Rickaby v. Bell

T. F., an hotel keeper, being largely indebted, sold to A. B., his principal creditor, on the 19th January, 1875, by notarial deed, duly registered, certain movable and immovable property, being the bulk of his estate, comprising the hotel and furniture, for $15,409.50.

The immovable property, valued by official assessors at $22,000, was sold for $10,000.

The sale was, also, made subject to a right of redemption by F. on re-imbursing, within three years, the stipulated price of $15,409.50, and interest at the rate of 8 p.c., with a provision that, in case of insolvency or default of payment, this right of remdrd should cease. No delivery took place, and ten months later F., who remained in possession of the property under a lease from A. B. of the same date as that of the sale, also became bankrupt. In the meantime A. B., with F.'s consent, had leased the furniture to T. & J., in whose hands they were when Appellant, (F.'s Assignee) revendicated them as part of the insolvent estate.

T. & J. did not plead, but A. B. intervened and claimed the effects under the deed of sale above mentioned. The Assignee contested the intervention, alleging that deeds passed on the 19th January, 1875, had been made by T. F. in fraud of his creditors.

Held,-That there was sufficient evidence to prove that the object of the transaction was to defeat F.'s creditors generally,and therefore the deeds of sale and lease of 19th January, 1875, were null and :-Ritchie, Strong, Taschereau, Fournier and Henry, J. J.

THIS was an appeal from a judgment of the Court of Queen's Bench for Lower Canada (Appeal Side), dated 8th June, 1871, reversing a judgment of the Superior Court for the District of Three Rivers, (Mc Cord, J.) rendered on the 23rd November 1876.

The Appellant, assignee of the insolvent estate of one Thomas G. Farmer, sued out a writ of saisie-revendication, to attach from Messrs. Trihey L Tohnson, lessees of Respondent, furniture and chattel property to the alleged value of $3,817.62, as belonging to the insolvent, and forming part of his estate. To this action the Defendants did not plead. The Respondent intervened, and alleged that the Defendants, to the knowledge of the Appellant and of the creditors of the insolvent, held the property seized as lessees of him; that he was owner of the property under a deed of sale from Farmer, dated 19th January, 1875, and that, at the time of the attachment in insolvency, he was in possession of this property through Farmer, who held it under a lease from him, also dated 19th January, 1875.

The Appellant filed a contestation of this intervention, alleging that Farmer was insolvent at the time of the deed of sale; that Bell knew of his insolvency; that this deed, and likewise the deed of lease from Bell to Farmer, were both executed in fraud and to the detriment of Farmer's creditors, and were passed in contemplation of .insolvency, for the purpose of giving Bell an unjust preference over the other creditors.

By the evidence of record, the following facts were established :- On the 16th of December, 1874, Bell wrote to farmer the following letter :- JUNE SESSION, .

Montreal, Dec. 16th, 1874. " T. G. Farmer, Esq.,

DEAR SiR,-I asked Mr. Wurtele to what way I could be secured in your claim or amount, so he told me you would require to make out a list of all the furniture in the hotel, to attach to our agreement; do it yourselfmake a list of each room; commence at No. 1, and so on. Yoi need not let any one know of it; this is the simplest way of securing the whole, and then all I will trouble you for will be an amount not exceeding 8 p. c. on the whole debt to run till March, 1878.

Your running amount is $6,000, and then the $10,000; the whole sale will be for $16,000, and then you will pay me every three months 8 p. c. and have it in your power to redeem the whole in March, 1878, by paying me $16,000, and by doing this every thing is secure both for you and me, and then allI trouble you for is the rent at 8 p. c., so that you can pay others quite easily and not be troubled any. I will bring the papers down with me for you to sign now.

By having every thing secured for me, if you at any time require my assistance I shall only be too happy to oblige you. Of course this course is the only one as things stands at present. Neither you nor me can tell how long we live and things has been done rather loose, it is all very well as long as we are attending to things ourselves.

Attend to make out the list, or if you are too busy I will send my son to assist you, so that you and him can do it very quietly between yourselves. Hoping you and your good lady are well.

