Marceau,
J
[TRANSLATION]:—A
certificate
in
accordance
with
subsection
223(2)
of
the
Income
Tax
Act
filed
in
the
registry
of
the
Court
on
August
14,
1978,
establishing
that
defendant
owed
Her
Majesty
a
sum
of
over
$17,000.
The
certificate
immediately
acquired
the
force
and
effect
of
a
judgment.
Execution
proceedings
were
undertaken
and
defendant’s
property
was
seized
for
court
sale
to
satisfy
the
judgment.
The
objector
challenged
this
seizure
on
the
ground
that
“the
seized
property
had
been
pledged
by
defendant
to
the
objector
by
notarial
deed
made
on
October
16,1978
before
Mr
Paul
Dionne,
notary,
at
Amqui,
as
No
457
of
his
minutes”.
The
Attorney
General,
on
behalf
of
Her
Majesty,
disputed
the
validity
of
the
objection
and
asked
that
it
be
dismissed.
His
chief
argument
was
that
the
contract
of
commercial
pledge
which
the
objector
sought
to
rely
on
was
entered
into
in
order
to
defraud
the
seizing
creditor
of
her
rights,
and
should
accordingly
be
declared
null
and
void.
Alternatively,
he
argued
that
even
if
the
contract
of
pledge
were
not
held
void,
it
could
not
in
itself
permit
an
appeal
to
Art
597
of
the
Code
of
Civil
Procedure
of
the
province
of
Quebec
so
as
to
block
the
execution
proceedings
undertaken.
It
will
be
seen
that
the
primary
basis
for
the
remedy
exercised
by
the
seizing
creditor
is
the
so-called
“Paulian”
action
provided
to
a
creditor
by
Arts
1032
et
seq
of
the
Civil
Code
of
the
province
of
Quebec,
so
as
to
nullify
with
respect
to
him
any
deed
concluded
by
his
debtor
to
avoid
the
general
right
of
pledge
guaranteeing
his
debt.
Her
action
in
this
regard
was
properly
undertaken,
as
it
seems
hard
to
imagine
a
situation
more
clearly
within
the
ambit
of
the
Paulian
action.
The
objector
is
the
wife
of
the
debtor
company’s
president:
the
latter
formed
the
company
in
1971
to
undertake
highway
construction.
In
1978
the
affairs
of
the
company,
which
was
wholly
controlled
by
her
husband,
were
already
in
a
most
deplorable
state:
legal
actions
had
been
multiplying
for
several
years
(more
than
twenty
are
referred
to
in
list
C-3);
prosecutions
by
the
Attorney
General
under
the
Income
Tax
Act
had
followed
each
other
without
interruption
as
the
result
of
an
entire
series
of
unpaid
notices
of
assessment
(C-2),
and
even
a
criminal
conviction
handed
down
on
November
18,1977
remained
unpaid
(C-5);
attempts
at
third
party
execution
pursuant
to
the
said
Income
Tax
Act
had
been
as
frequent
as
they
were
futile
(C-6).
It
is
against
this
background
and
in
the
midst
of
these
difficulties
that,
on
October
16,1978,
the
deed
of
pledge
relied
on
by
the
objector
here
was
concluded.
This
notarial
deed
purported
to
give
effect
to
a
resolution
of
the
company’s
shareholders
and
directors
(apparently
the
husband,
his
sister
and
his
wife),
according
to
which
a
pledge
on
all
the
company’s
movable
property
had
to
be
given
to
the
objector
to
secure
repayment
of
a
debt
of
$166,067.47
owed
to
her
by
the
company
for
rental
of
equipment.
The
objector
explained
in
her
testimony
that
this
debt
which
was
owed
to
her
resulted
from
the
fact
that
three
tractors
used
by
the
company
since
its
inception
had
been
purchased
by
her
husband,
but
in
her
name
and
with
her
money.
