2957-1700 Quebec Inc., Re, [1996] 1 CTC 47, 94 DTC 6594

Nadon J.:— The question is as to the validity of a seizure in execution carried out on the movable property found in the premises of a Montréal restaurant, namely the Kozak restaurant ("the restaurant") located at 250 rue Beaubien est.

Facts acts

On January 24, 1994 The Queen sought a writ of fieri facias for the seizure of movable property so as to collect from this property the sum of $10,882.20 plus interest, the said sum being owed by the company. 2957-1700 Québec Inc. (“the debtor”) pursuant to the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the “Act”).

On January 24, 1994, this Court issued a writ of fieri facias ordering any bailiff designated by the sheriff of the judicial district of Montréal to collect the sum of $10,882.20 plus interest, owed by the debtor, on the said movable property.

The seizure in execution was carried out on the movable property found on the restaurant premises on February 3, 1994, as appears from the report of the officiating bailiff Sylvain Trudel.

On March 10, 1994 the company 2753-6184 Québec Inc. (“the opposant”) filed in the Registry of this Court a notice of opposition to the seizure carried out on February 3, 1994.

Briefly, the opposant claimed to be owner of the movable property seized on the restaurant premises. Accordingly, the opposant asked this Court to declare the seizure and execution of the movable property null, void and illegal, and to declare it the sole owner of the property. Finally, the opposant asked this Court to grant it a release from the said seizure.

Evidence

In support of its application, the opposant filed an affidavit made by its president Delia D’Ermo. Paragraphs 2 to 8 of its detailed affidavit, dated March 6, 1994, read as follows:

2. On February 4, a seizure in execution was made on property found on the premises of the “Restaurant Kozak” at 250 Beaubien est, Montréal, described in the seizure report of the officiating bailiff, as appears from the said report, a copy of which is filed in support hereof as No. 0-1;

3. The opposant is entitled to claim the seized movable property described below for the reasons hereinafter stated:

- One “OMRO” cash register;

— One table for the cash register;

— One “Universal” refrigerator pie-case with two stainless steel doors; — One Pepsi-Cola machine with four fountains (spouts);

— One small stainless steel double sink;

— One “Fine Cream” milkshake machine;

— One “Brewmatic” coffee machine with three burners;

— One stainless steel steam table for smoked meat;

- One stainless steel service station;

— One “Toastmaster” toaster;

— One refrigerator salad unit with two doors;

— One “Garland” stove with six burners and oven;

— Two “Garland” french fry fryers;

— One stainless steel grill;

— One “Bakers Pride” charcoal;

— One “Blodget” pizza oven;

— One stainless steel steam table with five pots;

- One “Frigidaire” refrigerator with four doors;

— One stainless steel double sink;

— Three “Whitefreeze” freezers;

— One “Globe” slicing machine;

~ One hot water tank;

— Two big table booths to seat six people;

— Nine big table booths to seat two people;

— Three big table booths to seat two people;

— One counter with seven booths;

— One stainless steel and wood service station;

— One “Moffat” microwave oven;

— Two “Rang” compressors;

4, In accordance with the documents hereinafter mentioned, the opposant is the sole owner of the movable property described above;

5. By a signed contract dated July 26, 1991, between Les Investissements Magakar Inc., creditor, and 2436-3228 Quebec Inc., debtor, the debtor borrowed the sum of $5,800 from the creditor, as appears from a copy of the said contract filed herewith as No. 0-2;

6. To secure repayment of the said sum, both in capital and interest, the debtor has pledged for the benefit of the creditor (the lender) the movable property mentioned above;

7. By a signed contract dated March 30, 1992, between Les Investissements Magakar Inc., seller, and the opposant 2753-6184 Quebec Inc., as purchaser, the seller has sold to the purchaser all rights, titles and interest held by him in the debt secured by the commercial pledge above mentioned, as appears from a copy of the said contract filed herewith as No. 0-3;

8. The said sum of $5,800 has never been repaid by the borrower.

This application was heard in Montreal on April 18, and May 26, 1994. The following witnesses were heard at the hearing:

Marie-Noëlle Hamel, president of Magakar Inc.; Delia d’Ermo, president of the opposant; Costas Marcopoulos, president of the debtor; Steve Marcopoulos (father of Costas Marcopoulos), former president of 2436-3288 Québec Inc.

Marie-Noëlle Hamel, president of Magakar Inc., testified that her company had loaned $5,800 to 2436-3228 Québec Inc., of which Steve Marcopoulos was president. In support of this evidence, a loan contract dated July 26, 1991 was entered in the record of the Court. This contract was signed before the notary Richard Felx. To secure repayment of the said loan 2436-3228 Québec Inc., in accordance with Articles 1979e et seq. of the Civil Code of Lower Canada, pledged for the benefit of Magakar Inc. the movable property which was the subject of the seizure made on February 3, 1994.

Under the terms of the loan contract, the sum of $5,800 was to be repaid to Magakar Inc. on November 1, 1991 and the loan was to bear interest at 36 per cent per annum.

Miss Hamel further testified that on March 30, 1992 Magakar Inc. sold to the opposant all the rights, titles and interest held by it in respect of the $5,800 loan made to 2436- 3228 Québec Inc., including the security by commercial pledge. In support of this evidence, an assignment of debt signed before the notary Richard Felx on March 30, 1992 was entered in the record of the Court.

