Décision

Groupe Sutton-Royal inc. (Syndic de)					2015 QCCA 1069
COURT OF APPEAL
CANADA
PROVINCE OF QUEBEC
REGISTRY OF			MONTREAL
No:	500-09-024076-135
(500-11-042700-126)
DATE:	JUNE 19, 2015
CORAM:		THE HONOURABLE		MARIE-FRANCE BICH, J.A. NICHOLAS KASIRER, J.A. GUY GAGNON, J.A.
IN THE MATTER OF THE BANKRUPTCY OF GROUPE SUTTON-ROYAL INC.
Debtor
LAMBROS DEMOS
ANGELA BRILAKIS
GE LU
MANUEL BOTELHO
JAMES DE LA BOURSODIÈRE
APPELLANTS - claimants - petitioners
and
CRAIG CORNONI
APPELLANT - creditor - claimant
v.
DEMERS BEAULNE INC.
RESPONDENT - trustee - respondent
JUDGMENT

[1]           Lambros Demos, Angela Brilakis, Ge Lu, Manuel Botelho, James de la Boursodière and Craig Cornoni have appealed a judgment of the Superior Court, District of Montreal (the Honourable Mr. Justice Jean-Yves Lalonde), rendered on November 22, 2013, which dismissed their appeals from decisions of Demers Beaulne inc., trustee in the bankruptcy of Groupe Sutton-Royal inc., and declared the disallowance of their proofs of claim to property in possession of the bankrupt to be valid, the whole with costs against the mass of creditors.

[2]           For the reasons of Kasirer, J.A., with which Bich and Gagnon, JJ.A. agree, THE COURT:

[3]           DISMISSES the appeal, with costs against the mass of creditors.

		MARIE-FRANCE BICH, J.A.
		NICHOLAS KASIRER, J.A.
		GUY GAGNON, J.A.
Mtre Jean-Pierre Gagnon
For the appellants
Mtre Jean-Bertrand Giroux
BCF s.e.n.c.r.l.
For the respondent
Date of hearing:	April 13, 2015

REASONS OF KASIRER, J.A.

[4]           The outcome of this appeal turns on the proper characterization of title to funds held by a bankrupt real estate agency in one of its bank accounts.

[5]           The appellants are real estate brokers who say that the funds, segregated by the agency but not deposited in a formal trust account, are commissions earned by them and to which they are entitled in one way or another. They offer two alternative characterizations for the juridical nature of title to the funds. First, they claim to be the owners of the commissions. Alternatively, they say, the funds are held in trust by the bankrupt for their benefit.

[6]           In either case, argue the appellants, the funds are not “the property of [the] bankrupt / les biens [du] failli” within the meaning of section 67 of the Bankruptcy and Insolvency Act[1] and should not be made available to the mass of creditors.

[7]           The trustee in bankruptcy answers that the property, like ordinary bank deposits, is merely a claim, held by the agency in its own right, against the bank. The agency in turn owes an unsecured debt to each of the brokers corresponding to the amount of the relevant commission. The appellants, it says, must compete for payment of their respective claims pari passu with the other unsecured creditors in the bankruptcy.

[8]           The Superior Court agreed with the trustee in bankruptcy, hence the appeal.

I           Context

[9]           With leave of a judge of this Court, Lambros Demos, Angela Brilakis, Ge Lu, Manuel Botelho, James de la Boursodière and Craig Cornoni have appealed a judgment of the Superior Court which dismissed their appeals from decisions of Demers Beaulne inc., trustee in the bankruptcy of Groupe Sutton-Royal inc. The trustee disallowed their proofs of claim to property in possession of the bankrupt.

[10]        While they were described variously as real estate “agents”, “brokers” or “salespersons” in different documents in the record on appeal, the appellants were, at the relevant times, “real estate brokers / courtiers immobiliers” within the meaning of section 4 of the Real Estate Brokerage Act.[2] Until about May of 2012, they were affiliated with the firm Groupe Sutton-Royal inc., a “real estate agency / agence immobilière” pursuant to section 13 of the same Act, sometimes described as the “broker” or the “agency” in the documents on record. For ease of reference, the appellants shall be referred to herein as the “Brokers” and the bankrupt Groupe Sutton-Royal inc. shall be referred to as the “Agency”.

[11]        The parties disagree as to the legal consequences of transactions giving rise to commissions on house sales in which the Brokers and the Agency were involved.

[12]        In the course of their work, the Brokers undertook tasks relating to the purchase and sale of residential immovables. They were paid on “commission” - that is the term used in the relevant contracts - rather than by salary. Commissions were realized on sales or, exceptionally, where a sale was arranged but not completed.

[13]        The seller (or, more occasionally, the buyer) and the Agency signed “Exclusive Brokerage Contracts”, executed on a form prepared by Association des courtiers et agents immobiliers du Québec, which provided that the commissions owed on the sale of the residential immovable in question would be paid to the Agency as a percentage of the sale price. One or another of the Brokers signed the contracts, in the place on the form reserved for the signature of the Agency, along with the seller. These contracts are central to the outcome of the appeal and will be examined in further detail below.

[14]        Each of the Brokers concluded a standard-form “Sutton Group Real Estate Broker’s Contract” with the Agency. In exchange for some modest services rendered by the Agency and the right to affiliate themselves with the Agency’s franchise, the Brokers agreed to pay the Agency certain fees. The Brokers assumed most of the costs associated with their own operations. The contracts provided that they were paid an amount corresponding to commissions on sales that were concluded through their work with sellers, subject to certain conditions. The contractual terms dealing with the payment of commissions are also at the heart of the appeal, as I will explain below.

[15]        Once the seller and the buyer agreed on the terms of the sale, a date would be set for the “closing” of the transaction, generally at a notary’s office. When the deed of sale was executed, the buyer remitted the amount of the purchase price, including the commission, to the notary who deposited the funds in his or her trust account.

[16]        After closing, the notary would generally remit the portion of the price representing the commission on the sale owed by the seller to the Agency. The Agency deposited these funds in a bank account opened under its name. Later, an amount corresponding to the commission would be remitted to the Broker by the Agency.

[17]        The disputed funds relate to commissions earned on house sales that were deposited by the Agency in its bank account between April 18 and 27, 2012 but which, at the time of the Agency’s bankruptcy, had not been remitted to the Brokers.

[18]        The procedural setting for the dispute is unusual.

[19]        Prior to April 2012, the Agency had accounts at the TD Bank and the National Bank. At that time, the TD Bank undertook an examination of the business practices of the Agency, suspecting that the firm and certain of its officers were involved in fraudulent cheque-kiting operations. In April, the TD Bank froze the Agency’s accounts.

[20]        On April 17, 2012, Dominic Mammarella, the Agency’s president, arranged for two new accounts to be opened at the Bank of Montreal for the purposes, respectively, of depositing commissions on house sales and for the Agency’s current business transactions. It should immediately be noted that the account at the Bank of Montreal into which the cheques relating to commissions were deposited by the Agency was not a trust account, but a separate savings account, segregated from monies in the Agency’s current checking account. Mr. Mammarella had signing authority over both accounts.