The
first
purchase
was
made
in
1967
and
required
$3,000
which
she
then
had
on
hand;
the
other
two
occurred
in
1971,
for
amounts
of
about
$11,000
and
$8,000,
which
she
had
borrowed
for
the
most
part
from
her
father-in-law,
her
husband’s
father.
However,
there
was
no
trace
of
these
agreements
between
the
objector
and
her
husband,
between
her
and
the
company,
or
between
her
and
her
father-in-law,
and
there
were
no
reference
to
them
in
any
written
document;
the
only
evidence
available
was
this
decision
by
the
company
to
recognize
the
debt
and
to
secure
it
by
a
pledge
giving
evidence
of
it.
Those
are
the
facts.
There
would
appear
to
be
a
serious
question
as
to
the
reality
of
the
transactions
relied
on,
and
the
legal
existence
of
the
debt
which
the
deed
of
pledge
purported
to
cover,
but
there
is
no
need
to
raise
such
a
question
as
the
Court
is
not
required
here
to
rule
on
whether
a
subterfuge
exists.
The
question
before
the
Court
is
as
to
whether
the
conditions
of
the
Paulian
action
of
Arts
1032
et
seq
CC
exist
in
the
circumstances
of
the
case
at
bar,
and
as
I
mentioned
there
can
be
no
doubt
that
the
answer
must
be
in
the
affirmative.
To
begin
with,
the
company
was
clearly
insolvent,
that
is,
unable
to
meet
its
commitments,
and
its
claims
of
possible
debts
against
third
parties
do
not
establish
the
contrary,
regardless
of
whether
such
claims
were
entered
on
the
annual
balance
sheet
prepared
by
its
accountant.
Secondly,
this
insolvent
condition
was
well-known
to
the
objector,
a
shareholder
of
the
company
and
its
president’s
wife,
and
she
indeed
spontaneously
admitted
as
much
in
her
testimony.
These
are
the
only
conditions
required
by
Arts
1034
or
1035
CC
as
a
basis
for
the
Paulian
action.
As
the
challenge
to
the
objection
was
made
within
one
year
from
the
conclusion
of
this
deed
removing
the
company’s
property
from
the
reach
of
its
creditors
in
general,
it
must
unquestionably
be
upheld.
In
view
of
this
conclusion,
it
is
not
necessary
for
the
Court
to
rule
definitively
on
the
merits
of
the
second
alternative
argument
put
forward
in
support
of
the
challenge.
However,
I
should
like
to
say
that
in
my
opinion
this
second
argument
is
also
correct.
In
my
view,
a
commercial
pledge
does
not
give
a
creditor
the
right
to
object
to
the
seizure
and
sale
of
the
pledged
properties,
as
this
right
is
reserved
by
Art
597
CCP
to
the
party
entitled
to
claim
as
owner.
Counsel
for
the
objector
maintained
that
the
contrary
was
held
in
In
re
Mocajo
Construction
Inc:
Freed
v
Rodrigue,
[1973]
CA
509,
but
that
case,
which
involved
a
bankruptcy,
is
pased
on
principles
applicable
only
to
its
own
circumstances.
The
decision
of
my
brother
Walsh,
J,
in
The
Queen
v
Restaurant
&
Bar
la
Seigneurie
de
Sept-Iles
Inc,
[1977]
2
FC
207;
[1977]
CTC
96;
77
DTC
5129,
would
seem
to
be
more
in
point
and
in
my
view
this
is
what
must
be
followed.
ORDER
The
Court
allows
the
challenge.
It
declares
the
commercial
pledge
made
by
defendant
in
favour
of
the
objector
on
October
16,
1978
null
and
void
with
respect
to
the
seizing
creditor;
accordingly,
the
Court
dismisses
the
objector’s
objection
and
orders
that
the
seized
property
be
sold
and
the
debt
of
Her
Majesty
be
paid
from
the
proceeds
of
the
sale
in
accordance
with
the
provisions
applicable
in
the
circumstances.
The
whole
with
costs
against
the
objector.
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