



COURT OF APPEAL FOR ONTARIO

CITATION:
Lo
Faso v. Ferracuti Estate, 2013 ONCA 123

DATE: 20130227

DOCKET: C55395

Winkler C.J.O., Pepall J.A. and G.P. Smith J. (
ad
hoc
)

BETWEEN

Gaetano Lo Faso

Plaintiff (Appellant)

and

David Ferracuti as Estate
Trustee of the Estate of Anthony Ferracuti
, Anthony Ferracuti
Investments Limited, Dallas Investments Limited, Cravit & Ferracuti
Interior Design Inc.,
518391 Ontario Inc., Drumlin
Developments Limited, David

Ferracuti Investments
Ltd., Heather Ferracuti
, Gerald Borean, Parente Borean, and Mauro (aka
Maurizio) Marchioni

Defendants (
Respondents
)

Paul J. Pape and Nicolas M. Rouleau, for the appellant

Sean E. Cumming and Colby Linthwaite, for the respondents

Heard: November 21, 2012

On appeal from the order of Justice Gordon D. Lemon of
the Superior Court of Justice, dated April 2, 2012, with reasons reported at
2012 ONSC 2081.

Pepall J.A.:

[1]

The appellant appeals the order of the motions judge dated
April 2, 2012, in which he granted partial summary judgment in favour of the
respondents. In granting the respondents motion, the motions judge dismissed
the appellants claims to an interest in property municipally known as 2301
Haines Road, Mississauga (Haines Road) and to an interest in the shares of the
respondent company 518391 Ontario Inc. (518). He also dismissed the
appellants motion for a certificate of pending litigation (CPL). Although
not requested before the motions judge, the appellant requests partial summary
judgment from this court declaring that he is the beneficial owner of Haines
Road. He asks that all other matters be directed to trial. In the alternative,
he asks this court to issue a CPL on Haines Road and to remit all matters to
trial.

Background Facts



[2]

The appellant, Gaetano Lo Faso, is a judgment creditor of a bankrupt
company named Kelton and Ferracuti Consultants Limited (Kelton). In 1993, he obtained
a judgment from Kelton in the amount of $63,637.20, in addition to costs of $278,000,
plus interest. He registered the judgment with the Sheriff that same year, and later
renewed that registration. The appellant took no active steps to enforce his
judgment between 1994 and 2000.

[3]

Anthony Ferracuti, whose estate is one of the respondents to
this appeal, was the guiding mind of the judgment debtor Kelton and of 518. Kelton
was the sole shareholder of 518. 518 held the Haines Road property that is in
dispute in trust for Kelton. 518 therefore held the legal title to the
property, and was its registered owner, while Kelton held the equitable title
and beneficial interest in the property. 518 was a bare trustee of  Haines
Road  for Kelton.

[4]

In 1989, North American Life Assurance Company (North American) was
granted a $2,150,000 first mortgage on Haines Road, which was guaranteed by Mr.
Ferracuti. The January 31, 1990 Kelton financial statements showed the
propertys net book value as being less than the principal amount outstanding
on the first mortgage. As such, as of that date, the evidence suggests that there
was no equity in the property. Mr. Ferracutis evidence was that the
realty taxes were in arrears and the first mortgage went into default on or
about September 1, 1991. In November 1991, North American sued 518 and Mr.
Ferracuti, as personal guarantor, for default on the first mortgage. On February 7, 1992, Haines Road was offered to North American in exchange for a release of
518 and Mr. Ferracuti.

[5]

North American declined the offer and instead renegotiated the
first mortgage guaranteed by Mr. Ferracuti and obtained a second mortgage on
Haines Road in the amount of $10,000,000. This second mortgage secured a new
obligation, which was to pay North American 25% of the net amount received by 518
from a sale of Haines Road before November 1, 1999, and failing a sale, 25% of the
appraised value of the property at that time.

[6]

Kelton ceased to operate in 1993 but continued to hold the beneficial
interest in Haines Road.

[7]

In 1998, 518 negotiated a lease of Haines Road with the
Ontario Governments Parole Office, but substantial leasehold improvements were
required.

