A payment made to an apparent creditor is valid when the latter acts as the creditor’s representative in taking in payment proceedings

Par Robert Di Niro

Par Robert Di Niro

The Superior Court, in Gestion Nicotec Inc. v. D’Agostino, 2014 QCCS 5193, was asked to decide whether the plaintiff’s motion for forced surrender and taking in payment of two immovable properties, hypothecated in its favor as security for a loan advanced to the defendants, was justified. Prior to answering this question, the Court was asked to decide whether the capital of the loan had been paid by the defendants. The latter claim they made the payment to the plaintiff’s representative.

The facts are as follows. Giacomo D’Agostino (the defendant) was embarking in the business of exporting luxury cars to the Middle East and required financing. He approached a family friend (Ugo Celli) who along with Mr. Luigi Santoro owned Sentra Inc., a company involved in money lending and financial transactions. Mr. Santoro is also the shareholder of Nicotec, the plaintiff in the present case. Giacomo managed to obtain several loans thanks largely to the efforts of his friend Mr. Celli. The loan subject of the present litigation was obtained in July of 2011.

With the assistance of Mr. Celli, Giacomo obtained a loan in the amount of $100 000. A letter of intent dated July 6th 2011 and prepared by Sentra, outlined the terms of the loan, mainly; the amount, the term and the interest rate. On July 11th 2011, the defendants (Giacomo, Joseph and Salvatore D’Agostino) attended the notary’s office to sign the deed of loan. The said deed provides that the capital amount of the loan is $100 000, payable on January 7th 2012. It bears interest at the rate of 15% per year and two immovable properties were given as security for the loan, property [2 Street B] owned by Joseph and property [3 Street C] owned by Joseph and Salvatore. A monthly interest payment in the amount of $1 250 is also indicated. It is pertinent to note that the plaintiff Nicotec is designated as the lender on the deed of loan and that no representative of his was present at the signing of the deed. This fact is even more interesting considering that one day later, on July 12th 2011, a statement of disbursement was prepared by the notary, which makes no reference to the name of the lender.

The defendants failed to make the payment of the capital sum on January 7th 2012 and made no further interest payments. On August 12th 2012, the defendants secured another loan through Mr. Celli, this one in the amount of $450 000 and advanced by Gestion Agolin Inc. Pursuant to this loan, a statement of disbursement dated the same day indicates a payment made by the defendants to Sentra in the amount of $100 000. Following unfruitful negotiations regarding the repayment of the loan, Nicotec served a prior notice upon the defendants, on March 4th 2013, alleging an outstanding balance of $127 353.42 and requesting the surrender and taking in payment of the two immovable properties hypothecated in its favor.

The Court first analyzed whether the defendants did in fact reimburse the capital amount to Nicotec. To this question it answered yes. The Court began by outlining that a payment had indeed been made by the defendants.

“[23] The uncontradicted evidence is that the defendants paid $100 000 to Sentra on August 12th 2012. The notary responsible for the preparation of the deed of loan and the Statement of Disbursements for the Agolin loan confirmed that a payment of $100 000 was made to Sentra.”

To this it added that no evidence was provided to support the possibility that monies were due and owing to Sentra by the defendants and no explanation had been provided to justify this payment. The only conclusion being that it was intended as reimbursement for the loan.

Then the Court analyzed the relationship between the parties. It concluded that, from the defendant’s perspective, they were always dealing with Sentra and that Sentra and Nicotec were one and the same.

“[27] All discussions and negotiations with respect to the loan of $100 000 were between Celli and the Defendants. The Defendants did not even meet Santoro until they were in default of their obligations under the loan. Celli and Santoro shared the same office space.

[28] 4. [sic] The letter of intent dated July 6, 2011 indicates that Sentra, not Nicotec, was prepared to lend the $100 000 to the debtors. There is no mention that it was acting on behalf of Nicotec.

[29] The terms of the loan dated July 11, 2011 are identical to those set out in the letter provided by Sentra, except that Nicotec appears as the lender.”

It is therefore evident for the Court that Sentra, by way of its actions with the defendants in relation to this loan, was acting as a representative of Nicotec, an important notion which was not disclosed to or known by the defendants. Nicotec thus received payment for the capital.

Secondly, the Court analyzed the appropriateness of allowing the plaintiff to proceed with the forced surrender and taking in payment of both properties. It began by citing article 2778 C.c.Q. which provides that the creditor must obtain authorization from the Court to act on a prior notice of taking in payment if a debtor has discharged one half or more of the obligation secured by the hypothec at the time the creditor registers the said notice. The Court outlined that granting such authorization is a discretionary power which must consider several issues.

“[37] The Court’s discretion under article 2778 C.c.Q must be exercised judicially having regard to such factors as the value of the property and the unpaid balance of the debt.”

The Court determined that the balance owing to the plaintiff is $8 750 representing unpaid interest between the months of February 2012 and August 2012 with an interest rate of 15% per year, together with legal interest and special indemnity since February 2012. The evidence also suggests there is sufficient equity in the [3 Street C] property to cover the balance due to Nicotec. The said property also represents the asset the defendants wish to relinquish in favor of protecting the [2 Street B] property. Given these considerations, the Court decided that the motion was justified but that the taking in payment of both properties was excessive.

“[41] In view of the Court’s conclusion that the defendants have paid $100 000 and that the amount still owing is $8 750 plus interest, it would be inequitable to authorize the taking in payment of both immovable properties in order to satisfy the debt owing to Nicotec.”

In conclusion, the Court granted in part Nicotec’s motion so as to authorize it to take in payment the [3 Street C] property, but not the [2 Street B] property, as payment of the outstanding balance of $8 750, with interest of 15% per year together with legal indemnity and special indemnity since February 2012.

The integral text of the decision is available here.