Her Majesty the Queen v. La Clinique De Thérapie De St-Hyacinthe Inc, [1978] CTC 95, 78 DTC 6047, [1978] CTC 95

Walsh, J:—The present proceedings involve the contestation by plaintiff of an opposition to seizure made by the opposant. Plaintiff on December 4, 1975 registered a certificate against defendant pursuant to section 223 of the Income Tax Act for sums totalling $13,129.70 with interest at 6% on $9,815.85 from November 20, 1975 for income tax for the years 1966 to 1972 inclusive. After various efforts to collect same by garnishee proceeding a writ of fieri facias was issued on July 12, 1977, as a result of which a seizure was made by bailiff on September 27, 1977 of various articles of medical equipment and supplies in the premises of the clinic, as itemized in the minutes of seizure. In due course opposant Les. Entreprises Yameric Inc made an opposition to the seizure on the basis that on June 13, 1975 they had purchased from André Rioux and Jean-Claude Gratton the equipment and supplies in question, their vendors having purchased them from Hervé Boisvert on January. 24, 1975 by notarial contract. They contend therefore that as owners of the equipment and being in no way responsible for the debt of defendant said equipment cannot be seized for this debt. Plaintiff contests this stating that the sale on January 24, 1975 was null since the vendor Herve Boisvert was not the owner of the equipment and supplies in question with the result that defendant clinic is still the owner of them.

Provision for writs of fieri facias is made in Rule 2100 of the Rules of this Court but reference must also be made to section 56 of the Federal Court Act, RSC 1970 (2nd~Supp), c 10, and in particular to subsections (3) and (4) of section 56 that provide that for all writs of execution against property whether prescribed by the Rules or otherwise the matter shall be dealt with as nearly as possible in the same manner as the manner in which similar writs would-be dealt with in the superior courts of the province in which the property seized is situated and similarly that claims made by any person to property seized under such writs of execution shall be heard and disposed of as nearly as possible in accordance with the procedure under similar writs issued out of the courts of the province. In this case we are dealing with the Province of Quebec hence the Rules of Civil Procedure of that province are applicable.

An examination of the deeds by virtue of which opposants claim title to the equipment and supplies under seizure indicate that by notarial deed passed on January 24, 1975, Herve Boisvert described as an osteopath sold certain real estate to André Rioux and Jean- Claude Gratton, including in the deed the equipment listed in an annex to it. The total sale price which was in the amount of $181,400 was broken down to $140,000 for the land and buildings and $41,400 for the equipment. The $65,000 balance of price was to be payable to the vendor within 5 years from February 1, 1975 by monthly instalments of $500 with interest at 11% per annum with the remaining capital balance due at the end of the said 5-year period.

On June 13, 1975 Jean-Claude Gratton and André Rioux sold to the corporation Les Entreprises Yameric Inc, the opposant, all of the Said equipment and supplies as listed in the aforementioned deed, it being understood that the sale was to take effect as of February 9, 1975, this being the date of the letters patent issued to Les Entreprises Yameric Inc. The price was fixed at $41,578. It is of interest to note that the price was payable by the issue of ordinary and preferred shares to Messrs Gratton and Rioux in the proportion of 33 /3% to Gratton and 66%% to Rioux so it is evident that Les Entreprises Yameric Inc is wholly controlled by them and it is reasonable to conclude that it was incorporated with the intention of taking title to the equipment and supplies bought by Messrs Rioux and Gratton from Mr Boisvert and included in the deed of sale of the real estate, being presumably where the clinic is located, which sale had only taken place less than two weeks prior to the incorporation of opposant.

The registration of the certificate for taxes was only made’ in December of 1975, as previously stated, that is some 10 months later, and while defendant must have been well aware of its long outstanding tax liability at the time the sale of its equipment and supplies was made in January 1975 it would appear that had the sale been properly made by it plaintiff's only recourse would have been by way of what is commonly referred to as a Paulian action pursuant to Article 1032 of the Quebec Civil Code which states:

1032. Creditors may in their own name impeach the acts of their debtors in fraud of their rights, according to the rules provided in this section.

Subsequent articles provide for the avoidance of such contracts when made by the debtor with intent to defraud and provide that even an onerous contract made by an insolvent debtor with a person who knows him to be insolvent is deemed to be made with intent to defraud. I believe that any such proceeding would have to be brought by direct action by the creditor, in this case the plaintiff, and not indirectly in contestation of an opposition to seizure made by the purchaser, and furthermore that any such action to set aside the sale as fraudulent. had such sale in fact been made by defendant La Clinique de Thérapie de St-Hyacinthe Inc, would have had to be brought in the Superior Court of the Province of Quebec and not in this Court.

However that is not the situation with which we are faced in the present proceedings. There is an affidavit by Pierre Limoges of the Department of National Revenue who has verified the list of equipment and supplies purchased by the opposants and he establishes that at least to a substantial extent this equipment was purchased by La Clinique de Thérapie de St-Hyacinthe Inc and was owned by it and not by Hervé Boisvert. Various accounts of the vendors of this equipment and cheques of the Clinique in payment for same signed by H Boisvert are annexed to the affidavit. In short it is clear that the vendor Herve Boisvert, whether acting in good faith and confusing himself with his company La Clinique de Thérapie de St-Hyacinthe Inc or not, was, when he entered into the notarial deed of sale to Gratton and Rioux selling them equipment and supplies which did not belong to him, but rather to the clinic. This brings into play Articles 1487 and 1488 of the Quebec Civil Code which read respectively as follows:

1487. The sale of a thing which does not belong to the seller is null, Subject to the exceptions declared in the three next following articles. The buyer may recover damages of the seller, if he were ignorant that the thing did not belong to the latter.

