.
[16] By July 2018, Ms. Creglia proposed that she go with the bankrupt to the Credit Union or, alternatively, that Ms. Wojciechowski give her contact information for someone at the bank so that she could make inquiries. The bankrupt did not respond.
[17] When no payments were forthcoming, Ms. Creglia sued the debtor in Small Claims Court and received an uncontested judgment on January 8, 2019. Ms. Wojciechowski underwent a judgment debtor examination on April 26, 2019 and the Deputy Judge ordered her to make voluntary payments of $100 per month. The bankrupt ignored this order.
[18] On or about July 22, 2019, the bankrupt borrowed $32,000 in second-mortgage financing from Black Hawk Consulting. Ms. Ceglia was unaware of this financing at the time.
[19] By August 7, 2019, Ms. Creglia filed a writ of seizure and sale, along with a notice of garnishment. The creditor was then owed $19,082.75. When she advised the bankrupt that she intended to garnish her wages, Ms. Wojciechowski responded by text that if the garnishment proceeded, she would file for bankruptcy and Ms. Creglia would never receive any money. Later that day the bankrupt sent Ms. Creglia a text message advising that she had filed for bankruptcy before.
[20] By December 2020, the garnishments had realized $4,704.67. The bankrupt filed a consumer proposal in January 2021, which was subsequently withdrawn. An assignment in bankruptcy followed, with Mid-Can’s claim listed at $18,600.
[21] The Trustee in Bankruptcy indicated that the sale of the bankrupt’s house took place prior to the bankruptcy.
[22] Ms. Wojciechowski testified to being in a bad place when she met Ms. Creglia due to personal circumstances; the roof on her addition had collapsed and she was forced to relocate her tenant. She stated that the Credit Union had initially assured her there would be no difficulty granting a loan, however the money was not forthcoming. She claimed not to know what happened with the Credit Union. The bankrupt testified that the Credit Union put the money in her bank account, but subsequently withdrew it.
[23] The bankrupt testified that she tried to get financing from the Credit Union and was assured that it wouldn’t be an issue when she contracted with the creditor for the roof repair. She stated that the funding was declined after she signed the roofing contract. She filed no documentation to prove that she applied for a Credit Union loan, nor that the financing was refused.
[24] She agreed that she did not wait for confirmation of funding from the Credit Union before entering into the contract for roof repair. She added that she didn’t know whether she ever told Ms. Creglia that the loan was declined.
[25] The bankrupt also stated that, in the three weeks following the refusal of credit, her father was no longer in a position to assist her. She disputed the allegation that Ms. Creglia asked her for permission to contact the Credit Union and verify her story - despite the existence of a text message to that effect - and did not ask the Credit Union to contact Ms. Creglia.
[26] During cross-examination, the bankrupt indicated that she did not understand how contracts work. She stated that her father had offered to help her finance the roof work, but that she thought the Credit Union would loan her the money for a consolidation loan. By the time she realized there was no financing, she stated that her parents had helped her sister instead.
[27] Ms. Wojciechowski indicated that she lost her job in April, and in July, of 2018 and added that she had been in and out of work for seven to eight years, with gaps of three months. She testified that she now has a steady job. She explained that she could not make installment payments because she was working out of town.
[28] She stated that she didn’t defend the Small Claims Court action because she had started a new job and her employer had told her that if she took the time off to go to court, she would lose her job.
[29] The bankrupt testified to asking Ms. Creglia to stop the garnishment, as she was living paycheque to paycheque and supplementing her income with payday loans. She blames the garnishment for triggering her bankruptcy and stated that she still owes money to the Trustee in Bankruptcy. She denies having any intention to defraud the creditor.
[30] She stated that the second-mortgage financing obtained from Black Hawk went entirely to the Credit Union to make up arrears of mortgage payments, and that Black Hawk directed where the funds would go.