Yours truly,

ADAm R. BELL." On the 12th of January, 1875, Bell wrote another and most pressing letter, in which he tells Farmer that " he cannot renew his notes for ever and lay out his interest without such security as he asked;" that "under the prospects of things he has invested enough already;" that " he wants the security now on the time mentioned and in the order of things mentioned."

On the 13th, Bell again writes: " Be careful in making the list to have a price to every article and mention every article of furniture, setting down price opposite; this you will find turn out good for yourself as well as me."

......... Go quietly around and write down every thing. It is no one's business to meddle with you in our settlements, and when this is arranged you may require to use me again which I hope I shall be in a position to serve you."

Upon these letters, Farmer went to Montreal, and, on the 19th of January, 1875, sold to Respondent " The British American Hotel," at Three Rivers, and all the furniture it contained, together with a lot of land on the outskirts of the city, and £700 stg. of fourth preferential bonds of the Grand Trunk Railway Company. This sale was made for $15,409.60, of which $6,000 were in payment of a bailleur-de-fonds claim, $4,000 in payment of a mortgage, and the balance of $5,409.50. was declared to have been paid at the time of the signing of the deed. The sale was made subject to a droit de rdmir6 by Farmer, on reimbursing, within three years, the stipulated price of $15,409.50 and interest at the rate of 8 p.c., payable quarterly, with a provision that, in case of insolvency, or default of any payment within sixty days after it was due, this right of rem6rd should cease.

The list of articles.which is annexed to the deed of sale does not altogether agree with the furniture in the hotel, but it is alleged by Bell, in his intervention, that, notwithstanding very considerable discrepancies, the intention was to sell all -the furniture in the hotel at the time of the sale.

The sale included:- 1st. The hotel, which, at the time was assessed by the Corporation of Three

Rivers, on a valuation made by the assessors, under oath, at........ ...... $22,000 00 And which on the the following year was assessed at $26,000:- 2nd. The furniture and chattel property, including 1,500 bushels of potatoes, the whole valued at.............

4,109 50 3rd. The lot of land near the city...........

1,000 00 4th. The Grand Trunk bonds.......... ......

300 00 Total

.. ......... $27,409 50 Sold for $15,409.50, as mentioned in the deed. The hotel being put down for $10,000.

A number of witnesses say that it was fully worth the value it was assessed at, and even something above, while others say it could not have been sold, at a forced sale, for more than $10,000.

On the same day, Bell leased to Farmer, for three years, for $1,237 a year, payable quarterly, all the property he had purchased from him. The two deeds were passed before Jobin, notary, at Montreal, and the deed of sale was subsequently registered at Three Rivers, on the 1st day of February, but the lease was not registered. No delivery took place, and Farmer remained in possession of the whole, as before the transaction, until the 27th day of November, 1875, when a writ of compulsory liquidation issued against him, and the property was seized in his possession by an Interim Assignee.

On the 3rd December, 1875, Trihey 4- Johnson took possession of the hotel and furniture, as lessees of Bell, apparently under some understanding between Bell and the Interim Assignee, the nature of which is not well explained in the cause.

After a protracted enquate, the Superior Court declared the sale to have been made in fraud of the creditors of Farmer, dismissed Bell's intervention, and declared the Rione saisie revendication valid. This decision was reversed on appeal to the Court of Queen's Bench-the Chief Justice and Mr. Justice Tessier dissenting.

In the Supreme Court the question argued was, whether the deeds of sale and of lease of the 19th January, 1875, could be declared void on the ground of fraud, or of unjust preference, in contemplation of insolvency.

The arguments and authorities relied on sufficiently appear in the judgments.

J.

This is a proceeding to set aside a deed by which one Farmer transferred to the Respondent a large amount of property.

I understand that under the civil law an entirely different principle prevails from what prevails at common law, where a party may make a preference, if it be a bond-fide transaction, even if made for the purpose of delaying or defeating a specific creditor, but that under the Civil Code, L. C., such preference would not be good.

The question in this case appears to be one of fact only, viz.:- Whether, under the circumstances of the case, the result of this transaction was the delaying or defeating of creditors?