1488. The sale is valid if it be a commercial matter, or if the seller afterwards become owner of the thing.

The clinic was presumably in the business of providing therapeutic treatment to patients and not in the business of selling medical equipment and supplies so that I cannot find, as opposants contend, that the sale in bulk of this equipment and supplies was a commercial matter within the meaning of Article 1488. The sale was therefore null pursuant to Article 1487.

Counsel for plaintiff raised a further objection to the validity of the sale, stating that it constituted a bulk sale within the meaning of Article 1569a and following of the Quebec Civil Code and therefore should have been accompanied by an affidavit containing the names and addresses of all creditors of the seller. If the purchaser pays for such merchandise without obtaining such an affidavit the sale is deemed to be fraudulent and is null as regards creditors of the seller unless they have been paid in full out of the proceeds of the sale. Bulk sale is however defined as meaning

any sale or transfer of a stock in trade or of merchandise, made, directly or indirectly outside the ordinary course of the seller’s business, whether the sale or transfer comprises the whole or nearly the whole of such stock in trade or merchandise, or whether it relates only to an interest in the affairs or business of the seller.

I would seriously question whether the sale of all the equipment and supplies of the clinic constituted a bulk sale within the meaning of this definition. It was certainly outside the ordinary course of the seller’s business, but since the business itself is not a merchandising business but rather the provision of health services, I do not think that the sale of even al! the equipment and supplies can be equated to the sale of the whole or nearly all of the stock in trade or merchandise of a company in the business of merchandising. I would not therefore set it aside on the ground of being a bulk sale unaccompanied by an affidavit from the vendor listing his creditors, but rather prefer to set it aside on the ground that it constituted the sale of equipment and supplies which did not belong to the vendor.

I now turn to the further argument made by opposants that prescription has taken place so that the sale can no longer be attacked. Article 2268 of the Quebec Civil Code reads in part as follows:

2268. Actual possession of ‘a corporeal moveable, by a person as proprietor, creates a presumption of lawful title. Any party claiming such moveable, must prove, besides his own right, the defects in the possession or in the title of the possessor who claims prescription, or who, under the provisions of the present article, is exempt from doing so.

Prescription of corporeal moveables takes place after the lapse of three years, reckoning from the loss of possession, in favor of possessors, in good faith, even when the loss of possession has been occasioned by theft.

This prescription is not, however, necessary to prevent revendication, if the thing has been bought in good faith in a fair or market, or at a public sale or from a trader dealing in similar articles, nor in commercial matters generally; saving the exception contained in the following paragraph.

Dealing with the first paragraph plaintiff of course claims no right of title to the equipment and supplies but claims the right to seize them as still belonging to defendant and has established to my satisfaction the defects in the possession or title of opposants who claim prescription. The fact that this defect is not invoked by the defendant La Clinique de Thérapie de St-Hyacinthe Inc, which of course it would not do, does not, I have concluded, place plaintiff in the position where She must bring a Paulian action, since if the sale is “null” by virtue of Article 1487 then this nullity can be invoked by anyone having a valid interest to do so, the function of the Court being merely to declare an absolute nullity which already exists and not merely decide that the sale is anullable.

Applying the second paragraph of Article 2268 prescription of corporeal moveables takes place after the lapse of three years in favour of. possessors in good faith. Since the three years from the sale on January 25, 1975 have not yet expired this prescription is not available to opposant so it is not necessary to go into the question whether it is in possession in good faith. If such a determination were necessary, I would seriously doubt the existence of good faith. Opposant is merely the a/ter ego of Doctor Rioux and Mr Gratton, and it appears likely that they are close associates of the vendor Hervé Boisvert, since the equipment and supplies purchased remain in the premises of the defendant clinic where the seizure was made. It appears highly improbable therefore that Messrs Rioux and Gratton, or the opposant Les Entreprises Yameric Inc are third parties dealing at arm’s length with the defendant and therefore acting in good faith in purchasing all of its equipment and supplies from Hervé Boisvert. However it is unnecessary to make a finding to this effect.

Opposant also argues that the third paragraph of Article 2268 is applicable but I do not so find. Quite aside from the question of good faith the equipment and supplies were neither bought at a fair or market nor at a public sale nor from a trader dealing in similar articles, nor in commercial matters generally. As already stated this was not a commercial transaction but rather a civil one. In this connection I have examined the case of Frigidaire Corporation v Johanna Malone, [1934] SCR 121, to which I was referred which gives a broad interpretation to the words “commercial matters generally’’ in Article 2268, but the facts in that case were substantially different and indicate that a relatively common commercial transaction was involved which is not the case here so it has no application.

I therefore dismiss opposant’s opposition to seizure of any articles seized. herein which belong to defendant and were listed in the schedule to the deed of sale from Hervé Boisvert to André Rioux and Jean-Claude Gratton on January 24, 1975 with costs.