[21]        On April 27, 2012, the amounts deposited in these two accounts, including deposits relating to the commissions on real estate transactions between April 18 and 27, 2012, were subject to a seizure before judgment by the TD Bank.

[22]        On or about May 16, 2012, the National Bank initiated proceedings to force the firm into bankruptcy.

[23]        On December 3, 2012, the Agency was declared bankrupt by a judgment of the Superior Court. The respondent was named trustee in bankruptcy.

[24]        Soon thereafter, the Brokers submitted individual proofs of claim to the trustee pursuant to subsection 81(1) of the BIA in which they asserted that they were the “owners” of amounts held “in trust” in the Bank of Montreal account in which the Agency deposited commissions. The Brokers took the view that the commissions belonged to them and, as such, the amounts in question were not “property of the bankrupt” under section 67 of the BIA. The amounts ranged from a low of $5,717.21 claimed by Mr. de la Boursodière (an amount amended at the hearing of the appeal) to a high figure of $297,785.25 claimed by Mr. Lu.

[25]        As noted, the trustee disagreed. It decided that the Brokers’ proofs of claim should be disallowed for the following reasons: the amounts had been deposited in bank accounts held by the bankrupt; the amounts were “property of the bankrupt”; and that the amounts deposited in the accounts were fungible and had been comingled with other funds held by the Agency at the bank.

[26]        The Brokers appealed the decision of the trustee to the Superior Court.

II          Judgment of the Superior Court

[27]        In a single judgment, the Superior Court dismissed all of the appeals from the trustee’s decisions and declared the disallowance of the proofs of claim to be valid.

[28]        The judge first examined the legal relationships arising out of the contracts concluded between the individual Brokers and the Agency. Noting the absence of subordination of the Brokers to the Agency, he concluded that the Brokers were independent contractors, not employees. Accordingly, he characterized the payments relating to commissions as the price of the Brokers’ services rather than as salary.

[29]        The judge observed that the Exclusive Brokerage Contracts had been concluded between the seller and the Agency. These contracts stipulated that the commissions were paid to the Agency, not the Broker. Once deposited into the Agency’s bank account, the Brokers exercised no control over these funds. Moreover, in its relationship with the bank, the Agency was a creditor and the funds in its account, being fungible, could not be “traced” as commissions belonging to any particular Broker.

[30]        In addition, the judge’s review of the evidence, including the contracts between each Broker and the Agency, allowed him to conclude that the Agency did not act as mandatary for the Brokers either when the bank account was opened or when the funds were received and deposited therein.

[31]        In the circumstances, he concluded that the Brokers had failed to show that they were owners of the funds held at the bank in the Agency’s account (para. [38]).

[32]        Applying the rules relating to the trust in the Civil Code of Québec, the judge also rejected the Brokers’ argument that the funds should be excluded from the property of the bankrupt as property held by the Agency in trust for their benefit (paras. [41] to [43]). He rejected the Brokers’ other arguments and dismissed their appeals from the trustee’s decisions.

III         Grounds of Appeal

[33]        In essence, the Brokers renew their two alternative arguments made at trial. First, they claim direct title to the commissions earned and contend that the trial judge was wrong to decide that the funds belonged to the Agency. Second, even if the money held at the bank does not belong to the Brokers, the funds are best construed as held in trust for their benefit, falling within the exception in paragraph 67(1)(a) of the BIA as “property held by the bankrupt in trust for another person”. In either circumstance, the commissions are not property of the bankrupt.

[34]        Both grounds of appeal turn in part on the meaning to be ascribed to the terms “property / bien” and “the property of [the] bankrupt / les biens [du] failli” as defined in section 2 and the relevant portions of subsection 67(1) of the BIA:

2. […] « bien » “property”   « bien » Bien de toute nature, qu’il soit situé au Canada ou ailleurs. Sont compris parmi les biens les biens personnels et réels, en droit ou en equity, les sommes d’argent, marchandises, choses non possessoires et terres, ainsi que les obligations, servitudes et toute espèce de domaines, d’intérêts ou de profits, présents ou futurs, acquis ou éventuels, sur des biens, ou en provenant ou s’y rattachant.   67. (1) Les biens d’un failli, constituant le patrimoine attribué à ses créanciers, ne comprennent pas les biens suivants : a) les biens détenus par le failli en fiducie pour toute autre personne; b) les biens qui, selon le droit applicable dans la province dans laquelle ils sont situés et où réside le failli, ne peuvent faire l’objet d’une mesure d’exécution ou de saisie contre celui-ci; […]   mais ils comprennent :   c) tous les biens, où qu’ils soient situés, qui appartiennent au failli à la date de la faillite, ou qu’il peut acquérir ou qui peuvent lui être dévolus avant sa libération, y compris les remboursements qui lui sont dus au titre de la Loi de l’impôt sur le revenu relativement à l’année civile — ou à l’exercice lorsque celui-ci diffère de l’année civile — au cours de laquelle il a fait faillite, mais à l’exclusion de la partie de ces remboursements qui : (i) soit sont des sommes soustraites à l’application de la présente loi, (ii) soit sont des sommes qui lui sont dues et qui sont saisissables en vertu d’un bref de saisie-arrêt signifié à Sa Majesté en application de la Loi d’aide à l’exécution des ordonnances et des ententes familiales dans lequel il est nommé comme débiteur;     d) les pouvoirs sur des biens ou à leur égard, qui auraient pu être exercés par le failli pour son propre bénéfice.   […]

2. […] “property” « bien »   “property” means any type of property, whether situated in Canada or elsewhere, and includes money, goods, things in action, land and every description of property, whether real or person­al, legal or equitable, as well as obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property;     67. (1) The property of a bankrupt divisible among his creditors shall not comprise   (a) property held by the bankrupt in trust for any other person; (b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides; […]   but it shall comprise   (c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt, except the portion that   (i) is not subject to the operation of this Act, or (ii) in the case of a bankrupt who is the judgment debtor named in a garnishee summons served on Her Majesty under the Family Orders and Agreements Enforcement Assistance Act, is garnishable money that is payable to the bankrupt and is to be paid under the garnishee summons, and (d) such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit. […]

[35]        Also relevant to the arguments raised on appeal are the provisions of the Civil Code of Québec that bear on trusts, including, in particular, the following:

1260. La fiducie résulte d'un acte par lequel une personne, le constituant, transfère de son patrimoine à un autre patrimoine qu'il constitue, des biens qu'il affecte à une fin particulière et qu'un fiduciaire s'oblige, par le fait de son acceptation, à détenir et à administrer.   1261. Le patrimoine fiduciaire, formé des biens transférés en fiducie, constitue un patrimoine d'affectation autonome et distinct de celui du constituant, du fiduciaire ou du bénéficiaire, sur lequel aucun d'entre eux n'a de droit réel.   1262. La fiducie est établie par contrat, à titre onéreux ou gratuit, par testament ou, dans certains cas, par la loi. Elle peut aussi, lorsque la loi l'autorise, être établie par jugement.