[8]

There was no equity in Haines Road at this time. TD Bank
agreed to lend the $200,000 required to make the improvements provided that Mr.
Ferracutis wife, Heather Ferracuti, gave a personal covenant secured by a
$200,000 mortgage on the Ferracutis family home, and 518 granted TD Bank a
further mortgage on Haines Road together with a postponement of North Americans
second mortgage. Mr. Ferracuti stated that the choice he faced was either
to walk away from Haines Road and be exposed to a further lawsuit on his
personal guarantee, or ask his wife to bail him out. He chose the latter.

[9]

Mrs. Ferracuti agreed to bail her husband out: she would guarantee and
provide security for the $200,000 loan from TD Bank, and, in exchange, assume
ownership of 518 and Haines Road. Mr. Ferracuti stated that in accordance with
his deal with Mrs. Ferracuti, she owned the shares in 518 and 518 owned Haines
Road. After the transfer, 518 was treated as the full owner of the property.
Had these transactions not been effected, North American would have sold the
property at a loss.

[10]

While
there is documentation relating to the transfer of the shares in 518 from
Kelton to Mrs. Ferracuti, there is no document transferring the beneficial
interest in Haines Road from Kelton to 518. Similarly, there is no document to
that effect signed by any of Kelton, 518, Mr. Ferracuti or Mrs. Ferracuti.

[11]

By
September 1999, 518 had not received any offers to purchase Haines Road. An
appraiser was therefore hired to conduct an appraisal of Haines Road, pursuant
to 518s second mortgage agreement with North American. The appraised value of
Haines Road was $1,900,000. This was $200,000 less than the encumbrances on the
property.

[12]

In
2006, the appellant was attempting to enforce his judgment against Kelton. On
September 27, 2006, he obtained a court order to examine Mr. Ferracuti in aid
of execution. On September 28, 2006, 518 granted a mortgage to Mr. Ferracuti on
Haines Road. If valid, this mortgage would take priority over the appellants
judgment.

[13]

On
October 13, 2006, Kelton made an assignment into bankruptcy.

[14]

The
appellant obtained orders under s. 38 of the
Bankruptcy and Insolvency Act
,
R.S.C. 1985, c. B-3 (the BIA), authorizing him to take proceedings for his
own benefit to recover Keltons interests in various properties including Haines
Road.

[15]

Mr.
Ferracuti died on November 18, 2009.

[16]

Prior
to Mr. Ferracutis death, on March 20, 2009, the appellant commenced an action
seeking, among other things, a declaration that Kelton (and hence the
appellant) is the beneficial owner of Haines Road and a declaration that the
transfer and acquisition of Haines Road to and from 518 constituted a
fraudulent conveyance, preference, reviewable transaction, or settlement,
pursuant to the
Fraudulent Conveyances Act
, R.S.O. 1990, c. F.29, the
Assignment
and Preferences Act
, R.S.O. 1990, c. A.33, or the
BIA
. He also
claimed oppression as against Mr. and Mrs. Ferracuti as directors of Kelton.

[17]

In
his statement of claim, the appellant pleaded that Kelton was at all material
times the sole shareholder of its wholly owned subsidiary, 518, until Kelton
transferred its shares to Mrs. Ferracuti in 1999 for no or inadequate
consideration. He claims the shares of 518 on the basis that they were
fraudulently conveyed. He also maintains that while the shares in 518 were
transferred to Mrs. Ferracuti, Keltons beneficial interest in Haines Road was
never transferred and remains with Kelton. As such, the appellant claims that
he is entitled to that property.

[18]

The
respondents brought a successful motion for partial summary judgment to dismiss
the appellants claims to an interest in Haines Road and to the shares in 518.

Grounds of Appeal



[19]

Before
this court, the appellant advances two alternative grounds of appeal.

[20]

The
appellant submits that the motions judge erred by implicitly finding that
Kelton transferred its beneficial interest in Haines Road to 518. He argues
that the motions judge missed the issue of whether there ever had been a
transfer of the beneficial interest in Haines Road and conflated it with the
transfer of the shares in 518. The appellant argues that this court should
grant summary judgment in his favour because there was no documentation
evidencing any transfer of the Haines Road property from Kelton to 518, no
evidence of a Land Transfer Tax payment, and no evidence of compliance with s.
2 of the
Statute of Frauds
, R.S.O. 1990, c. S.19.