Miss Hamel testified that she was repaid the sum of $5,800 on March 24, 1992 and was paid the interest owed on that sum on April 6, 1992.

Miss Hamel’s testimony was corroborated by that of Miss D’Ermo, who testified that the opposant had paid the sum of $5,800 plus interest owed on the money to Magakar Inc.

Miss D’Ermo further testified that 2436-3228 Quebec Inc. had not made any payment on the loan capital, namely $5,800. Miss D’Ermo testified that Steve Marcopoulos, ex- president of this company, personally paid the interest owed on the amount but that the capital had not been repaid.

According to the testimony of Costas and Steve Marcopoulos, the company 2436-3228 Québec Inc. operated the restaurant until the day it went bankrupt in July 1992. Following the bankruptcy, a new company called 2947-1700 Québec Inc., the debtor, was incorporated to continue operating the restaurant. Steve Marcopoulos testified that 2436- 3228 Québec Inc. had never made any payment to Miss Hamel’s company. He further testified that at the time of his company’s bankruptcy it owed Revenue Canada and the Quebec Ministère du revenu $38,200.

In August 1992, the opposant obtained from the trustee in bankruptcy for 2436-3228 Québec Inc. a release for the equipment which was the subject of the commercial pledge. In other words, the trustee agreed to the said equipment being handed over to the opposant pursuant to Article 19791 of the Civil Code of Lower Canada, which reads as follows:

In case of default of the borrower to fulfill his obligations, the creditor may, without prejudice to any other recourse,

1. oblige the borrower to deliver to him, on demand, the things pledged;

2. Sell the same at auction at the date, time and place fixed in a notice sent by registered or certified letter to the last known address of the borrower and then published at least three days before that date in accordance with the rules provided in Article 139 of the Code of Civil Procedure without being required, in the case of publication of the notice in a newspaper, to request the judge or prothonotary to designate the newspaper.

Despite this, Miss D’Ermo testified that she had agreed to leave the equipment on the restaurant premises because judging from her experience an auction would only have produced very unsatisfactory results. Accordingly, the opposant allowed the debtor to use the equipment although the latter had no legal obligation to the opposant in respect of payment of the $5,800 debt.

The principal, if not the only, argument made by The Queen against the opposition is that it was frivolous because no proof of payment was presented in respect of the debt assignment made between Magakar Inc. and the opposant on March 30, 1992. In my opinion this argument cannot succeed. After hearing the testimony of Miss Hamel and Miss D’Ermo, I am satisfied that the transaction was not a fictitious or fraudulent one. In other words, I am satisfied that the opposant did in fact pay $5,800 plus the interest accumulated on that amount to purchase the Magakar Inc. debt secured by a commercial pledge.

The argument of the Crown in right of Canada assumes that Miss Hamel, Miss D’Ermo and Messrs. Costas and Steve Marcopoulos were in league to enable Steve and Costas Marcopoulos to avoid their equipment being subject to seizure in execution by Revenue Canada and other creditors. Unfortunately for the Crown, I cannot subscribe to this theory.

It seems to me that the story is actually a much simpler one than that suggested by the Crown. It would have been better if the notary Felx could have testified at the hearing. Mr. Felx was the officiating notary for the loan contracts and the debt assignment.

It was clear from the testimony of Miss Hamel and Miss D’Ermo that Mr. Felx managed the sums of money they gave to him. In other words, for all practical purposes, the money of Miss Hamel and Miss D’Ermo was controlled by Mr. Felx.

Miss Hamel’s and Miss D’Ermo’s presence was only necessary to sign the legal documents giving effect to the transactions entered into by Mr. Felx. As I understand the transactions, it was Mr. Felx who decided to lend Miss Hamel’s $5,800 to Steve Marcopoulos’ company. It was Mr. Felx who subsequently decided to repay Miss Hamel from Miss D’Ermo’s money.

I have no doubt that the transactions disputed by The Queen are transactions entered into in good faith. I also have no doubt that the property seized by The Queen on February 3, 1994 did not belong and has never belonged to the debtor 2947-1700 Québec Inc.

The motion in opposition was based on Article 597 of the Quebec Code of Civil Procedure, which reads as follows:

The opposition may also be taken by a third party who has a right to revendicate any part of the property seized.

In my view, in the circumstances of the case at bar the opposant is entitled to claim the property seized by the Crown in right of Canada on February 3, 1994. At the same time, I cannot declare the opposant to be the owner of the said property. Article 1979d of the Civil Code of Lower Canada provides the following:

Whatsoever is pledged shall be seizable for what is owing to the creditor; it cannot be stipulated that in default of payment the latter shall become owner, and when he has obtained possession of what was pledged, he must, if the person who pledged the same requires it, realize upon same without needless delay.

Article 1979d is to be found in Chapter Third of Title Sixteenth, titled “Of Agricultural Pledge”. Additionally, Article 1979k of Chapter Fourth, titled “Of Commercial Pledge”, provides that “Article 1979d applies to the pledge contemplated by this chapter”.

Accordingly, I consider that the opposition is valid because the opposant is entitled to claim the property seized by the Crown in right of Canada. The motion for opposition is therefore allowed except as regards the right of ownership of the property.

Motion allowed in part