1260. A trust results from an act whereby a person, the settlor, transfers property from his patrimony to another patrimony constituted by him which he appropriates to a particular purpose and which a trustee undertakes, by his acceptance, to hold and administer.     1261. The trust patrimony, consisting of the property transferred in trust, constitutes a patrimony by appropriation, autonomous and distinct from that of the settlor, trustee or beneficiary and in which none of them has any real right.   1262. A trust is established by contract, whether by onerous or gratuitous title, by will or, in certain cases, by law. Where authorized by law, it may also be established by judgment.

1263. La fiducie établie par contrat à titre onéreux peut avoir pour objet de garantir l'exécution d'une obligation. En ce cas, la fiducie doit, pour être opposable aux tiers, être publiée au registre des droits personnels et réels mobiliers ou au registre foncier, selon la nature mobilière ou immobilière des biens transférés en fiducie.   Le fiduciaire est, en cas de défaut du constituant, assujetti aux règles relatives à l'exercice des droits hypothécaires énoncées au livre Des priorités et des hypothèques.   1264. La fiducie est constituée dès l'acceptation du fiduciaire ou, s'ils sont plusieurs, de l'un d'eux.   Lorsque la fiducie est établie par testament, les effets de l'acceptation rétroagissent au jour du décès.   1265. L'acceptation de la fiducie dessaisit le constituant des biens, charge le fiduciaire de veiller à leur affectation et à l'administration du patrimoine fiduciaire et suffit pour rendre certain le droit du bénéficiaire.   1278. Le fiduciaire a la maîtrise et l'administration exclusive du patrimoine fiduciaire et les titres relatifs aux biens qui le composent sont établis à son nom; il exerce tous les droits afférents au patrimoine et peut prendre toute mesure propre à en assurer l'affectation.   Il agit à titre d'administrateur du bien d'autrui chargé de la pleine administration.

1263. The purpose of an onerous trust established by contract may be to secure the performance of an obligation. In that case, to be set up against third persons, the trust must be published in the register of personal and movable real rights or in the land register, according to the movable or immovable nature of the property transferred in trust.   Upon the default of the settlor, the trustee is governed by the rules regarding the exercise of hypothecary rights set out in the Book on Prior Claims and Hypothecs.   1264. A trust is constituted upon the acceptance of the trustee or of one of the trustees if there are several.   In the case of a testamentary trust, the effects of the trustee's acceptance are retroactive to the day of death.   1265. Acceptance of the trust divests the settlor of the property, charges the trustee with seeing to the appropriation of the property and the administration of the trust patrimony and is sufficient to establish the right of the beneficiary with certainty.   1278. A trustee has the control and the exclusive administration of the trust patrimony, and the titles relating to the property of which it is composed are drawn up in his name; he has the exercise of all the rights pertaining to the patrimony and may take any proper measure to secure its appropriation.   A trustee acts as the administrator of the property of others charged with full administration.

[36]        With these provisions in mind, I turn to a consideration of the appellants’ two broad lines of argument.

IV        Analysis

IV.1     Do the Brokers have title to the funds in the Agency’s bank account?

[37]        The gravamen of this argument is that the money associated with the commissions in the Agency’s bank account belongs to the Brokers according to the terms of their individual contracts with the Agency. The Brokers say they have rightful title to the commissions held by the Agency as “property of others / bien d’autrui” within the meaning of that expression in the second paragraph of article 911 C.C.Q. (the “others”, of course, being the Brokers).

[38]        The Brokers say that the judge was wrong to find that they did not control the funds and to discount that control as proof that the commissions belonged to them. It was the Brokers, not the Agency, who negotiated the amounts with the clients and the Brokers always had the “last word” on the commissions in their dealings with the clients, the acting notaries and the Agency, all of whom followed their instructions on how the funds should be administered.

[39]        Moreover, the Brokers argue that the judge mischaracterized their contractual relationship with the Agency. A mandate existed between the Brokers, as mandators, and the Agency, as mandatary, whereby the latter received the commissions and held the funds at the bank on their behalf. The judge should have concluded that the Brokers, as mandator, owned (or had direct title to) the commissions held for them by their representative, the Agency, in its bank account.

[40]        I disagree. The trial judge was right to decide that the funds deposited in the Agency’s bank account do not belong to the Brokers and that the Agency was not acting as the Brokers’ mandatary when it received and deposited the disputed funds.

[41]        It should immediately be observed that the Exclusive Brokerage Contracts concluded between the Agency and the sellers make plain that the sellers owed the commissions to the Agency, not to the Brokers.

[42]        In that standard-form agreement, under the heading “Real Estate Broker’s Compensation”, the parties state that the seller will pay the Agency a percentage of the sale price upon signing the deed of sale. In each of those contracts, the term “broker” is defined as the Agency. The Brokers signed these “listing” agreements as representatives of the Agency but not in their own right. The Agency owed the brokerage services promised in the contract to the seller, even though the Broker, as the Agency’s representative, performed those duties. Upon sale or other triggering event, the seller owed the commission to the Agency, not to the Brokers. The Brokers may have negotiated the terms of the contract, including the amount of the commission, but they did so as intermediaries, standing between the Agency (which they represented), as one contracting party, and the seller, as the other contracting party.

[43]        The Exclusive Brokerage Contract between Groupe Sutton-Royal (defined as the “BROKER”) and Ralf Muller (defined as the “SELLER”) to list Mr. Muller’s home in Laval is typical of this arrangement. Submitted by appellant Lambros Demos in support of his provable claim, the contract indicates that Mr. Demos signed for the Agency and not in his own name. The seller and the Agency were the designated contracting parties. Mr. Demos was a “real estate broker” under the Real Estate Brokerage Act, he was not the “broker” as defined in paragraph 1 of this contract which was, in fact, the Agency.

[44]         Paragraph 7 of the contract provided, in part, as follows:

7.1       The seller shall pay to the broker [defined as Groupe Sutton-Royal, the Agency], in the cases provided for in 1, 2, and 3 of this section [i.e. the sale or other defined triggering event], upon the signing of the act of sale, compensation of: five percent (5%) of the sale price provided for in section 4.1 [i.e. the asking price], or of another sale price to which the seller agrees […].

[45]        Practically speaking, for most transactions the amount of the sale price was conveyed to the notary executing the deed of sale who, in turn, remitted the portion indicated in paragraph 7 to the Agency. This constituted payment by the seller of its debt to the Agency for the commission on sale under the contract. When payment was made, the “compensation” spoken to in paragraph 7 became part of the patrimony of the Agency.