The Court of original jurisdiction determined that theeffectof this transfer wasto delay and defeat creditors; that it was, in fact, a preference given to the Respondent, which, under the Code, he was not entitled to have, the principle of the Code being that a party cannot, when in insolvent circumstances, JUNE SESSION, prefer one creditor to another; that all have an equal Tight to a distribution of a debtor's goods upon the same basis as that of a bankrupt's property.

After carefully reading and considering the evidence, I am unable to dissent from the able judgment of Chief Justice Dorion, who goes into all the circumstances, and points out the particulars in which he thinks the effect of this transaction was to defeat and delay creditors, and to invalidate this deed. I cannot say-perhaps, because I have always been so strongly acting upon a different rule-that I can go with the learned Chief Justice in all the reasons he gives, but, in many of them, I entirely agree with him, sufficiently so, at any rate, to come to the conclusion at which he has arrived-that this deed cannot stand.

It is clear that Farmer was very largely indebted at the time of this transaction; that under this deed the whole of his property (with the exception of the wine cellar) was transferred to Respondent, the value of which would seem to have been much greater than the Respondent was to pay for it. The effect of this transfer was to render Farmer insolvent, and not leave property for the discharge of his other liabilities.

The transaction was carried out with secrecy, and Bell, evidently, must have known that the effect of it was to delay and defeat all Farmer's other creditors.

It is true an opportunity was given Farmer of redeeming the property if he could do so, but even this was put in such a way that Farmer's creditors could know nothing about it, and, coupled with the secrecy of the whole transaction and its obvious effect on Farmer's position in reference to his other creditors, shows it to be a transaction entirely opposed to the principle of the Civil Code of Lower Canada, and, therefore, must be set aside. J., concurred.

J.:

Les faits de la pr6sente cause sont A pen de chose pris, les suivants:

Thomas G. Farmer poss6dait une propri6t6 immobiliaire situ6e A Trois-Rivieres et connue sons le nom de British American Hotel, dans lequel il exer9ait le m6tier d'h6telier ; il poss6dait dans cette maison un mobilier consid6rable qui 6tait utilis6 pour les fins de son n6goce comme h6telier.

Le 19 janvier 1875, Farmer vendit A 1'Intim6 cet h6tel, avec le mobilier, plus un lot de terre et quelques preferential bonds de la compagnie du Grand- Tronc, au montant apparent de £700 sterling, le tout pour le prix de $15,409.53, dont $6,000 furent stipul6s 6tre en prime d'un montant A lui d-i par privil6ge de bailleur de fonds sur l'h6tel, $4,000 pour une hypothbque sur la mime proprit6, et le reste, savoir $5,109.50 comme argent pay6 au moment de la passation de l'acte en question.

Cette vente fut faite avec droit de rem6r6 en faveur du vendeur sous trois ans, en payant les $15,409.50 avec int6rt A 8 pour cent, et avec la singulitre stipulation qu'en cas d'insolvabilit6 ou A d6faut de paiement d'int6r~t A chaque trimestre ce droit de remer6 cesserait. Et chose aussi extraordinaire, Bell consent en faveur de Farmer le mime jour, un bail de cette propri6t6 et du mobilier susdit, moyennant un loyer annuel de $1,237 payable par quartier. Il n'y eut pas de livraison actuelle, mais Farmer resta en possession jusqu'en d6cembre 1875, 6poque A laquelle Farmer ayant t forc6 de faire une cession de biens, 1'appelant Rickaby fut appoint6 syndic A la banqueroute de Farmer, et en f6vrier 1876 il r~clama, par saisie revendication, les meubles, comme partie des biens de la faillite de Farmer, contre les nomm6s Trihey et Johnson, A qui Bell, avec le consentement d'un syndic adinterim, avaient consenti un bail de ces effets et de la proprit6. YOL. II.]

Trihey et Johnson firent d6faut de comparaitre A cette demande de Rickaby, et Bell intervint pour r~clamer tout ce que Farmer lii avait vendu.

