Legal Blog

Foiled Again

In our newsletter of February 2012, we referred to the Ontario Superior Court decision in Mitchell Jenner & Associates Inc. v. Saunders. The debtor and his wife appealed that decision to the Ontario Court of Appeal, which recently rendered its decision.

 Recap

 Wife transferred title to the matrimonial home from wife’s name alone to husband and wife as joint tenants. She did so at the same time that husband was embroiled in a legal action with creditor, an action that ultimately produced a very large judgment in favour of creditor against husband.

 Wife transferred title because the couple wanted to mortgage the house and the mortgagee insisted on both husband and wife being on title. Shortly after the mortgage was advanced, husband and wife transferred the house back into the name of wife alone.

 Ultimately, wife sold the house and used the equity to buy another house in her name alone.

 Creditor found out what had happened and attacked the transfer from husband and wife to wife alone as a fraudulent preference and a fraudulent conveyance. Husband and wife took the position that husband had transferred his interest to wife because he was only a trustee and she was the beneficiary of that trust.

 The trial judge decided that the original transfer into joint names was not merely a change in title; it was a change in ownership, a change that the mortgagee required. The mortgagee’s lawyer, husband, and wife all certified to the mortgagee that husband and wife were the owners of the house. They did not set any limitations on that ownership.

 Once the judge made that finding, it was an easy step to find that the re-transfer was fraudulent and done to defeat present and future creditors, which is why the house was originally in wife’s name alone.

 The judge granted judgment for half of the equity in the house on the subsequent sale and awarded interest at a very high rate, the interest rate set out in creditor’s judgment against husband.

 Husband and wife appealed that decision.

 Merits

 A trial judge’s finding of fact can be overturned only if there is a palpable and overriding error in that finding. As soon as an appellate court determines that a trial judge had evidence on which to make a finding of fact, the appellant loses that issue.

 The Court of Appeal agreed with the trial judge on the two main issues. It held that there was ample evidence to support the findings that the transfer from wife to husband and wife was not a transfer in trust. There was “compliance with the mortgagee’s condition that title for the property be in their joint names, the fact that Mr. Saunders’ funds were the primary source of the purchase price, and that the subsequent sale proceeds were deposited into Mr. and Mrs. Saunders’ joint account and used in part to pay both individual and joint debts.”

 The Court also held that the trial judge had evidence on which to base her finding that, at the time of the re-conveyance, the couple had intended to defeat husband’s creditors.

 Interest

 The Court did amend the judgment regarding the interest awarded. The creditor had attacked the property transfer. However, there was no evidence that the value of the property had grown at the same rate as the interest rate to which the creditor and husband had agreed in their contract, an agreement to which wife was even not a party. Accordingly, the Court reduced the pre-judgment and postjudgment interest rates to those set out in the Courts of Justice Act.