[31] The bankrupt testified that she had every intention of paying the debtor at the time of signing but when she was denied the loan there was nothing she could do. She denies having acted fraudulently and blames bad health, no employment, or bad employment.
The Law
[32] In Celanese Canada Inc. v. Murray Demolition Corp., [2010] O.J. No. 6347, 2010 CanLII 29089 (Ont. S.C.), Nordheimer J. (as he then was) considered the application of s. 178(1)(e) of the Act in the context of false pretences. At para. 20, he adopted the reasoning of Blair J. at p. 522 in Simone v. Daley (1999), 1999 CanLII 3208 (ON CA), 43 O.R. (3d) 511 (C.A.), quoting Funduk J.A. in Jerrard v. Peacock (1985), 37 Alta L.R. (2d) 99 (Q.B.), at para. 44:
Paragraphs (d) and (e) are morality concepts which look at conduct. Those kinds of conduct are unacceptable to society and a bankrupt will not be rewarded for such conduct by a release of liability.
[33] Justice Blair observed at paras. 27 and 28 of Simone that, since a purpose of bankruptcy legislation is the rehabilitation of the “honest but unfortunate debtor,” debts which survive bankruptcy are exceptional.
[34] At para. 22 of Celanese, Nordheimer J. adopts the definition of false pretences found at s. 361(1) of the Criminal Code:
361 (1) A false pretence is a representation of a matter of fact either present or past, made by words or otherwise, that is known by the person who makes it to be false and that it is made with fraudulent intent to induce the person to whom it is made to act on it.
[35] In Sears Canada Inc. v. Edwards, [2006] O.J. No. 2914, a decision of the Small Claims Court, the Deputy Judge considered $5,000 in Sears credit-card debt incurred on the eve of an assignment in bankruptcy. At para. 8, the court observed the following:
Mr. and Mrs. Edwards were four weeks away from declaring bankruptcy. They must have known that they could not meet their ordinary obligations as they came due. They could not possibly have intended to pay Sears back when they incurred some $5,000 worth of debt on their respective Sears cards in those four weeks. Pretending you are able to pay, when you have no intention of paying for property received is a textbook example of ‘obtaining property under false pretences.’
[36] In Summit Leasing Corporation v. Ali, 2022 BCSC 1429, the Supreme Court of British Columbia considered whether s. 178(1)(e) of the Act applied. At para. 14, the court adopted the test discussed by the British Columbia Court of Appeal in Cruise Connections Canada v. Szeto, 2015 BCCA 363, 388 D.L.R. (4th) 648, at para. 13:
The essential test for both “false pretences” and “fraudulent misrepresentation” under s. 178(1) has been described simply as determining whether the bankrupt was “deceitful” in obtaining the property.
[37] At para. 15 of Summit, the court, citing Poonian (Re), 2021 BCSC 555, aff’d 2021 BCCA 417, 58 B.C.L.R. (6th) 276, observed that the onus is on the creditor seeking to have the debt survive bankruptcy to establish that the provisions of s. 178(1) apply. The behaviour need not satisfy the Criminal Code definition or the test for the tort of deceit.
[38] The creditor must prove its case on a balance of probabilities.
[39] At para. 16 of Summit, the court adopted the findings from para. 40 of Cruise Connections, as follows:
The core content of both “false pretences” and “fraudulent misrepresentation” is the making of a deceitful statement. [Citations omitted]. Both a “fraudulent misrepresentation” and a “false pretence” may be made verbally, or by non-disclosure of material facts through “blameworthy (or cunning or strategic) silence. [Citations omitted].
Discussion
[40] Where there is a conflict between Ms. Creglia and Ms. Wojciechowski’s evidence, I prefer the evidence of Ms. Creglia which is supported by copies of text messages. The bankrupt’s testimony is not credible in many respects.
[41] For example, I do not find her credible when she states that she signed the contract for roof repairs after being assured by the Credit Union that funding would not be an issue. Why would she not defer the work until she made an application for funding and received an affirmative response? Where is the application for funding? Where is the document refusing funding?