[46]        In the event that a commission went unpaid by the seller, his or her debt would be to the Agency, not to the individual Broker who signed the agreement in the name of the Agency. Any right of action against a seller in default would be exercised by the Agency, not by the Broker who signed the contract as the Agency’s representative. Counsel for the Brokers acknowledged as much at the hearing on appeal. Indeed this fits with the generally accepted view that a broker acting for an Agency cannot renounce or waive a commission due because, quite simply, the right to claim the commission is not in his or her patrimony but rather in that of the Agency.[3]

[47]        In like circumstances, courts have not hesitated to consider that a commission is due to an agency, not to the broker who acted as intermediary between the seller and the agency as contracting parties. In Bourse immobilière I.S.I inc.,[4] for example, a commission had been paid to the agency pursuant to terms of an offer to purchase arranged by an agent. Because the agency was bankrupt, the seller, through the notary, paid the commission to the trustee in bankruptcy rather than to the agent. Invoking the terms of her agreement with the agency, the agent claimed to be the owner of the commission. The trustee answered by recognizing the agent’s claim to an amount corresponding to the commission, but said that the agent was an ordinary creditor of the agency at bankruptcy. Our Court agreed: “[…] tant en vertu du mandat donné à l’intimée [i.e. the agent] mais au nom de la débitrice [i.e. the agency], qu’en vertu de l’offre d’achat, c’est à la débitrice qu’il [i.e. the seller] doit verser la commission, cette dernière en étant l’unique créancière à son égard”. Moreover, the seller’s obligation to pay the debt to the agency was not changed by reason of the distinct contract between the agent and the agency to which the seller was not a party.[5] The reasons given in Bourse immobilière I.S.I inc., as adapted, apply to the present case.

[48]        The arrangement whereby a broker acts for a real estate agency is plainly contemplated by the Real Estate Brokerage Act and the regulations made thereunder.[6] Section 13 of the Act defines a real estate agency as a person or partnership that engages in brokerage transactions (such as house sales) “through the intermediary of one or more brokers licensed by the Organization / par l’entremise d’un courtier titulaire d’un permis délivré par l’Organisme”.[7] Section 11 provides that where brokers act “on behalf of an agency / pour une agence” rather than on their own account, they must present themselves as such to the public. Importantly, as the judge rightly noted, the understanding that the commissions are owed by the seller to the Agency is also in keeping with the requirement that the broker acting for an agency pay the “remuneration / rétribution” to the agency without delay, pursuant to section 35 of the Regulations respecting brokerage requirements, professional conduct of brokers and advertising.[8]

[49]        In short, the commission was due to the Agency in our case, rather than to the Broker who acted as an intermediary in the brokerage transaction.

[50]        The Brokers argue, however, that even if the Agency was named as the party to whom the commissions were due, it received the money and deposited it at the bank as mandatary for the Brokers. As such, the monies corresponding to the commissions now held in the Agency’s account belong to the Brokers and cannot be characterized as “property of the bankrupt” under the BIA.

[51]        In support of this argument, the Brokers contend that the standard-form “Sutton Group Real Estate Broker’s Contract” reflects the parties’ intention to have the Agency act as mandatary for each Broker when it receives funds from the seller.

[52]        Did the Agency receive the funds as mandatary for the Brokers who, as principals, were the “owners” of the commissions held in the Agency’s bank account?

[53]        While the “Sutton Group Real Estate Broker’s Contract” were not all identical, the key provision for our purposes - paragraph 3c) - was found in all of them.[9] Under the heading, “Commissions”, the contract provided: 

All gross commissions (100%) resulting from real estate transactions procured by the Real Estate Broker and received by the Real Estate Agency shall be credited to the Real Estate Broker’s account, subject to the following:

i.          the Real Estate Broker having complied with his/her obligations under this Contract;

ii.          payment of the Real Estate Broker’s expenses and fees account which were paid by the Real Estate Agency on behalf of the Real Estate Broker;

iii.         there not being any claims against the Real Estate Agency incurred by the Real Estate Broker;

iv.         there not being any third party demand or seizure;

v.         there not being any assignment of the commission by the Real Estate Broker.

[54]        The judge interpreted the clause to mean that the commission was payable by the seller to the Agency and excluded any direct right in the funds for the Brokers. The Agency was not the mandatary of the Brokers. He was of the view that the Agency had no power to represent the Brokers as is required by the rules on mandate at article 2130 C.C.Q. Once the funds were deposited in its account, the Agency had a claim against the bank in its own right and, at the same time, owed a debt to the Brokers.

[55]        The Brokers say the judge misread the contract. They note the representative of the Agency, Mr. Mammarella, testified that, pursuant to that arrangement and the parties’ other dealings, the Agency understood that it had merely received the commissions on behalf of the Brokers rather than in its own right.

[56]        The matter turns largely on the interpretation of the agreement between the Broker and the Agency. The proper reading of a contract, insofar as it required the judge to discern the intention of the parties, raises a question of fact or, at best, a mixed question of law and fact. In either case, this Court owes deference to the judge’s view, and will only disturb his findings if a palpable and overriding error has been shown.[10]

[57]        I see no reviewable error by the judge here.

[58]        While the contracts are not free from ambiguity, it was reasonable for the judge to conclude that the parties recognized that the Agency was paid the commission by the seller in its own right and that it then owed a corresponding but potentially lesser debt to the Brokers. As specified in paragraph 3c), this debt owed to the Brokers was conditional on, in particular, the Broker having complied with his or her obligations under the contract with the Agency. The agreement does not suggest that the parties intended to vest title in the commission directly with the Brokers or that the Agency received the funds on their behalf as the Brokers’ mandatary. Instead, the parties state that the commission received by the Agency be “credited” to the Broker’s “account”, and only if a series of conditions are met.

[59]        Other provisions of the contract support this view of parties’ intention. Paragraph 3b) provides that if the Agency has paid expenses of the Broker, these amounts be deducted from sums otherwise due to the Broker. Paragraph 3d) also speaks of the Broker’s “account” which is only credited when a transaction is complete, consonant with a debtor-creditor relationship and not one whereby the Agency merely holds property that belongs to the Broker. Paragraph 8 states that all monies received by the Broker in connection with a transaction “be delivered to the Agency immediately” which reflects not only the requirements of section 35 of the regulations described above, but also the idea that the Agency, not the Brokers, have direct title to the commissions.

[60]        Finally, nothing in the evidence adduced at trial would suggest that the Agency was acting as mandatary for the Broker when it deposited the funds in its account. On the contrary: the Sutton Group Real Estate Broker’s Contract points instead to a relationship whereby the Broker represents the Agency, not the reverse. Paragraph 5 indicates that the Agency has the ultimate control over the listing by giving it the right to reject any listing proposed by the Broker that it deems unsatisfactory. The Broker plainly has some authority to represent the Agency - as noted above, he or she signs the Exclusive Brokerage Contract with the seller in name of the Agency as contracting party[11] - but the appellants point to no provision in the contract that indicates that they are the mandators and the Agency is the mandatary.

[61]        The Brokers cite the testimony of Agency president Mammarella in support of the argument that they gave the firm a mandate to hold the funds. Mr. Mammarella explained that once a sale was concluded, one of the services that the Agency provided to the Broker was to send an invoice for the amount of the commission to the notary “on their behalf”. The notary would then send a cheque in the amount of the commission to the Agency. When asked what “on their behalf” meant, Mr. Mammarella explained that the Agency considered the commission belonged to the Broker and that the cheque, when received from the notary, would be deposited in the Agency’s “commission account” pending its remittance to the acting broker. This aligned with the testimony of some appellants who said that they received 100% of the commissions from the Agency, negotiated in advance by themselves, upon sale.

[62]        The judge declined to take Mr. Mammarella’s testimony as proof that the Agency was mandatary for the Brokers who were entitled to the commissions directly. The Brokers have shown no overriding error in his treatment of this aspect of the evidence.

