CITATION: Capmor Financial Services Corporation v. Sibilia, 2011 ONCA 151 |
DATE: 20110301 |
DOCKET: C51494 |
COURT OF APPEAL FOR ONTARIO |
Rosenberg, Feldman, Juriansz, JJ.A. |
BETWEEN |
Plaintiff (Respondent) |
and |
Victor Sibilia |
Defendant (Appellant) |
Helen A. Daley, for the appellant, Victor Sibilia |
Benjamin Salsberg, for the respondent, Capmor Financial Services Corporation |
Heard: February 2, 2011 |
On appeal from the order of Justice Spies of the Superior Court of Justice, dated December 7, 2009. |
[1] The respondent sued the appellant for arrears owing on an equipment lease more than two years after the appellant’s co-lessee defaulted on the lease by going bankrupt, and after both lessees then failed to make the next payment. The motion judge held that the lease signed by the two co-lessees amounted, in effect, to two separate leases and that the two year limitation period had not run against the appellant on his lease. For the reasons that follow, I would allow the appeal.
[2] The appellant Sibilia owned two companies, Enviro Tire Technologies Ltd. and 1446968 Ontario Ltd. Enviro was in the rubber recycling business, operating out of premises owned by 144, and using two pieces of large equipment, a flocking machine and an oven, both of which were leased from the respondent. The oven lease was entered into by Enviro and Sibilia as “co-lessees”. The lease provided in paragraph 29 that “if more than one lessee is named in this lease, the liability of each shall be joint and several.” The lease commenced on August 1, 2004.
[3] Enviro was sold to Unisphere, a public company, sometime after the lease was entered into, and before it made an assignment in bankruptcy in February, 2005. The February lease payment was not made.
[4] The appellant later met with the Chairman of the respondent and made an oral arrangement regarding the oven. After hearing the evidence of the parties, the trial judge made the following finding:
I find that it was agreed that while efforts were being made to sell the Equipment, Mr. Sibilia would not have to make the monthly payments on the oven lease and during that period of time those payments would in effect be forgiven, and Capmor would not have to make any payments for storage of the Equipment in the Leased Premises.
[5] Eventually, 144 sued Capmor for storage fees for the oven before it was ultimately sold, and Capmor sued Mr. Sibilia for the amount owing under the oven equipment lease. The two actions were tried together.
[6] The trial judge granted judgment in favour of Mr. Sibilia in the 144 action on the basis of quantum meruit, finding that Mr. Sibilia and 144 had effectively terminated the oral agreement on October 1, 2005, and that Capmor was responsible to pay storage rent to 144 from November 1, 2005 until December 22, 2006, the date the oven was sold. She found that the oven was stored by 144 to the benefit of Capmor, and that Capmor’s conduct constituted acquiescence in that it accepted the ongoing storage of the oven. It would have been unjust not to hold Capmor responsible for the fair value of the cost of storage. 144 was entitled to be compensated for the reasonable value of the storage and dismantling of the equipment. The judgment in the 144 action was not appealed.
[7] In the Capmor action, the trial judge granted judgment in favour of Capmor, finding that Mr. Sibilia’s obligation to make the monthly payments under the lease resumed as of November 1, 2005 and that Mr. Sibilia remained responsible as a co-lessee under the lease. Neither action was pleaded or argued on the basis of equitable set-off, which may have avoided the limitations issue but raised other issues such as mutuality between 144’s claim for storage fees and Capmor’s claim for unpaid rent pursuant to the lease, in the period following the termination of the oral agreement.
[8] This appeal deals only with the Capmor action, and specifically, only with the issue of whether the action was statute-barred.
[9] On the limitation issue, the trial judge first accepted Capmor’s submission that “the effect of Mr. Sibilia signing the lease as co-lessee is the same as if he had signed a separate lease for the oven on the same terms.” She further found that the parties agreed to a set-off type of arrangement for the period from February, 2005 to when it was terminated in October, 2005, whereby Mr. Sibilia’s lease payments on the oven were set off against an amount that Capmor would have otherwise had to pay to 144 for storage of its oven at 144 pending its sale.
[10] Capmor issued a notice of action in June, 2007 and a statement of claim in July, 2007, more than two years after February, 2005 when Unisphere went bankrupt and the lease payment on the oven for that month was not made. The trial judge held that the bankruptcy of Unisphere did not trigger a default of the oven lease between Capmor and Mr. Sibilia. Further, there was no default in payment by Mr. Sibilia because of the set-off arrangement he made with Capmor which covered the period up to the November, 2005 payment. It was only when that payment was not made that Mr. Sibilia defaulted on his lease, less than two years before the action was commenced.
[11] What was the event of default under the lease that triggered the commencement of the limitation period?
[12] It is common ground that the applicable limitation period is two years from default under the lease (s. 4 of the Limitations Act, 2002). There is no discoverability issue.
[13] In my view, the trial judge erred when she accepted counsel’s submission that although Enviro (later Unisphere) and Mr. Sibilia were co-lessees, there were, in law, two separate leases with Capmor. There is one lease document made between Capmor Financial Services as lessor and Enviro Tire Technologies Ltd. and Victor Sibilia - Co-Lessees as lessee.
