Grant, DJ:—The plaintiff lives in the municipality of Rexdale. In the year 1958 he and his brother Nicola DiLorenzo entered into partnership under the name and style of Di Lorenzo Construction Company and thereafter carried on business together in such partnership in the trade of general forming, concrete work and steel placing. In such business and partnership the plaintiff was in charge of the actual performance of all work or contracts. The brother Nicola was responsible for all matters pertaining to the office and management of the partnership including arranging contracts, collections and payment of all obligations thereof.
For the purpose of carrying on such business, the plaintiff and his said brother caused to be incorporated a number of companies, including the nine mentioned in paragraph 3 of the Statement of Defence. They were substantial shareholders and officers in most of these incorporated companies which were under their complete control and direction in the carrying on of such business on behalf of such partnership. The offices of such partnership were at 76 Millwich Drive, Weston, Ontario. Other than one of such companies which operated from premises in Ottawa and another which operated in Hamilton, the other incorporated companies occupied the same office space as such partnership.
Such partnership, as well as the same incorporated companies, hired a considerable number of employees. It was the duty of each employer to deduct monthly from the wages of each of its employees, an amount sufficient to cover that employee’s income tax on such wages, as well as his contribution to the Canada Pension Plan and to forward the same to the Department of National Revenue on or before the 15th day of the following month.The Income Tax Act provides that the employer holds such amount in trust for such department until the same is forwarded to it.
In the early part of 1968 the plaintiff and his said brother, carrying on such business as DiLorenzo Construction and such incorporated companies, became indebted to such department in the sum of $259,952.34 representing employee tax deductions, Canada Pension Plan contributions, assessed arrears, penalties and interest which they had failed to remit. The plaintiff and his brother Nicola entered into an arrangement with the department whereby they undertook and agreed to pay such indebtedness in regular specified payments so that the total indebtedness would be retired by April 1, 1968.
The terms of such arrangement is set out in a letter from the partnership to such department dated February 14, 1968 and found under Tab 16 of Exhibit 2 herein. Although such indebtedness was entirely satisfied, the terms of this guarantee are enlightening as to the subsequent arrangements. It reads as follows:
February 14, 1968. Director — Taxation,
Department of National Revenue,
36 Adelaide Street East,
Toronto 1, Ontario.
Attention: DR R Price,
Advance Collection Unit.
Dear Sirs:
Re: | Employee Tax Deduction Arrears of: | |
| N DiLorenzo Construction Ltd | Acc’t #DCO 4-0166-5 |
| Dilcon Construction Ltd | Acc’t #DCO 4-0149-1 |
| Dilcrane Eqipment Limited | Acc’t #DEQ 4-0004-1 |
| Etobicoke Forming Limited | Acc’t #EFO 4-0019-8 |
| Frank Forming Ltd | Acc’t #EFO 4-0020-5 |
| Forming Construction Limited | Acc’t #FCO 4-0107-7 |
| — and — | |
| Mr Nicola DiLorenzo and Mr John DiLorenzo | |
| trading as DiLorenzo Construction | |
| Acc’t #DCO 4-0180-6 | |
| The above six Companies, together with the partnership of DiLorenzo Construc |
tion are currently indebted to the Department of National Revenue in the amount of $259,952.34 representing employee Tax Deduction and Canada Pension Plan Contribution assessed arrears, penalty and interest.
Repayment of the entire amount due, including any additional interest accruing in the interval, is hereby undertaken, agreed to and guaranteed by Mr Nicola DiLorenzo and Mr John DiLorenzo trading as DiLorenzo Construction as follows:
(a) an amount not less than $70,000.00 by certified cheque on February 19th, 1968.
(b) an amount not less than $30,000.00 by certified cheque on each of the following dates, namely February 26, 1968, March 4, 1968, and March 11, 1968.
(c) an amount not less than $35,000.00 by certified cheque on March 18, 1968 and March 25, 1968.
(d) an amount sufficient to retire the entire balance of all outstanding arrears, penalty and interest, (approximately $35,000.00) by certified cheque on April 1, 1968.
It is further hereby understood and agreed that the entire liability of the six Limited Companies referred to shall be repaid in full, and in preference to, any reduction on account of the liability of the partnerhip of DiLorenzo Construction. Payment of the February, 1968 current month employees deductions, for all seven accounts, will be provided by certified funds on March 11, 1968, concurrent with the $30,000.00 arrears payment due on the same date.
In the event of any break down in the above arrangement and/or repayment schedule will render all arrears due and payable immediately, and it is fully understood that the Department may initiate whatever legal action they may deem necessary without further notice or advice.