[21]

In
the alternative, the appellant submits that if there was a transfer of Haines
Road, this court should direct the action to trial to determine whether the
purported transfer to Mrs. Ferracuti constituted a fraudulent conveyance, a
breach of fiduciary duty owed to Kelton, or was oppressive to the appellant in
his capacity as a creditor of Kelton.

Analysis

[22]

In
granting the respondents motion for partial summary judgment, the motions judge
applied the correct legal test for determining whether to grant summary
judgment. He determined that he had a full appreciation of the evidence and the
issues. As such, as this court directed in
Combined Air Mechanical Services
Inc. v. Flesch
, 2011 ONCA 764, 108 O.R. (3d) 1, at para. 71, leave to
appeal to S.C.C. granted, [2012] S.C.C.A. Nos. 47-48, any factual determinations
made by the  motions judge in deciding the motion will attract review on the
deferential standard of palpable and overriding error.

[23]

The
first issue to address is the transfer of the beneficial interest in Haines
Road from Kelton to 518. While the
Statute of Frauds
was not pleaded,
the parties made written and oral submissions on its requirements before the
motions judge. He addressed those arguments at paras. 70, 71 and 72 of his
reasons. He held that the transaction was a transfer of shares, not land, and as
such, the non-payment of land transfer tax  a possible badge of fraud  was
inapplicable. Furthermore, there were documents confirming the share
transaction.

[24]

It
would appear that the motions judge thereby accepted Mr. Ferracutis and the
respondents theory of the case that the transfer of the shares in 518 was necessarily
incidental to the completion of the larger transaction, which was the transfer
of control of Haines Road to Mrs. Ferracuti. This was done to finance leasehold
improvements on Haines Road. As 518 had always been a bare trustee, a fact the
appellant conceded, its shares were valueless. If ownership of Haines Road was
not transferred to Mrs. Ferracuti, as suggested by the appellant, she would
have received valueless shares in return for her personal covenant in favour of
TD Bank, which was secured by a $200,000 mortgage on the family home. The
respondents further submitted that the financial statements and income tax
returns of Kelton and 518 also reflected the transfer.

[25]

The
difficulty with this theory and with the motions judges analysis is that it
improperly conflates the transfer of Keltons shares in 518 with the transfer
of Keltons beneficial interest in Haines Road. By necessity, these were two
separate transactions.

[26]

Because
he conflated the two transactions, the motions judge failed to properly
consider indicia reflecting an absence of any transfer of the beneficial
interest. There was no evidence of compliance with s. 2 of the
Statute of
Frauds
, which provides that no interest in lands shall be granted or
surrendered unless by deed or note in writing signed by the party so granting
or surrendering, or by the partys agent. Furthermore, even if the
Statute
of Frauds
may in certain circumstances allow for the use of an oral
contract as a defence to an action, the motions judge made no finding of any
oral agreement between Kelton and Mrs. Ferracuti that reflected the transfer of
the beneficial interest.   Moreover, there was no evidence of any payment of the
land transfer tax which would have been payable on the transfer of the beneficial
interest in Haines Road.

[27]

The
motions judge improperly conflated the two transfers, failed to consider
material facts, and therefore erred in granting partial summary judgment. The
appeal is allowed.  It is therefore unnecessary to consider the appellants
alternative ground of appeal.

[28]

The
appellant requests summary judgment in his favour even though such a motion was
not brought below. While this court may grant such relief, in my view, this
action should be tried. The parties should give consideration to their
pleadings particularly with respect to the interplay between s. 2 and s. 4 of
the
Statute of Frauds
.

[29]

In
conclusion, I would allow the appeal, set aside the motions judges order
granting partial summary judgment, reinstate Herold J.s order of April 20,
2010, and grant a CPL in favour of the appellant together with leave to
register the CPL against title to Haines Road.

[30]

The
respondents are to pay the appellants costs fixed in the amount of $15,000
inclusive of disbursements and applicable taxes.



Released: February 27, 2013 WW



S.
E. Pepall J.A.

I
agree W. Winkler C.J.O.

I
agree Patrick Smith J. (
ad hoc
)


