



COURT OF APPEAL FOR ONTARIO

CITATION: Aslan (Re), 2014 ONCA 245

DATE: 20140401

DOCKET: C57318

Sharpe, LaForme and Tulloch JJ.A.

In
    the Matter of the Bankruptcy of Ibrahim Aslan of the Town of

Richmond Hill, in the
    Province of Ontario, self employed

Sean N. Zeitz, for the
    appellant/respondent by cross-appeal Harris & Partners Inc.

Alfred S. Schorr, for the
    respondent/cross-appellant Nezahat Aslan

Heard: March 24, 2014

On appeal from the order of Justice C.L. Campbell of the Superior
    Court of Justice, dated June 26, 2013.

By the Court:

[1]

This appeal involves three issues as between the appellant trustee of
    the Estate of Ibrahim Aslan and the respondent, Nezahat Alsan, the bankrupts
    former spouse.

[2]

The trustee appeals the motion judges dismissal of its claim for one
    half of the proceeds of a fire insurance policy on the contents of the former
    matrimonial home.

[3]

The other two issues involve payments made by the respondent as a joint
    guarantor with the bankrupt to secure debts owed by the bankrupts corporation

[4]

The trustee appeals the motion judges determination that the respondent
    is entitled to assert a claim in the bankruptcy for 100% of the amount she paid
    as a joint guarantor to BDC.

[5]

The respondent cross-appeals the motion judges determination that she
    is precluded by the rule against double proof from claiming in the bankruptcy
    for the amount she paid as a joint guarantor to RBC to partially discharge
    another debt.

The Contents of Matrimonial Home

[6]

The respondent and the bankrupt were married in 1986. They separated
    prior to the assignment of bankruptcy on May 21, 2010. The bankrupt was
    discharged February 22, 2011 and the parties were divorced July 19, 2011.

[7]

The spouses jointly owned their matrimonial home. In November 2010,
    there was a fire in the matrimonial home which resulted in substantial losses.
    They jointly filed a Fire Proof of Loss in November 2011 for $669,216.70 for
    replacement costs for the homes contents. Despite the bankruptcy, they jointly
    commenced an action for a loss of over $1.5 million for rebuilding the home and
    other structures and $967,680 for the replacement cost of the contents. The trustee
    took over the bankrupts claim. Following mediation, the trustee, the
    respondent and the insurer settled the contents claim for $384,500.00 net of
    legal fees and disbursements.

[8]

The trustee agreed to the release of $192,500.00, to the respondent,
    i.e. 50% of the settlement proceedings. The trustee then sought a declaration
    from the court that 50% of the settlement was the property of the bankrupt.

[9]

The motion judge gave brief reasons dismissing the trustees claim. He
    accepted what he described as [t]he position of Ms. Aslan, namely,  that
    when she and her husband separated he agreed as part of the matrimonial
    settlement to take his own personal belongings and live in the basement of the
    matrimonial home until he could find you [sic] accommodation and the remaining
    assets would become her property.

[10]

In
    our respectful view, this finding cannot be supported on the record and
    reflects a misapprehension of the evidence on the part of the motion judge.
    There was no evidence of a matrimonial settlement. The respondents evidence
    was not that the property became hers as a result of a settlement but that
    she already owned everything in the house and that the bankrupt never owned
    anything. The respondents position in that regard was highly implausible as
    the bankrupt was the main bread winner. Her position was also seriously at odds
    with the way in which the insurance claim was presented and settled. She
    provided no explanation for why she did not assert a claim for the value of all
    the contents until after the insurance claim was settled.

[11]

Accordingly,
    the motion judges dismissal of the trustees claim is set aside and we allow
    the trustees claim for half of the net proceeds of the insurance claim for the
    contents of the matrimonial home.

The BDC debt

[12]

The
    respondent filed a Proof of Claim for $45,350.22 relating to her joint and
    several guarantee of the bankrupts corporations obligations to BDC. The trustee
    argued that as a joint and several guarantor, she is only entitled to claim 50%
    of what she paid pursuant to the
Mercantile Law Amendment Act
, R.S.O.
    1990, c. M.10, s. 2(3) which provides that [n]o co-surety is entitled to
    recover from any other co-surety more than the just proportion to which, as
    between themselves, the last-mentioned person is justly liable.

[13]

The
    motion judge did not elaborate on why he was allowing the respondent to claim
    in the bankruptcy for the entire amount of what she paid. However, the reason
    for that exercise of his discretion is, in our view, discernible from the
    record. Though speaking with respect to the RBC guarantee, the motion judge
    observed that given the respondents limited understanding of English and evidence
    that the bankrupt exerted pressure on her to sign guarantees, he accepted that
    she had signed with considerable reluctance and was reluctant to conclude
    that she had a full understanding of the nature of the obligation she was
    undertaking. There was no indication that the respondent took any role in the
    affairs of the bankrupts corporation. In these circumstances, we conclude that
    there was a basis on the record to support the motion judges decision that as
    between her and the bankrupt, her just proportion was a claim for 100% of the
    BDC debt. We dismiss the trustees appeal from that order.

The RBC debt

[14]

The
    respondent provided a similar guarantee to RBC. After setting aside RBCs
    default judgment, the respondent negotiated a settlement whereby she paid RBC
    $145,000 in return for a release on her guarantee.

[15]

The
    total debt owing to RBC was $400,000. RBC initially submitted a proof of claim
    in the bankruptcy for the difference between that amount and what it had
    received from the respondent. However, the trustee pointed out that RBC was
    entitled to claim the entire amount of the debt ahead of the respondent, provided
    that after taking into account the amount it had received from the respondent
    in the settlement, it did not recover more that 100% of the debt. RBC then
    submitted a proof of claim for the full amount of the debt. The trustee
    rejected the respondents claim for $145,000 on the basis of the rule against
    double proof of a debt in bankruptcy. The motion judge agreed with the trustee
    and dismissed the respondents claim.

[16]

As
    the motion judge held, there is a well-established rule against double proof of
    a single debt in bankruptcy: see
Olympia & York Developments
(1998),
    4 C.B.R. (4
th
) 189 (Ont.C.J.), at paras. 23-24. The rule prohibits
    two proofs of claim in the same estate for the same debt. The rationale for the
    rule is to ensure
pari passu
distribution of the bankrupts assets to
    all unsecured creditors. If more than one claim were allowed, those creditors
    would get a larger share of the available assets than is properly attributable
    to the debt:
Olympia & York
, at para. 25.

[17]

We
    agree that there is only one debt to RBC and that as principal creditor in
    respect of that debt, RBC is entitled to assert a claim in priority to the
    respondent. RBC is not required to reduce its claim against the bankrupt estate
    by the amount it received from the respondent provided it does not recover more
    than 100% of the debt: see Wood,
Bankruptcy and Insolvency Law
,
    (Toronto: Irwin Law, 2009) at p. 251.

DISPOSITION

[18]

For
    these reasons, we allow the trustees appeal with respect to para. 3 of the
    motion judges order, set aside that paragraph and in its place order that the
    Trustees claim for one half of the net proceeds of the insurance settlement be
    allowed. We dismiss the trustees appeal from para. 2 of the order and we
    dismiss the respondents cross-appeal from para. 1 of the order.

[19]

As
    the trustee has achieved substantial (although not complete) success on the
    appeal, we order the respondent to pay the trustees costs here and below fixed
    at $30,000, inclusive of disbursements and applicable taxes.

Robert J. Sharpe J.A.

H.S.
    LaForme J.A.

M.H. Tulloch J.A.

Released: 1 April, 2014