Yours truly,
“N Dilorenzo”
N DiLorenzo — Partner. ND/lm
c.c. Mr P Weinstein,
Aetna Factors Corp’n Ltd,
1320 Yonge St,
Toronto 7, Ontario.
In the latter part of 1968 and 1969 the business developed financial troubles and again both the partnership and the nine incorporated companies named in paragraph 3 of the Statement of Defence failed to remit to the department a large part of their employee tax deductions and Canada Pension Plan payments for their employees. The combined indebtedness of the eight incorporated companies, namely Forming Construction Limited; Del- con Construction Limited; Toronto Forming (1965) Limited; T A & Steel Placing Limited; Hamilton Forming Limited; Dilcrane Equipment Limited; Corvette Forms Limited; N DiLorenzo Construction Limited, together with that of the partnership, amounted to $435,862.63. Fred Fraser a supervisor of the technical collections section of the Department of National Revenue who was closely associated with the attempts at collection stated it was most important that the arrangements provide that all payments made should be credited against the amount owing by the limited companies until that indebtedness was satisfied because of the danger of the limited corporation ceasing to exist or be without assets. Consequently, it was arranged that any payments made should be credited against the amount owing by the limited companies until that was paid. While Fraser was not present at the actual time the arrangements were made, he had sufficient knowledge from the records of the companies and the department and his constant Supervision of the attempts at collection, to know that this had been agreed upon.
Donald R Price was a senior officer of the Income Tax Collection Department. He has supervision over the collections from this group of companies and the partnership from late in 1967. He said that by late August of 1968 that the group was in substantial arrears again. Notice of the assessment of the arrears were sent to the companies in default each month. These amounts were prepared by Price from records and books produced by the different companies and partnership as to the amount of deductions made from the employees’ pay each month. The brother Nicola had made many promises that the amounts so owing would be remitted but the amounts in arrears steadily increased to about $400,000 by the end of December. Price was then instructed by the chief of such collection department to insist on payment of $100,000 immediately or drastic action would be taken. Nicola DiLorenzo then, on behalf of all the limited companies and the partnership, agreed that they would jointly assume liability for such total indebtedness which was then $435,862.63 and pay the same at the rate of $15,000 per week during the month of April; $20,000 per week in May; $30,000 per week in June and $40,000 per week in July and the balance on July 31, 1969. It was arranged that all payments made under such arrangement were to be credited against the arrears owing by the limited companies until that liability was satisfied and thereafter payments would be credited against the amount owing by the partnership. The Chief of Collections for the department accepted this offer.
The solicitors for the partnership and incorporated companies drew up the form of agreement embodying these terms and by letter dated March 3, 1969 (Tab 1, exhibit 2) sent the same to Mr Price. Such letter and agreement read as follows:
March 3, 1969. D R Price, Esq,
Mackenzie Building,
36 Adelaide Street East,
Toronto 1, Ontario.
Dear Mr Price:
Re: DiLorenzo Company — Liabilities and
Department of National Revenue
As requested, we have prepared the form of guarantee basically on your form with respect to the moneys owing by the DiLorenzo Group of Companies and by Di Lorenzo Construction Company on account of Employees’ Tax Deductions, Canada Pension Plan Contributions, penalties and interest.
A copy of such guarantee is enclosed herewith.
We understand that you will make certain that this guarantee is in proper form advise us, in which event, we will arrange to have the guarantee signed by all of the various companies and individuals.
The writer will be out of the City until March 15th, 1969, but if you would care to contact the writer’s secretary, Mrs Scaussmann, she will arrange for the execution of the document.
We regret a slight delay in forwarding this material to you, due to pressure of business.
Yours truly,
COBBAN, WOOLLEY & DALE,
By:
W A Cobban
Per
I.S.
WAS: IS
Ends.
Department of National Revenue,
Taxation Division,
36 Adelaide Street East,
Toronto 1, Ontario.