Le jugement en premibre instance, prononc6 par le juge Mc Cord, donna gain de cause - Rickaby, et annula la vente que Farmer avait consenti z l'intim6 Bell. Sur appel A la Cour du Banc de la Reine A Quebec, ce jugement fut renvers6 par trois sur cinq honorables juges composant ce tribunal, et c'est de ce jugement dont cette cour est actuellement saisie.

De 1'exposition des faits de la cause telle que constat6e par le dossier, nous avons A d6clarer si les actes du 19 janvier 1875, exbout~s entre Farmer et l'Intim6 doivent tre consid~r6s comme faits et ex6cut~s en fraude des cr6anciers de Farmer, et si comme tels ils doivent 8tre annul6s.

La premibre question est celle de savoir, si A 1'6poque de l'ex6cution des deux actes du 19 janvier 1875, Farmer lui-meme et Bell savaient que Farmer 6tait incapable de rencontrer ses engagements.

L'affirmative me semble prouv6e de la maniare la plus positive par les nomm6s McGibbon, Dawes, Mountain et par Farmer lui-m~me, par les lettres singulibres de Bell a Farmer, du 14 d~cembre 1874 et 12 janvier 1875, qui indiquent clairement chez 1'un et l'autre la conviction de l'insolvabilit6 de Farmer, surtout lorsque le tout est suivi de l'ex~cution des deux actes du 19 janvier 1875.

Ces lettres et les deux actes du 19 janvier 1875 sont la preuve complbte du pitoyable 6tat des finances de Farmer, et de la grande pression que Bell voulait exercer sur son d6biteur dans le but de se prot6ger, et ce en se faisant transporter tout son actif A un prix comparativement vil comme le dossier le constate, et de fait A peine 50 p. 100, et ne laissant rien A esp6rer pour ses autres cr6anciers.

Si l'ou prend en consid6ration que la vente de tout l'actif de Farmer, dont la. valeur approximative 6tait de $27,409, a t faite pour $15,409, on ne pourra se d6fendre d'un fort souppon de la sincerit6 de 1'acte de vente, EL. mais mime nous devons dire que cette vente n'6tait ainsi consentie que dans le but de prot6ger Bell A l'exclusion des autres cr6anciers de Farmer, en un mot, de lui donner une pr6f6rence indue. D'ailleurs, 1'acte contient une dclaration fausse du paiement de $15,409.50 lors de la passation de cet acte, puisqu'en r6alit6 tel paiement n'a pas eu lieu, et que ce paiement pr6tendu n'6tait que l'extinction d'une dette ant6rieure chirographaire pour des avances d'argent et fournitures pour lesquelles Bell n'avait aucun gage ni sAret6 quelconque. La preuve, je le r6p~te, que l'on trouve au dossier, me convaine que ces deux actes ne furent que I'ex~cution d'un projet bien arrat6 de la part de Bell et de Farmer de donner au premier une pr6f6rence indue, et ce au d6triment des cr6anciers de Farmer et entre autres de Rickaby. J'avoue que la fraude, qui r6sulte de l'ex~cution de ces deux actes, n'est pas prouv6e avec 1'exactitude que l'on pourrait attendre dans une transaction ordinaire de la vie, mais d'un autre c6t6 la loi, sans pr6sumer la fraude, n'en d6fend pas la preuve par tous les moyens possibles, par toutes les circonstances possibles.

En effet la fraude serait le plus souvent insaisissable, si la preuve des circonstances tendant A 1'6tablir n'6tait pas permise.

M. Chardon (1) dit:

et et 6tablir n'est Et Bedarride (2) dit:

JUNE SESSION, 1878.

Or, dans le cas pr6sent, les faits prouv6s prouvent abondamment 1'intention de frauder, au moins dans le sens 16gal, car Bell n'ignorait pas, ne pouvait ignorer, 'insolvabilit6 de son d6biteur; et les autorit6s vont mime jusqu'au point d'6tablir que si le d6biteur au moment de son transport, ne laisse pas assez pour payer ses dettes, il doit tre consid6r6 comme ayant 6t6 insolvable, et que le cessionnaire doit en subir les cons6quences.