[63]        Mr. Mammarella misstated the Agency’s right under the contract that expressly allows it to deduct a Broker’s indebtedness from the gross amount of commissions he or she generated on behalf of the Agency. The judge was right to say that once the seller paid the commission to the Agency, and after the funds were deposited by the Agency in its account, the Brokers had no legal power to control the funds.[12] While the Brokers did negotiate the amount of the commission due to the Agency under the Exclusive Brokerage Contract, they did so as “intermediaries” - again, that is the term used in section 13 of the Real Estate Brokerage Act - and as representatives of the Agency vis-à-vis the seller. Their status is confirmed in other dealings with the clients including in the standard-form “Promise to Purchase” from the Association des courtiers et agents immobiliers du Québec. This latter document, submitted by certain of the appellants in support of their claims before the trustee in bankruptcy, provides in paragraph 2 that the buyer promises to purchase the house in question “through” the Agency, as “represented by” the Broker. Once again, this tends to show the Broker acting for the Agency and not the reverse.

[64]        Moreover, it is clear from his reasons that the judge did not accept Mr. Mammarella’s assertion that the funds “belonged” to the Brokers or that they were collected on the Broker’s “behalf”. While he did not impugn the credibility of Mr. Mammarella explicitly in his reasons, the circumstances were such that the judge was entitled to discount his testimony, as the judge made plain in his exchanges with counsel at the hearing at trial. The Agency was suspected of involvement in a cheque-kiting arrangement. Whether or not Mr. Mammarella was directly involved - the record is silent on this point - he was president of the company at the time.

[65]        In sum, the Brokers have failed to show that the judge erred when he held that the Brokers were not “owners” of the funds deposited by the Agency in its bank account.

IV.2     Are the funds held in trust by the Agency?

[66]        As an alternative to the argument that they have title to the commissions, the Brokers contend that the Agency holds the funds for them in trust. Relying principally on paragraph 67(1)(a) of the BIA, the Brokers argue that the funds, as trust property, should not be available to the mass but remitted to them instead.

[67]        The judge gave three reasons for deciding that the property was not held in trust for the Brokers. First, he observed that the commissions were not deposited into a trust account. Second, he wrote that since the Brokers never had title to the funds, they could not have settled the property in a trust under article 1260 C.C.Q. Thirdly, the judge noted that the one species of trust that might arise on the facts was what he called a “fiducie par interprétation (implied trust)” with its related rule of tracing of property. In his view, this trust, while known to the common law, was not part of Quebec law.

[68]        The Brokers argue that the judge was mistaken in his interpretation of trust principles as they are relevant under subsection 67(1) of the BIA. They point to two broad categories of error here. First, the judge erred by applying the civil law of trusts in the bankruptcy setting. Second, and in the alternative, he was mistaken in deciding, on the evidence, that no trust was constituted pursuant to the rules set out in the Civil Code of Québec. Both points are deserving of comment.

IV.2.a  The application of civil law trust principles in the bankruptcy setting

[69]        The appellants say that by drawing only on trust principles developed in Quebec civil law, the judge adopted too narrow an understanding of the “trust / fiducie” as referred to in paragraph 67(1)(a) of the BIA. They argue that bankruptcy law requires a more liberal understanding of the expression “property held in trust” in Quebec, consonant with the law applicable elsewhere in Canada.

[70]        As a matter of fairness, they add, creditors in their circumstances should be treated uniformly across Canada in a bankruptcy setting. Citing in particular the British Columbia case of Midland[13] where commissions were considered to be held in trust for brokers by a real estate agency, they argue that the commissions should be excluded from “property held by the bankrupt in trust for any other person” in Quebec as they would be under trust law elsewhere in Canada.

[71]        I disagree. The judge was quite right to apply the rules on the trust in the Civil Code of Québec to determine whether the funds in the Agency’s account were held in trust for the purposes of the BIA. Moreover, there is nothing inherently unfair about Quebec law departing from the rules applicable to trusts in bankruptcy matters elsewhere in Canada in like circumstances.

[72]        The civil law of general application - the droit commun in matters of property and civil rights in this province - “completes federal legislation” when applied in Quebec, unless otherwise provided by law.[14] In the absence of contrary direction, when the general law of property and civil rights is relevant in interpreting a federal enactment, “reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied”.[15]

[73]        This so-called relationship of “complementarity”[16] between the law of general application in the province or territory (be it common law or civil law) and federal legislation, rooted in the bijural vocation of federal legislative enactments, is now widely recognized as relevant to the Bankruptcy and Insolvency Act.[17] This includes the interpretation of the concept of the trust alluded to in the BIA.[18] The Court recently confirmed the application of these principles in Salaberry-de-Valleyfield (Ville de) v. Lavigne, in which my colleague Dufresne, J.A, wrote “[lorsque] le texte législatif fédéral utilise une notion ou un terme appartenant au droit civil, sans lui donner de signification particulière, on conclura qu’il a un rapport de dépendance implicite avec le droit civil”.[19]

[74]        The term “trust / fiducie”, which is not defined for our purposes in the BIA, bears a different meaning in the common law and the civil law.[20] In the circumstances, section 8.2 of the Interpretation Act confirms that for a term such as this, “the civil law meaning is to be adopted in the province of Quebec”.[21] It should be recalled, as well, that the BIA does not abrogate or replace provisions of general private law where the latter is not in conflict with the Act.[22] When answering, therefore, the question as to whether the funds held by the Agency are “property held by the bankrupt in trust for any other person / les biens détenus par le failli en fiducie pour toute autre personne” in paragraph 67(1)(a) of the BIA, the general Quebec law of trusts applies, as principally set out in articles 1260 et seq. C.C.Q., unless otherwise provided by law. The judge made no mistake on this point.

[75]        Unlike the word “trust / fiducie”, however, the term “property / bien” in the expressions “property of the bankrupt” and “property held by the bankrupt in trust” in section 67 of the BIA is defined in section 2 of the BIA, quoted above. While the term “property / bien” also has different meanings in the two legal traditions, Parliament has displaced the principle of complementarity and provided a single definition in the BIA for the common law provinces and territories and for Quebec.

[76]        Thus, for the exception in paragraph 67(1)(a) to apply in the instant case, the disputed funds must constitute “property” under s. 2 of the BIA and be held by the bankrupt in “trust” pursuant to articles 1260 et seq. C.C.Q.

[77]        How does the civil law of trusts complete federal bankruptcy law here?

[78]        Some commentators have observed that subsection 67(1) and paragraph 67(1)(a) BIA create a redundancy in Quebec law.

[79]        On this view, because it is transferred to an autonomous patrimony by appropriation over which a trustee has no real right (articles 1260 and 1261 C.C.Q.), trust property must necessarily understood to be property that belongs to someone other than the trustee. As such, it cannot be “property of a bankrupt / bien du failli” pursuant to subsection 67(1) of the BIA. On that basis, the exception in paragraph 67(1)(a) is said to be superfluous in Quebec law as trust property is already excluded from distribution to the mass.[23] The Brokers raise this point in support of the view that the Quebec law of trusts creates a logical inconsistency in bankruptcy law and should therefore not apply to the BIA as the suppletive law.