Dear Sirs:
| GUARANTEE |
Re: | Forming Construction Limited |
| Dilcon Construction Limited |
| Toronto Forming (1965) Limited |
| T A & Steel Placing Limited |
| Hamilton Forming Limited |
| Dilcrane Equipment Limited |
| Corvette Forms Limited |
| N DiLorenzo Construction Limited |
| DiLorenzo Construction Company |
| (hereinafter called the “Debtors”) |
WHEREAS the Debtors are indebted to you in the sum of Four Hundred and Thirty-Five Thousand Eight Hundred and Sixty-Two Dollars and Sixty-Three Cents
($435,862.63) of lawful money of Canada, consisting of Employees’ Tax Deductions, Canada Pension Plan contributions, penalties and interest payable under the Income Tax Act and Regulations and the Canada Pension Plan Act, as shown by the statement of account hereto annexed and marked Exhibit “A”; and
WHEREAS each of the undersigned is desirous of providing a guarantee for the said sum of Four Hundred and Thirty-Five Thousand Eight Hundred and Sixty- Two Dollars and Sixty-Three Cents ($435,862.63) plus interest at the rate of 10% per annum on the sum of $367,471.72; and
WHEREAS this guarantee is made in your favour pursuant to an arrangement with the Minister of National Revenue (hereinafter called the “Minister”) in accordance with sub-section 4 of Section 116 of the Income Tax Act and sub-section 2 of Section 24 of the Canada Pension Plan Act', and
PROVIDED that this guarantee is to be void only on full payment of the said Employees’ Tax Deductions, Canada Pension Plan Contributions, Penalties and interest; and
PROVIDED that this guarantee is given and accepted as security for the due payment of the said Employees’ Tax Deductions, Canada Pension Plan Contributions, penalties and interest and shall in no case be a substitution for nor a replacement of the said liability for the said Employees’ Tax Deductions, Canada Pension Plan Contributions, penalties and interest and shall in no way replace, substitute nor derogate from any of the rights or method of collection of the said Employees’ Tax Deductions, Canada Pension Plan Contributions, penalties and interest which you may have or have had at law or in equity prior to the acceptance of this guarantee.
NOW THEREFORE in consideration of these presents and other good and valuable consideration, the undersigned do covenant, promise and agree in favour of the Minister as follows:
1. The undersigned hereby guarantee payment of the full amount of Employees’ Tax Deductions, Canada Pension Plan Contributions, penalties and interest payable by the Debtors as set out in Exhibit “A” atttached hereto at the following times and in the following amounts promptly on demand made to me by or on behalf of the Minister and whether or not any one of the undersigned are previously stated to be responsible for all or any part of said amounts:
On each of the 4th, 11th, 18th and 25th days of April, 1969 — $15,000. On each of the 2nd, 9th, 16th and 23rd days of May, 1969 — $20,000. On each of the 6th, 13th, 20th and 27th days of June, 1969 — $30,000. On each of the 4th, 11th and 18th days of July, 1969 — $40,000. The balance of the moneys owing on the 31st day of July, 1969.
As between the Minister and the guarantors, the guarantors are and shall continue to be liable as the principle debtor not withstanding any transaction which may take place between the Minister and the Debtors or any neglect of default of the Minister which might otherwise operate as a discharge whether partial or absolute of the guarantors if they were surety only of the Debtors and without restricting the generality of the foregoing notwithstanding the release in whole or in part of any properties and assets mortgaged or charged as security by the debtors, or the granting of time or other indulgencies to the Debtors.
3. The Minister in his absolute discretion or in the absolute discretion of any officer or agent that he may designate, and without diminishing the liability of the guarantors may grant time or other indulgencies to the Debtors and any other person or persons now or hereafter liable to the Minister in respect of the aforesaid Employees’ Tax Deductions, Canada Pension Plan Contributions, penalties and interest and may take, give up, modify, vary, exchange, renew or abstain from perfecting or taking advantage of any security in whole or in part and may discharge any part or parts or accept any composition or arrangements or realize upon any security when and in such manner as the Minister or any officer or agent he may designate may think expedient and in no case shall the Minister be responsible for any neglect or omission with respect to any such security. The guarantors renounce all benefits of discussion and division.
4. The Minister shall not be bound to exhaust his resources aginst the Debtors or other parties or any securities he may hold enforce the various remedies available to him and may realize upon any securities held by him or any part thereof in such order as the Minister may determine.
5. It is further hereby expressly declared that the release of any of the guarantors from his or their liability in this cause shall not affect the liability of the remaining guarantor or guarantors which shall remain unimpaired and still in full force and effect as if the guarantor or guarantors so released had not been a guarantor of the said Employees’ Tax Deductions, Canada Pension Plan Contributions, penalties and interest or any part thereof.
6. Upon default in payment of any amount payable by the Debtors to the Minister at the time agreed as set out above, the Minister may treat the whole of the indebtedness hereby secured as due and payable and may forthwith collect from the guarantors the total amount hereby guaranteed.
7. This guarantee shall be binding upon the heirs and executors and assigns of the guarantors and shall ensure to be benefit of the Minister, his successors and assigns as if they had throughout been expressly named herein.