L'616ment de fraude que 1'on trouve dans les transactions en question consiste lo. dans l'insolvabilit6 6vidente de Farmer, bien connue de Bell, et qu'il ne pouvait ignorer, quoique le public en g6nbral ne pfxt que la soupponner:

2o. Dans le fait que, quant A la somme de $5,109.50, que Bell pr6tend avoir paye A Farmer comme partie du prix total de $15,109.50, Bell absorbait ainsi A lui seul une somme de $5,109.50 repr~sentant des meubles et, effets appartenant & Farmer, qui 6taient le gage commun de ses cr6anciers en g6n6ral, et sur lesquels meubles Bell n'avait aucun privil6ge ni lien quelconque. C'6tait done, au moins quant A cette somme, une perte de $5,109.50:

3o. Dans le fait que la propri6t6 mobilhre qui est entr6e dans 1'estimation de Bell comme partie du prix de vente des $15,109.50 n'y est estim6e qu'au montant de $10,000, tandis qu'd 1'6poque de cette vente, 1'h6tel 6tait estim6 de $22 5. $26,000 par les estimateurs officiels de la corporation de la ville de Trois-Rivieres: 4o. Dans le fait de la vente A rem6r6, qui indique que la vente n'6tait pas s6rieuse, mais fait dans le but seul de prot6ger le cr6ancier et le d6biteur, au pr6judice des cr6anciers du d6biteur, en empichant ces derniers de pouvoir exercer leur recours imm6diatement contre Farmer sans avoir an prbalable fait annuler ces actes comme frauduleux.

Il me parait de toute 6vidence que, comme le dit M. le juge en chef Dorion en ses notes de jugement, l'intim6 Bell se trouve dans ce dilemme bien 6vident, savoir, si la propri6t6 valait $26,600 et qu'il l'avait achetee pour $10,009,

Bell et son d6biteur commettent une fraude palpable et punissable comme fraude en violation de la loi de faillite, et si la proprit6 ne valait que $10,000, Farmer 6tait alors insolvable sans espoir de se r6tablir, et cons6qnemment il 6tait passible d'une punition, dont son cr6ancier qui s'y 6tait associ6 partageait le risque, savoir: de voir ces actes de vente annul6s par les tribunaux comme faits en fraude des cr6anciers de l'insolvable.

Les articles 1033, 1035, 1040, 993 du Code Civil et les provisions de 1'acte de faillite de 1869 me semblent s'appliquer A la pr6sente cause et militent avec force contre les pr6tentions de l'intimb.

Les autorit6s que l'on trouve an factum de l'appelant, savoir: Caprina(1), Bell's Commentaries(2), Bedarride(3), 6tablissent une bien saine doctrine, savoir: que si un d6biteur paie un cr~ancier en tout on en partie au pr6judice des autres, il y a prbsomption ou doute de fraude, et un cr6ancier sera r6put6 avoir connu 1'insolvabilit6 de son d6biteur, si A 1'6poque d'une transaction il 6tait en position de connaitre 1'6tat de ses affaires, on si ses transactions indiquaient chez lui un fort doute de 1'insolvabilit6 de son d6biteur, et qu'il n'est pas m~me n6cessaire d'6tablir que le d6biteur fut insolvable A 1'6poque de la transaction; et il est suffisant de prouver qu'en faisant cette transaction il s'est r6duit A 1'6tat d'insolvabilit6. La clandestinit6 est aussi un indice de fraude, et et telle qu'une vente h rem~r6 sans tradition publique. Nos tribunaux de la province de Quebec ont maintenu la doctrine que la clandestinit6 6tait un indice de fraude. Or nous voyons tous ces indices et tous ces 616ments de fraude dans les transactions du 19 janvier 1875, savoir: insolvabilit6 indubitable, clandestinit6, d6faut de tradition par Farmer A Bell. Voild pour le droit commun. Maintenant la loi statutaire, acte de faillite 1869, section 13, sous-sections 1 et 3 de 1'acte de 1875 et sections 86 et 88 de 1'acte 1869, frappe de nullit6 des actes faits sons les m~mes circonstances.