[42] The bankrupt’s representation to Ms. Creglia that she would fund the roof work either by a Credit Union loan or with help from her father also lacks credibility, given her testimony that her parents had already helped her sister within three weeks of being refused financing by the Credit Union. She stated that the funds from her parents were no longer available.
[43] I do not accept Ms. Wojciechowski’s explanation that a Credit Union employee forged her signature, withdrew funds from her account, and resigned. It is improbable that the Credit Union, having approved the loan, would not make good on it in the event of employee theft. The lack of confirmatory evidence for this explanation is telling.
[44] More probable is the explanation provided by Ms. Creglia, that Ms. Wojciechowski knew she would not qualify for a loan but nevertheless signed the contract so that the roof work she urgently needed would get done. This is corroborated by her application for second mortgage funding from Black Hawk, which she needed to repay arrears of payments to the Credit Union. Why would the Credit Union extend credit to a client who is already in arrears?
[45] Ms. Wojciechowski’s statement that she doesn’t understand how contracts work is not credible. She owned a home that was subject to mortgage financing, later sold the property, and has previously borrowed from an assortment of payday loan companies. She was sued in Small Claims Court for breach of contract. She asked Ms. Creglia to defer collection so that she could re-establish her credit rating.
[46] Despite her promises to Ms. Creglia to make payments on account, she never made any voluntary payments in any amount. Her pattern of avoiding Ms. Creglia’s collection calls further suggests that she never intended to pay for the work.
[47] I conclude that Ms. Wojciechowski intentionally made fraudulent misrepresentations to Ms. Creglia indicating that payment for the roofing contract would not be an issue, in order to induce Mid-Can to rely on her misrepresentations and perform the contract for urgent roofing services. Mid-Can relied on the misrepresentation and completed the work. The bankrupt made the misrepresentation knowing that it was false, and that she had not applied for funding from the Credit Union. Further, she knew that she did not have alternate means to pay for the work.
[48] This fraudulent misrepresentation allowed Ms. Wojciechowski to obtain repair services for her collapsing roof at no immediate cost to herself, which was her objective. This was deceitful. Accordingly, the creditor has met its onus to establish that the bankrupt obtained property and services through a fraudulent misrepresentation, contrary to s. 178(1)(e) of the Bankruptcy and Insolvency Act. The bankrupt should not be rewarded for such conduct by the release of liability.
Conclusion
[49] A declaration will issue that Ms. Wojciechowski’s conditional discharge in bankruptcy does not release her liability to Mid-Can Roofing and Sheet Metal Ltd. in the amount of $18,600. The creditor has leave of the Bankruptcy Court to take enforcement proceedings with respect to this debt.
[50] An order of conditional discharge will issue upon payment of the sum of $2,051.74, representing surplus income payable in minimum monthly installments of $296.46 for six months and one final payment of $272.98, with payments to commence on or before September 1, 2024.
[51] In addition, the court orders that Canada Revenue Agency forward all future income tax refunds for the periods subsequent to the year of bankruptcy to MNP Ltd., Trustee, until the final amount ordered is paid in full.
[52] An order will issue that if a condition of this order of discharge has not been fulfilled, or the aggregate of three payments have been missed, the Trustee may proceed to its discharge and creditors’ rights to enforce payment, in addition to Mid-Can Roofing and Sheet Metal Ltd., will be reinstated upon the discharge of the Trustee.
[53] In addition, the Trustee has leave to return this matter to the court to obtain an order for absolute discharge upon the completion of all conditions set out in the order.
“original signed by”
The Hon. Madam Justice H.M. Pierce
Released: September 5, 2024
COURT FILE NO.: BK-24-02719955-21
DATE: 2024-09-05
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
In the matter of the bankruptcy of Barbara Lynn Wojciechowski
REASONS ON APPLICATION
Pierce J.
Released: September 5, 2024