Koop v. Smith, (1915) 51 SCR 554

Supreme Court of Canada

Koop v. Smith, (1915) 51 S.C.R. 554

Date: 1915-05-18

Paul Koop (Plaintiff) Appellant;

and

Mabel Smith (Defendant) Respondent.

1915: May 6; 1916: May 18.

Present: Davies, Idington, Duff, Anglin and Brodeur JJ.

On Appeal from the Court of Appeal for British Columbia.

Bill of sale—Transfer between near relatives—Preferential assignment—Suspicious circumstances—Corroborative evidence—Bona fides—Practice.

Where a bill of sale made between near relatives is impeached as being in fraud of creditors and the circumstances attending its execution are such as to arouse suspicion the court may, as a matter of prudence, exact corroborative evidence in support of the reality of the consideration and the bona fides of the transaction.

Judgment appealed from (7 West. W.R. 416) reversed.

APPEAL from the judgment of the Court of Appeal for British Columbia^[1], reversing the judgment of Hunter C.J., at the trial, and dismissing the plaintiff's action with costs.

The action was brought to set aside a bill of sale executed in favour of the defendant by her brother, at a time when the latter was financially embarrassed, and to have the bill of sale declared void as a preferential assignment in fraud of the rights of the other creditors of the assignor.

The circumstances of the case which are material to the issues raised on the present appeal are stated in the judgments now reported.

[Page 555]

E. Lafleur K.C. for the appellant.

J. F. Orde K.C. for the respondent.

DAVIES J.—I think this appeal should be allowed and the judgment of the trial judge restored. He thought the circumstances under which the bill of sale was executed suspicious and declined to accept the uncorroborated testimony of the plaintiff's brother, who made the assignment to his sister now being impeached.

The Chief Justice of the Court of Appeal seems to have thought that although the trial judge did not accept the evidence of the defendant, Smith, still the burden of proof lay upon the plaintiff and that he had not discharged it.

The learned trial judge on the contrary found that the circumstances were so suspicious, connected with and surrounding the impeached bill of sale, as to throw the burden of proof of its bona fides upon the grantee, the plaintiff's sister. I agree with his findings in that regard. I think the rule laid down by the courts of Ontario with regard to assignments made between near relations and impeached by the creditors of the assignor as fraudulent is a salutory one, namely, that where it is accessible some corroborative evidence of the bona fides of the transaction should be given. No attempt was made by the defendant to act upon that rule in this case. Smith's evidence was not accepted and the trial judge pointed out many alleged facts which were accessible and could have been proved, if true, as corroborative evidence but were not. Under all the circumstances I think the learned trial

[Page 556]

judge was right and that the appeal should be allowed with costs and his judgment restored.

IDINGTON J.—This appeal presents a rather unsatisfactory case. The Court of Appeal in reversing the trial judgment proceeds upon the ground that the bill of sale attacked was not shewn to be void as against creditors on the ground of being preferential to the knowledge of the appellant. In that I quite agree if regard is had to the authorities relied upon by the majority of the Court of Appeal.

But the learned trial judge seems to have discredited the judgment debtor who had made the assignment and was the only witness called to support it.

I cannot say as matter of law that he erred in so finding. These cases of alleged fraudulent assignment must generally depend largely upon the view of the facts taken by the trial judge. It is quite competent for him, if impressed with the veracity of the assignor, to accept and act upon his unsupported statement. The transaction and established surrounding circumstances might be such as to justify his doing so. Or, on the other hand, they might be such as to render his doing so questionable.

In this case he has found the surrounding circumstances and the statements such as to call for corroboration, and that view is not attempted to be disputed and hence has not yet been reversed. The reversal of the judgment of the learned trial judge proceeding upon the question of a preferential assignment does not touch the want of bona fides in the transaction upon which he proceeded.

The pleadings, I suspect are partly responsible for this curious result.

[Page 557]

The pleader improperly blends, in almost every sentence that is essential to his pleadings, the two distinct grounds of complaint. Casually looked at one might say it was intended only to attack the transaction on the ground of the assignment being preferential.

The case I imagine must have been argued upon that assumption. There does not appear in the case any notice of appeal to the Court of Appeal or reasons for or against same to enlighten us as to how all this happened.

The appeal must be allowed.

DUFF J.—I think this appeal should be allowed and the judgment of the learned Chief Justice, who tried the action, restored. The majority of the Court of Appeal appear, if I may say so with respect, to have fallen into the error of treating the relationship of the parties to the impeached transaction as possessing no very material significance. The learned trial judge, on the other hand, treated the relationship as decisive in this sense that it determined the point of view from which the evidence was to be considered and the all important question of the onus of proof. The learned trial judge indeed appears to have laid it down as a proposition of law that a transaction of this kind between two near relatives, carried out in circumstances in themselves sufficient to excite suspicion, can only be supported (in an action brought to impeach it by creditors) if the reality or the bona fides of it are established by evidence other than the testimony of the interested parties; and there is a series of authorities in the Ontario courts which has been supposed to decide that, and it may be that it is the settled law of Ontario to-day.