Mais 1'intim6 a pr6tendu que 1'appelant ne pouvait demander la nullit6 de la vente des immeubles. Il y a une double erreur dans cette pr6tention, car lo. la propri6t6 avait 6t6 vendue A bas prix, savoir, $10,000 au lieu de $26,000 on environ qu'elle valait. En effet Bell anssitat aprbs l'acquisition la fit assurer, savoir : la construction seule pour $16,000, ce qui avec le terrain la portait h une valeur de plus de $20,000 ; et 2o. il yaune seconde erreur dans cette pr6tention de l'intim6 en ce que les actes, tant attaqu6s comme frauduleux entre commergants et commerpants, la fraude sur un point quelconque important 6tant prouv6e elle affectuait toutes les transactions du 19 janvier 1875.

Si 1'intim6 a une hypothbque valable sur la propri6t6 de 1'h6tel, son droit est sauvegard6 et complktement prot6g6 devant le syndic officiel, qui la fera vendre et paiera les hypothbques et dettes privil~gi~es tout aussi bien que le ferait un sherif. Ainsi, le jugement de cette cour, en annulant ces actes du 19 janvier 1875, remettra les parties an mome 6tat dans lequel elles se trouvaient A la date de ces actes frauduleux, et leurs droits et privi- 16ges et ceux de tous les autres creanciers que le syndic present appellant est par la loi oblig6 de prot6ger renaitront comme s'ils n'avaient jamais 6t6 affect6s. Le jugement de cette cour sera A l'effet de renverser le jugement de la Cour du Bane de la Reine A Quebec, d'annuler comme frauduleux les deux actes de vente du RCAY 19 janvier 1875, avec frais et depens tant en cour d'appel que devant cette cour.

FOUTRNIER, J., concurred.

HENRY, J.

I do not think it necessary in this case to refer to the Civil Code of Lower Canada to sustain the judgment the Court has announced, so far, in regard to the case before us. The Statute of 1869, the general Act of the Dominion Parliament, authorized as it is by the Imperial Act to legislate on the subject of insolvency, if sufficient in itself, could not be controlled by any Act previously existing in any of the provinces; and, therefore, if, on looking at that Act, the assignment is not legal, we have no necessity to refer to the Civil Code. The 88th section of the Statute reads :- All contracts, or conveyances made and acts done by a debtor, respecting either real or personal estate with intent fraudulently to impede, obstruct or delay his creditors in their remedies against him, or with intent to defraud his creditors, or any of them, and so made, done or intended with the knowledge of the person contracting or acting with the debtor whether such person be his creditor or not, and which shall have the effect of impeding, obstructing or delaying the creditors of their remedies, or of injuring them or any of them, are prohibited and are null and void, notwithstanding that such contracts, conveyances or acts be in consideration, or in contemplation of marriage.

A similar enactment is in force in England, and decisions have already been had upon it, which, I think, are in the spirit of the words of this clause.

The interpretation given to these words and their equivalent in the English Courts, may be gathered from the following cases :-See Ex parte Bailey (1) ; Lindon v. Sharp (2); and Oriental Bank v. Coleman (3).

Under the Statute, we have, then, first to enquire as to the knowledge of the party to whom the assignment is made. I think the evidence is abundant to show that he knew the party was indebted to others and insolvent, and, in fact, by his conduct generally, he shows he knew everything, and got the property for the purpose of shielding it from the other creditors. That is sufficient to satisfy the terms of this Act. The decisions of the Courts in England make all these assignments fraudulent, not necessarily in the intention of the party who makes them, but by the operation of the Statute, and I conceive there is no difficulty in coming to the conclusion that, if that is the construction to be given to the Statute, the assignee here knew everything that was required to be known to give effect to that section of the Act, and that this assignment was made by the insolvent while he was largely indebted to other people, and, therefore, the assignment was made in a manner which is prohibited by the Statute. Under all the circumstances, therefore, I think the case is plainly and fully made out, so much so that no jury would hesitate in regard to it. I agree with the judgment already given, that the assignment is void in law, and that the judgment originally given should be carried out, with costs of the Court of Appeal below and of this Court. Appeal allowed with costs.