IN WITNESS whereof the parties hereto have executed this agreement as of the
day of March, 1969.
SIGNED, SEALED AND DELIVERED ) FORMING CONSTRUCTION LIMITED
in the presence of: )
) By ) )
) DILCON CONSTRUCTION LIMITED ) ) By ) ) ) TORONTO FORMING (1965) LIMITED ) ) By ) ) ) T & A STEEL PLACING LIMITED ) ) By ) ) ) HAMILTON FORMING LIMITED ) ) By ) )
DILCRANE EQUIPMENT LIMITED
By
CORVETTE FORMS LIMITED
By
N DiLORENZO CONSTRUCTION LIMITED
By
DiLORENZO CONSTRUCTION
By
Nick Di Lorenzo
By
John DiLorenzo EXHIBIT “A”
| Interest | |
| CPP Con- | | To Dec. | |
Corporation | Year | Deductions | tri but io ns | Penalty | 26, 1968 | Total |
Forming Construc | |
tion Limited | 1968 | $39,361.60 | $7,220.28 | $4,658.18 | $401.02 | $51,641.08 |
Toronto Forming | |
(1965) Limited | 1968 | 14,029.35 | 2,645.50 | 1,667.47 | 136.70 | 18,479.02 |
T & A Steel Plac- | |
ing Limited | 1968 | 45,869.91 | 8,425.30 | 5,429.51 | 446.42 | 60,171.14 |
Dilcrane Equipment | |
Limited | 1968 | 4,498.70 | 1,042.52 | 554.12 | 27.84 | 6,123.10 |
Corvette Forms | |
Limited | 1968 | 13,158.14 | 2,568.70 | 1,572.68 | 130.78 | 17,430.40 |
N DiLorenzo Con- | |
struction Limited | 1968 | 6,885.75 | 1,295 24 | 818.09 | 67.56 | 9,066.64 |
— and — | |
| Interest | |
| To Jan. | |
| 22, 1969 | |
John DiLorenzo | 1968 | 125,976.24 | 11,981.84 | 38,275.77 | 5,301.02 | 181,534.87 |
Nicola Di | |
Lorenzo Trading | |
Di Lorenzo | |
Construction | |
Company | |
TOTALS | | $321,775.80 | $45,695.92 | $61,227.05 | $7,163.86 | $435,862.63 |
Besides the above payment, the current deductions made each month had
to be remitted on or before the 15th day of the following month.
From July 3, 1969 to November 10, 1969 the Receiver General was paid pursuant to the terms of such agreement the total sum of $259,464.11. Of this amount, the department credited against the arrears owing by the said incorporated companies the sum of $235,294.66. I understand from the evidence that such payment satisfied the arrears owing by such incorporated companies and the balance of $24,169.45 was then credited against the arrears Owing by the partnership which still owes the sum of $291,879.48 plus interest thereon.
In November of 1973 the Director of Taxation served upon Rail Forms Limited and llena Construction Limited, two corporations allegedly owing money to the plaintiff, notices pursuant to section 224 of the Income Tax Act requiring such third parties to deduct from the monies payable by them to the plaintiff and pay over to the Receiver General of Canada, all monies for which they were or were about to become, liable to the Plaintiff.
The plaintiff now brings this action asking for a declaration that no monies are due and owing by the plaintiff to the defendant with respect to employee withholding tax or Canada Pension Plan payments with respect to employees which might otherwise be payable by Dilorenzo Construction Company and for an Order directing the defendant to withdraw such third party demands.
The plaintiff states that if such amount of $235,294.66 had been credited against the amount owing by such partnership instead of against the amount owing by such incorporated companies, it would have satisfied that debt of the partnership and he would not now be liable as a partner therefor. He says that the Crown had no right to allocate such monies against the indebtedness of the incorporated companies. It is further argued that the obligation to pay such indebtedness as is described in such draft agreement was never effective because the document was never signed by the parties thereto. There is no rule of law which requires the agreement which had been reached between the parties to be reduced to writing. A written agreement is only evidence of the terms which the parties have agreed upon. The letter to March 3, 1969 and the accompanying draft clearly indicates that the debt in respect of the withholding tax and Canada Pension payments which had been retained by the several incorporated companies were to be firstly Satisfied from the cheques in question. The terms of this arrangement were fully carried out without any objection on the part of the partnership or the plaintiff between July and November, 1969.