[Page 558]

I do not think the proposition put thus absolutely is part of the English law or of the law of British Columbia; but I think it is a maxim of prudence based upon experience that in such cases a tribunal of fact may properly act upon that when suspicion touching the reality or the bona fides of a transaction between near relatives arises from the circumstances in which the transaction took place then the fact of relationship itself is sufficient to put the burden of explanation upon the parties interested and that, in such a case, the testimony of the parties must be scrutinized with care and suspicion; and it is very seldom that such evidence can safely be acted upon as in itself sufficient. In other words, I think the weight of the fact of relationship and the question of necessity of corroboration are primarily questions for the discretion of the trial judge subject, of course, to review; and that any trial judge will in such cases have regard to the course of common experience as indicated by the pronouncements and practice of very able and experienced judges such as Chief Justice Armour and Vice-Chancellor Mowat and will depart from the practice only in very exceptional circumstances.

I may add that I think it doubtful whether the Ontario decisions when properly read really do lay it down as a rule of law that the fact of relationship is sufficient in itself to shift the burden of establishing the burden of proof in the strict sense. It may be that the proper construction of these cases is that the burden of giving evidence and not the burden of the issue is shifted. (As to this distinction see the admirable chapter IX., in Professor Thayer's "Law of Evidence.") In my own view, as indicated above, even this would be putting the matter just a little too high;

[Page 559]

I think the true rule is that suspicious circumstances coupled with relationship make a case of res ipsa loquitur which the tribunal of fact may and will generally treat as a sufficient primâ facie case, but that it is not strictly in law bound to do so; and that the question of the necessity of corroboration is strictly a question of fact. Having examined the evidence carefully I am satisfied that the learned trial judge was entitled to take the course he did take and not only that the evidence, as I read it in the record, casts the burden of explanation upon the respondent, but that the testimony given by her brother ought not in the circumstances to be accepted as establishing either the actual existence of the debt or of the bona fides of the transaction.

ANGLIN J.—Having regard to the circumstances of the impeached transaction, as deposed to by the transferror, who is the defendant's brother, and was her only witness — the relationship between the parties to it, the making of the transfer while the entry of judgment on the plaintiff's claim was deferred to enable the brother to make an arrangement to meet it, the nature of the property transferred, and the brother's admission that a power of attorney to the defendant would have served his alleged purpose of realizing on the property — the burden rested on the defendant of establishing the rectitude of her bill of sale. Whether this transaction was bonâ fide was eminently a question for the trial judge, and he has found that,

the outstanding fact is that this story of this transfer is not supported in any particular.

It was, I think, clearly his view that no real debt from her brother to the defendant had been shewn to exist

[Page 560]

— that the purpose of the transfer was to protect the property covered by the bill of sale against his creditors, and that that purpose was sufficiently known to the defendant to involve her participation in it. After carefully considering the reasons given by the majority of the learned judges of the Court of Appeal and the argument presented on behalf of the respondent, I am, with respect, unable to find any ground on which the reversal of the judgment of the learned Chief Justice of British Columbia can be supported. The only evidence of the existence of a legal debt owing to the defendant by her brother was the testimony of the latter, which the learned Chief Justice declined to accept. It is difficult to conceive what was his motive for transferring to his sister his only exigible property, if it were not to stave off the plaintiff and his other creditors. Her knowledge of his financial embarrassment would seem to be a fair inference from all the circumstances. Although loath to reverse a considered judgment of the Court of Appeal of British Columbia on a question of fact, I think this is a case in which the opinion of an able and experienced trial judge, in whose conclusions two members of the appellate court have agreed, must prevail.

I would allow the appeal with costs in this court and the Court of Appeal and restore the judgment of the Chief Justice of British Columbia.

BRODEUR J.—The plaintiff's action was for a declaration that the sale of the horses made by T. J. Smith to his sister the defendant respondent, was null and void under the provisions of the "Fraudulent Preference and the Fraudulent Conveyances Acts" of British Columbia (R.S.B.C., ch. 93, secs. 2 and 4, and ch. 94, sec. 3).

[Page 561]

The trial judge maintained the action on the ground that the conveyance was fraudulent The Court of Appeal, by a judgment of three to two, reversed the finding of the trial judge.

The debtor, T. J. Smith, was very largely indebted and had given a confession of judgment in favour of the plaintiff, Koop, on the 13th of February, 1912, for the sum of $63,000 and, on the 15th day of May following he sold the larger part of his assets to his sister.

He claimed, when under oath at the trial, that the consideration of that sale was the salary he owed to his sister. He said that she had been living with him for eight years and that he had always paid her a salary of $1,500 a year.

That evidence was not corroborated and was not accepted by the trial judge.

It would have been very easy for Smith to shew by his books or by his cheques that the alleged salary had been paid; but he did not do so. The sister could have given evidence to corroborate her brother; but she would not do so, claiming she was too nervous to appear in public. It is in evidence, however, that she had been able to attend horse shows and to ride horses.

The decision of the trial judge in these circumstances should not have been disturbed. I am of opinion that his judgment should be restored and that the appeal should be allowed with costs of this court and of the Court of Appeal.

Appeal allowed with costs.

Solicitors for the appellant: Burns & Walkem.

Solicitors for the respondent: Russell, Macdonald & Hancox.