[80]        I disagree.

[81]        The narrow issue here is whether the disputed funds, on the assumption that they are held by a trustee, are “property” within the meaning of the BIA, not whether they are property under the Civil Code. The term “property / bien” is defined more broadly in the BIA than is “property / bien” in the civil law, where that concept is understood as a synonym for patrimonial right.[24] In my view, the text of section 2 of the BIA uses language sufficiently wide in scope to include the interest of a trustee in a Quebec trust even if such trustee has no real right, in the civilian sense, in the trust property.[25]

[82]        The scope of section 2 of the BIA was considered wide enough by the Supreme Court in Ramgotra to include the legal title of the trustee in common law even though that title provides no beneficial enjoyment of the property for the trustee.[26] While articles 1261 and 1278 C.C.Q. only invest a trustee with powers of administration and not patrimonial rights that may be exercised to his or her own advantage, the titles to trust property are “drawn up / établis” in the name of the trustee and he or she has the “control / maîtrise” of the funds.[27] For bankruptcy law, this is a sufficient interest to fall within the definition of section 2, subject to the possibility of demonstrating that the property is excluded under paragraph 67(1)(a) pursuant to applicable provincial law. This is how the analysis proceeded in Ramgotra for the common law and how I propose to treat this narrow issue here.

[83]        I take section 2 of the BIA to be an injunction from Parliament to adopt a broad definition of property as a matter of fairness to the mass, while leaving open the possibility for a person filing a proof of claim to demonstrate that the bankrupt holds the property in trust. This reading conforms both to subsection 72(1) of the BIA and the principle of complementarity noted above. Moreover, I think one should avoid interpreting, where possible, a provision of bijural federal statute law in a manner that leaves it with no meaning in Quebec. The reading proposed here thus has the additional virtue of respecting the presumption that in enacting legislation, Parliament avoids using superfluous words.[28]

[84]        One last argument in respect of the application of Quebec trust law to the present case by the judge remains outstanding.

[85]        The Brokers say that the application of Quebec law creates an injustice to them as creditors. They point to cases decided outside Quebec, in particular the B.C. case of Midland, in which real estate agents were able to avail themselves of the exception in the BIA that the property of the debtor was held for them in trust. If brokers in the common law provinces and territories are treated favourably in bankruptcy law that is applicable across Canada, they say, so should their counterparts in Quebec.

[86]        Again, I disagree.

[87]        Insofar as those cases rely on a conception of the trust not recognized by Quebec law, they are not useful for interpreting “property held in trust” under paragraph 67(1)(a) in this province. While different from that which might obtain elsewhere, this outcome is not unfair to the Brokers as creditors of the Agency here.

[88]        The appellants have wrongly conflated fairness in the application of the BIA across Canada with uniformity of treatment. The Federal Law - Civil Law Harmonization Act explicitly allows for a varying interpretation of rules set forth in federal legislation depending on the province of application. This is indeed what the B.C. Supreme Court did in Midland: it applied the law of trusts based on the law of general application of the province - the common law in British Columbia - as the basis for finding that a trust existed on the facts of that case.[29] The judge in our case did the same thing here, correctly applying Quebec law.

[89]        In the bijural setting in which federal legislation applies, this variation may be seen itself to be a reflection in law of an ideal of fairness inherent in Canadian federalism. In other words, on a proper understanding of the relationship between the provincial law of general application and federal legislation, uniform treatment of a federal statute across the country that does not allow for variance according to the underlying civil law or the common law, as the case may be, might actually be the source of unfairness, not the reverse. Of course, where Parliament is of a mind to impose rules uniformly, irrespective of the province or territory of application, it is free to do so. There is no such direction for the meaning of “trust / fiducie” in paragraph 67(1)(a) of the BIA; in my view, to exclude the distinctive rules on the trust in the Civil Code in service of uniform treatment of trusts across Canada would be unfair to the mass of creditors in this case.

[90]        In sum, therefore, the judge was right to decide that the Brokers could not rely on the trust principles in the common law as a basis for their position that the Agency held the commissions for their benefit for the purposes of paragraph 67(1)(a). He correctly stated that a fiducie par interprétation, in the sense of a judge-made constructive trust known to the common law, is not provided for in the Civil Code of Québec. While article 1262 C.C.Q. does stipulate that, where authorized by law, a trust may be established by judgment, there is no relevant authorization here.

[91]        The judge was correct as well to say that the “implied trust” of the common law is not relevant under the Civil Code insofar as that idea is understood as allowing a judge to establish a trust as a remedy in the absence of a settlor’s intention to do so. The intention of a settlor to transfer property to a patrimony by appropriation is essential to the constitution of a trust pursuant to article 1260 C.C.Q. Where the implied trust is considered to be “implied by law”, as opposed to inferred from the intention of the parties, I would agree that, with the exception of the trusts alluded to in article 1262 C.C.Q., a judge has no relevant power in these circumstances. However, where the term “implied trust” is used to suggest the existence of a trust based on an inference of the parties’ intention to create a trust, Quebec law is - as I shall discuss below - more receptive to the idea. It is of course not merely because terms such as “implied trust” or “purpose trust” have no currency in Quebec that they should be discounted here: the relevance of these categories depends on whether the requirements for the constitution of a valid trust in Quebec are present or absent on the facts of a given case.[30]

[92]        Having ascertained that the judge made no mistake in choosing to apply Quebec civil law in interpreting paragraph 67(1)(a) of the BIA, it remains to be considered whether he erred, as the Brokers argue, in his application of that law in this case.

IV.2.b  Does the Agency hold the property in trust for the Brokers?

[93]        The Brokers argue that even if Quebec law applies, the judge should have held that a trust had been properly constituted. They say that the evidence shows that the Agency intended to establish a trust in favour of the Brokers when it received and deposited the commissions in the segregated bank account. Contrary to what the judge decided, this was a valid “implied trust”, or “de facto trust”, that meets the requirements of Quebec law even in the absence of a formal deed of trust. Again they invoke the Midland case, but this time by analogy, saying that Quebec law, like the common law, recognizes a trust based on intention of the parties that was implicitly expressed by them in their dealings. According to the Brokers, the Agency holds the commissions not as title-holder in its own right but as trustee under a de facto trust.

[94]        In the circumstances, they contend, the commissions held on deposit in its bank account cannot be considered “property of the bankrupt” by reason of the exception in paragraph 67(1)(a) of the BIA.

[95]        The trustee in bankruptcy answers that article 1262 C.C.Q. does not allow for an implied trust created by judgment, noting that, as a general rule, the legislature permits trusts established by contract or by will, not by interpretation.

[96]        With respect, the trustee in bankruptcy has mischaracterized the position of the Brokers in this regard. In this part of their argument, they do not seek an order imposing an analogue of the common law’s judge-made, constructive trust as a means of excluding the commissions held by the Agency from bankruptcy. Instead, they argue that, on the facts of this case, the parties have intentionally established a trust by contract without using the formal language found in the Civil Code. They argue that a trust bearing on the commissions results from the intention of a settlor - here either the Brokers or the Agency - to transfer property from its patrimony to a patrimony by appropriation constituted for the benefit of the Brokers. It is in this sense - like in the Midland case - that the trust may be said to be implied yet nevertheless be established by contract, and not by a judgment.