These facts are clearly established by the testimony of Philip Weinstein, a witness for the plaintiff, who began working for the partnership as well as the limited companies on March 1, 1969, as controller of the whole operation. His duties caused him to be in charge of all aspects of the group’s business except the actual work on the site of the various contracts and so was familiar with all aspects of the group’s activities. He said that when the withholding tax or Canada Pension payments were not remitted on time, officers from the Department of Revenue came to the office immediately. It was usually Donald R Price who came. He insisted on payments being made regularly but the records indicate this was not lived up to and the Department regarded this group as a trouble account.
Weinstein had worked for the Aetna Factors Corporation Ltd immediately before coming to the DiLorenzo group. The Aetna is a finance company which loans money to industrial concerns. About March 10, 1969, such company had loaned to the partnership and the incorporated companies an amount in excess of three million dollars and took as security a floating debenture from most of such companies together with a general assignment of their book debts. Aetna also took a chattel mortgage on all assets of the partnership. The proceeds of this loan were deposited in the Bank of Montreal at 2193 Bathurst Street, Toronto, in what was called the “DiLorenzo Special Account”. The signing officers for cheques thereon were Weinstein and the plaintiff’s said brother. A number of the incorporated companies made payments into this account from time to time. Weinstein said in some instances this account was used for payment of debts of the incorporated companies as well as those of the partnership and in repayment of such loan. It was on this account that all the cheques enumerated in paragraph 4 of the Statement of Claim were drawn. Exhibit 8 is a group of 12 cheques also drawn on such account, payable to the Receiver General of Canada and bearing dates from June to August, 1969. Each of such cheques had typewritten on the face thereof a statement indicating that it was in payment of income tax for one of such incorporated companies and identifying the company. One dated August 11, 1979 was marked “Re N D Lorenzo”. Weinstein said that basically they considered the partnership and limited company as one group. The evidence reveals that is the way they operated. In these circumstances it cannot be said that the monies in such special account were the property of the partnership alone, but rather that it belonged to the whole group.
When the Department’s chief collector learned that the group’s assets had been so incumbered, he decided it would be preferable to leave the arrangements as to repayment on what they termed the honour system without reducing the same to writing and that they would rely on the terms of such verbal arrangements whereby all monies paid were to be first credited against current liabilities of the incorporated companies to save them paying interest thereon and the balance was to be credited entirely against arrears owing by such companies until the same were completely satisfied thereby and only thereafter should the arrears owing by the partnership. Nicola DiLorenzo and Weinstein agreed to these terms on behalf of the partnership and limited companies.
This practice was carried out throughout the period in question. There was never any direction from the partnership nor any of the companies as to which such companies should receive the benefit of any such payment, as such cheques were sent in but this allocation was left to Price. Weinstein says the Department kept the partnership and companies advised as to the balance owing by each, regularly. This is inconsistent with his statement that they first knew of the Department’s allocation in November of 1970. Exhibit 7 is a statement from the records of the defendant showing how each of such cheques were credited. It is important to note that all of the cheques in question are credited under the columns referring to the companies and none to the partnership. Arnold Borts, a witness for the plaintiff and employee of the group made out a statement bearing date October 31, 1969, (Exhibit 5), which contains exactly the same information but made up in somewhat different form.
This establishes clearly that the partnership and the companies knew at that time how these cheques had been credited. This witness saw the statements that came to the partnership and the companies from the Department each month and would know from them how the same had been credited. He also said he adjusted the books of the partnership and limited companies to correspond with such allocation.
In November of 1969 a receiver was appointed to take over the business of the group but no bankruptcy proceedings were taken. The partnership has not carried on any business since then.
The plaintiff alleges he did not know of the arrangements with the Department in connection with payment of the incorporated companies’ debt. It is difficult to accept such testimony but, in any event, such matters were left by him to his brother and Weinstein. It is significant that he did not call his brother as a witness and he has not made available as evidence the books and records of the partnership and limited companies. The entries therein pertaining to withholding tax and Canada Pension payments and the disposition thereof would have been most helpful if they supported his claim. It is important to note that the draft agreement which the solicitors for the partnership (Tab 2, Exhibit 2) sent to Mr Price for approval contemplated and space was therein provided for signature by the plaintiff. His long delay in making any complaint until 1974 when the attachment proceedings were taken by the Department to recover from him creates an inference that there never was any merit to his claims. Any right to the relief claimed would belong to the partnership rather than to the plaintiff personally, and the failure to have his brother, the other partner, as a party to the action or called as a witness creates serious doubts about the claim. This is particularly so when it was such other partner who made the arrangements about payments of the arrears with the Department.
For these reasons, the action should be dismissed with costs.