[97]        Is an “implied” or “de facto” trust like the one in Midland possible in Quebec law and, if so, does such a trust exist on the facts of this case?

[98]        The judge considered this argument, at least in part, when he decided to set aside the Brokers’ claim based on the existence of a “fiducie de facto, concept encore non approuvé par les tribunaux civils” (para. [41]). He observed - quite rightly in my view - that the Brokers could not have been settlors of the trust because the commissions were never in their individual patrimonies. If the Brokers did not have title to the commissions, they could not transfer those funds to a patrimony by appropriation as article 1260 C.C.Q. requires. 

[99]        The judge did not explicitly consider, however, the more plausible theory that the Agency was the settlor of a “de facto” or “implied” trust, based on the intention of the parties, and that the Agency, too, was the trustee of this trust. There is no bar in Quebec law for a person to be at once settlor and trustee, subject to certain conditions set forth in particular at articles 1274 and 1275 C.C.Q.

[100]     As long as the requirements for the establishment of a trust set forth in articles 1260 et seq. C.C.Q. are satisfied, the fact that the parties did not use express terminology of the trust in their dealings is not, in itself, an impediment to the constitution of a trust.[31] The key consideration is whether the settlor’s intention to do so and the trustee’s intention to accept are clearly shown as a matter of evidence.[32] Article 1260 C.C.Q. provides that a trust results from a juridical “act / acte”. Here it would be a contract, as permitted by article 1262, between the Agency and each of the individual Brokers: a contract that is not subject to rules of formal validity for trusts established by gift or other formalistic juridical acts.[33]

[101]     Did the Agency, by juridical act, transfer its property right in the commissions from its patrimony to another patrimony, constituted by it, for the purpose of benefitting the Brokers, as required by article 1260 C.C.Q.? Did a trustee validly undertake, by its acceptance, to hold and administer the property in the patrimony by appropriation to that end as required by articles 1260 and 1264 C.C.Q.?

[102]     All the essential elements for a trust established by contract are present, say the Brokers, even if the word “trust” is not used in any of the relevant documents. Reasoning by analogy from the facts in the Midland case, they argue that pursuant to the Sutton Real Estate Brokerage Contract, as well as the arrangement the Agency had with its clients and the bank, the Agency transferred its property right in the commissions to another patrimony, represented by the segregated bank account. By depositing the funds there, the Agency accepted to administer the patrimony for the benefit of the Brokers until such time they were paid according to the terms of the Sutton Real Estate Brokerage Contract.

[103]     Not only did the judge fail to consider the possibility that the Agency was the settlor of the trust, they argue, but he wrongly distinguished the Midland case. Contrary to what the judge wrote in paragraph [40] of his reasons, the agency in Midland just like the Agency in our case, did not hold the commissions in a trust account.[34]

[104]     In Midland, the Supreme Court of British Columbia did indeed recognize a trust in circumstances approximating the case at bar on the basis of the intention of the parties. As in our case, the real estate salespersons were independent contractors who were entitled to funds corresponding to 100% of the commissions, less certain expenses. The commissions were paid to the agency. The trustee in bankruptcy for the agency disallowed the salespersons’ proofs of claim. After examining the contract between the agency and the salespersons, Cohen J. concluded that the agency had undertaken to hold the commissions in trust:

[43] When I consider the relationship between Midland and the appellants, as agreed to by the parties in the Independent Contractor Agreements, the nature of the "100% House" business arrangement in general and the conduct of the parties, it is clear, I think, that the parties fully intended that while Midland would hold legal title to the appellants' commissions in order to comply with the Real Estate Act, beneficial ownership in the commissions would at all times rest with the appellants.

[105]     Mindful of the requirements of Quebec law for the establishment of a valid trust, I am of the view that Midland is of limited persuasive value here. The evidence does not support the Brokers’ argument that the Agency intended to create a trust - even an “implied” or “de facto” one - pursuant to the conditions set forth in the Civil Code.

[106]     It is certainly true that a juridical act establishing a trust in Quebec law need not, in circumstances like ours, take the formal shape of a deed of trust. The settlor must, however, at a minimum, effect a transfer of property from his or her patrimony to a distinct patrimony that he or she constitutes.[35] Accordingly, the act establishing the trust must be a “translatory act / acte translatif”[36] of property, in that the settlor must intend to “divest” himself or herself of title to the property.[37] This transfer of property is complete in that the settlor no longer holds the right in a manner that affords him or her beneficial enjoyment (article 1261 C.C.Q.). A settlor who continues to administer the property as a trustee has “control and administration of the property”, as noted above, but the titles are drawn up in his or her name as trustee only (article 1278 C.C.Q.).

[107]     There must also be reliable evidence that the settlor - here the Agency - established an autonomous patrimony into which the funds were transferred. The facts must disclose that the Agency appropriated this patrimony to the purpose of paying the commissions to the Brokers, as beneficiaries (articles 1260 and 1261 C.C.Q.).

[108]     In addition, the Agency must have accepted the property and undertake, by that acceptance, to hold and administer it as a trustee in order to perfect the trust (articles 1260, 1264 C.C.Q.).

[109]     In my view, the evidence of all these essential elements for the establishment of a trust is lacking.

[110]     In our case, the Agency transferred the funds representing the commissions to a segregated bank account in its name over which its officer, Mr. Mammarella, had sole signing authority.

[111]     The Agency continued to have title over the funds deposited in the account, even if that account was separate from its operating account. The funds remained in the Agency’s patrimony and, contrary to the requirement of article 1260, they were not transferred out of that patrimony to an autonomous patrimony by appropriation.

[112]     It is of course true that a trustee can be the nominal holder of a bank account in which, pursuant to article 1278 C.C.Q., he or she exercises the powers associated with the role of administrator of property of others. But while a trustee has full administration of the trust patrimony, funds in circumstances like ours are not in his or her own patrimony. The judge held, in interpreting the contract between the Brokers and the Agency, that the latter never divested itself of title to the commissions. Moreover, for a valid trust to be constituted, the funds cannot continue to belong to the settlor as is the case here. As articles 1260, 1261 and 1265 C.C.Q. make plain, the settlor must have divested himself or herself of the property through the translatory juridical act establishing the trust.

[113]     The evidence here does not establish with the requisite degree of certainty that the Agency, as settlor, transferred the property to a patrimony by appropriation to be administered, not as title-holder of the funds in its own right, but as trustee. Instead, as the judge noted, paragraph 3c) and the rest of the agreement indicate that the Brokers’ accounts are credited an amount which is owed directly to them by the Agency. That personal right is not of the order of a claim that a beneficiary has against a trust patrimony under the Civil Code.

[114]     What is particular about our case is that the same person - the Agency - is purported to be settlor of property and, after the transfer, trustee over the same property. While this is indeed possible in Quebec law, it means, as an evidentiary matter, that the transfer of property from the settlor’s patrimony to the patrimony by appropriation must be particularly clear, otherwise there is a risk that the settlor merely transfer property ‘from one pocket to another’ within his or her own patrimony. This is not the translatory act required by article 1260 C.C.Q.

[115]     A distinction - a critical one - can be drawn between the law of trusts in the common law and the civil law on this point. Both traditions allow a settlor to establish a trust in respect of which he or she will act as trustee. In the common law, however, the settlor who remains trustee after the establishment of the trust retains legal title to the property. While Quebec civil law, as noted, requires the transfer of property from the patrimony of the settlor to a distinct patrimony by appropriation, the common law requires no such transfer. Unlike article 1260 C.C.Q. which requires a translatory act for the establishment of a trust in these circumstances, the settlor in the common law merely declares that a trust exists because he or she continues to hold the legal title, as trustee, without the need of any transfer of the trust property.[38]

[116]     The absence of proof of transfer of property by the Agency out of its patrimony to a patrimony by appropriation is thus fatal to the establishment of a trust under article 1260 C.C.Q. in our case. Because there is no such legal requirement in the common law, it was not a bar to the establishment of a trust in Midland.

[117]     Moreover, there must be evidence of the establishment, by the settlor, of a patrimony by appropriation in Quebec law. Proof of this is also is lacking in the record.

[118]     Absent any other evidence to this end, the opening by the Agency of a designated bank account into which the commissions were deposited falls short of that requirement, at least on the facts of this case. The patrimony created by the settlor must be a true patrimony, that is to say a universality of rights and obligations, and not just a different mass of property, however distinct it might be in appearance.[39] The fact that the account is segregated was, to be sure, an indication that the Agency wished to keep those funds separate from its operating account. But, on its own, this is insufficient in the circumstances to establish that the Agency had divested itself of the property such that the funds no longer belonged to it and transferred it to a new patrimony appropriated to the purpose of benefiting the Brokers.

[119]     I note that in the agreement it signed with the bank for the opening of the account, the Agency specifically wrote that the account was not a trust account (although this would not, on its own, have been dispositive of the matter).

[120]     I note as well that in paragraph 26 of the Franchise Agreement concluded by the Agency, as franchisee, and Sutton (Québec), Services Immobiliers Inc., as franchisor, the Agency had the obligation to maintain a separate “commission account” from the account used for deposits on houses by clients. This is a ready explanation as to why a separate account was created for commissions and further impugns the argument that the segregated account was a separate patrimony in respect of which the Agency had divested itself of title to the contents.

[121]     Most importantly, I am not convinced that the evidence disclosed that the Agency was no longer title-holder to the funds in its own right. As noted about, its relationship with the seller, as evinced by the Exclusive Brokerage Contract, gave rise to an ordinary debtor-creditor relationship whereby the Agency held a claim, in its own right, to the commissions. The relevant clauses of the Sutton Real Estate Brokerage Contract between the Agency and the Brokers supported a further but equally ordinary debtor-creditor relationship whereby the Brokers have a personal right of claim against the Agency for an amount of money corresponding to the commissions.

[122]     Nothing in that agreement suggests that the Agency was not free to do what it wanted to with the funds it received from the seller. Even a trustee charged with the full administration of property is constrained in its powers to deal with the trust property as it sees fit: a trustee certainly cannot, for example, use the trust property for his or her own needs or purposes (article 1310 C.C.Q). While in Midland, the facts encouraged the British Columbia court to take the view that “Midland could not use the appellants’ commissions as it saw fit […]”,[40] no evidentiary basis for this substantial restraint on property rights has been shown to obtain against the Agency here. The absence of such constraint is, on the facts of our case, incompatible with the Agency’s position that it accepted to act as trustee.

[123]     Finally, there are other impediments to the proper constitution of a trust here. The identity of the trustee is uncertain. At first blush, the status of the Agency as a legal person presents a bar to it acting as a trustee given the requirement, at article 1274 C.C.Q., that apart from legal persons authorized by law, only natural persons may act as trustees. And while I recognize that some scholars have criticized article 1274 C.C.Q.,[41] I note that even if one was to allow the Agency to act as trustee, article 1275 C.C.Q. requires that, as settlor, another trustee who is neither settlor nor beneficiary accompany it in the administration of the trust. Who would that other person be here? Mr. Mammarella, the Agency’s president, comes to mind, although his non-arm’s-length relationship with the Agency makes it difficult to suppose that he has the requisite independence from the settlor in the circumstances.[42] In any event, no clear evidentiary basis was presented to suggest that either the Agency or Mr. Mammarella accepted the charge of trustee, a requirement under articles 1264 for the constitution of the trust and at article 1265 for the settlor to be divested of the property. In my view, a declaration of the sort made by Mr. Mammarella that the property “belongs” to the Brokers”, or that it is held “on their behalf”, is insufficient to prove acceptance of the solemn charge of full administration of property of others in the circumstances.

[124]     On the other hand, I am respectfully unable to agree with the judge that once the funds were deposited in the bank account, they lost their identity and could not be traced to the commissions as property settled in trust. Where funds are placed in a segregated bank account under the control and administration of a trustee, they do not necessarily lose their identity as trust property.[43] In this case, the difficulty in tracing the property is not a bar to the establishment of a trust; it is mistaken to suggest that “tracing”, as it is known to the common law, is not relevant to the Quebec law of trusts given the nature of a trustee’s powers of administration and the manner in which the trust patrimony acts as a fund of value.[44] That said, the error is not an overriding one. On the facts of this case, then, I agree with the judge’s ultimate conclusion that there was no valid trust established to benefit the Brokers here.

[125]     To conclude, the commissions do not belong to the Brokers and the funds in the Agency’s bank account are not held in trust for the benefit of the Brokers. The judge was right to conclude that the Brokers failed to demonstrate that the monies were not “property of the bankrupt” under section 67 of the BIA. I would confirm the decisions of the trustee in bankruptcy to disallow the Brokers’ proofs of claims, confirm the conclusions in the Superior Court and dismiss the appeal.

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[126]     The judge showed an admirable measure of sensibility to the Brokers in his reasons, expressing his “empathy” for their plight in these singular circumstances. He dismissed their claim without costs. I propose to follow that example; I note that the trustee in bankruptcy invited the Court, if the appeal proved unsuccessful, to order costs to be paid by the mass of creditors, not the Brokers. That said, I am inclined to think that the injustice that might be felt by the Brokers at the outcome here should be laid at the feet of the Agency, and not at the feet of the law of bankruptcy as applied in Quebec. The law weighs the just claims of all creditors upon the distribution of the property of the bankrupt. I am of the respectful view that finding for the appellants here would be both mistaken and unjust to the unsecured creditors of the bankrupt who, it may be noted, include other brokers seeking payment of unpaid commissions from the Agency.

[127]     Nevertheless, given the unusual circumstances leading to the bankruptcy and the suggestion of the respondent, I propose that the Court exercise its discretion under article 477 C.C.P. and, in dismissing the appeal, do so with costs against the mass and not the respondents.

	NICHOLAS KASIRER, J.A.