[14] As noted above, paragraph 29 of the lease makes co-lessees jointly and severally liable. The legal effect of joint and several liability is described in Halsbury’s Laws of England, vol. 9(1), 4th ed. (London: Butterworths, 1998) at p. 810, para. 1079, as follows: “where two or more persons join in the same instrument in making a promise to the same person, and at the same time each of them individually makes the same promise to that same promisee” (emphasis added). G.H. Treitel in The Law of Contract, 11th ed. (London: Sweet & Maxwell, 2003) at p. 568, states that joint and several liability arises where each promisor “makes one promise binding both of them and in addition … makes a separate promise binding him alone”. See also McLarty v. Dixon, [1914] O.J. No. 731 (C.A.) and Standard Trust (Liquidator of) v. Protective Plastics Ltd. (Trustee of) (1999), 49 B.L.R. (2d) 159 (Ont. C.A.), where this court adopted the decision of Lord Campbell C.J. in Gardner v. Walsh (1855), 119 E.R. 412 (Q.B.), that while a joint and several instrument may contain two promises in the alternative, it remains one contract and one instrument.
[15] There is nothing in the lease document that suggests that it is intended to operate as two separate leases, one with each lessee, nor would that be a commercially reasonable result. For example in this case, the business that used the oven was operated by the corporate lessee, the entity that went bankrupt. In such circumstances, a lender would want the ability to have its choice of remedies upon default, including removal of its equipment from the premises in order to sell it for the best possible price and mitigate its damages. A lender and the co-lessee could always enter into whatever new arrangement they were able to agree to, but always in the context of the original lease that governed the rights and obligations of the parties.
[16] As found by the trial judge, the lender and the co-lessee did enter into such an arrangement. However, it was clearly made based on the fact that the assignment into bankruptcy constituted an event of default by the co-lessee Unisphere, following which, the equipment was being held at 144 not under the lease, but on a storage basis for which Capmor had to pay 144 until it could sell the equipment. The storage charges were set off against the amount still owing under the lease by the appellant, the co-lessee. If the lease was continuing with Mr. Sibilia, Capmor would not have had to pay rent to 144 to store the oven , nor could it sell the equipment.
[17] Paragraphs 15 and 16 of the lease are the default clauses. Paragraph 15 defines the events of default and paragraph 16 describes the consequences of default. The two paragraphs provide as follows:
15. DEFAULT. The occurrence or happening of any one or more of the following events shall constitute an Event of Default: (a) if Lessee fails to observe or perform any term, covenant or condition of this Lease or of any other lease or other agreement between Lessor and Lessee whether heretofore or hereafter made; (b) if any representation or warranty made by the Lessee to Lessor herein or pursuant to any document or certificate provided by the Lessee in connection with this Lease shall prove to be incorrect in any material respect; (c) if Lessee makes any assignment for the benefit of creditors; (d) if a receiver or trustee is appointed for Lessee or any of its property without its consent and is not dismissed within 30 days; (e) if bankruptcy reorganization or insolvency proceedings are instituted by or against Lessee and, if instituted against Lessee, not dismissed within 30 days; (f) if Lessee admits in writings its inability to pay its debts generally as they fall due or commits any other act of bankruptcy or does or omits to do any other thing in furtherance of any of the aforesaid purposes; (g) if all or any part of the Equipment is, or is in imminent danger of being confiscated, attached, sequestered or seized under legal process; or (h) Lessee ceases to carry on business in the normal course.
16. CONSEQUENCES OF REPUDIATION OR DEFAULT. In the event of repudiation of this Lease by the Lessee or upon the happening of an Event of Default, Lessor may in addition to any of the rights it may have in law or in equity at its option and upon notice to the Lessee exercise any one or more of the following:
(a) enter upon the premises where the Equipment is located and take immediate possession thereof, whether it is affixed to the realty or not, and remove the Equipment without liability to Lessor for or by reason of such entry or taking of possession, whether for damage to property or otherwise, and to sell, lease or otherwise dispose of the Equipment for such consideration and upon such terms and conditions as Lessor may reasonably deem fit.
(b) in the name of and as the irrevocably appointed agent and attorney for Lessee without terminating or being deemed to have terminated this Lease, take possession of the Equipment and proceed to lease the Equipment to any other person, firm or corporation on such terms and conditions, for such rental and for such period of time as Lessor may deem fit and receive such rental and hold the rental and apply it against any monies expressly payable from time to time by Lessee hereunder.
(c) terminate this Lease and by written notice to Lessee specifying a payment date not earlier than five days from the date of such notice, require Lessee to pay to Lessor on the date specified in such notice, as a genuine pre-estimate of liquidated damages for loss of a bargain and not as a penalty, the entire unrecovered cost, including residual of said Equipment leased hereunder as at the date of repudiation calculated in accordance with the Rule of Seventy-Eights.
(d) As a late charge require the payment of interest at the Interest Rate per annum on any overdue amount until paid.
Upon the occurrence of an Event of Default Lessee shall be liable for any and all unpaid additional rent due or to become due hereunder and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Lessor’s remedies in respect thereof, including all costs and expenses incurred in connection with the placing of the Equipment in the same conditions as when delivered, ordinary wear and tear excepted.
[18] The trial judge found that on the happening of an event of default, Capmor had a number of options including whether or not to terminate the lease, and that there was “no evidence … that Capmor exercised any of [these] options”. However, the language in paragraph 16 is permissive, not mandatory and speaks to a choice of remedies upon default. Paragraph 16 expressly reserves to Capmor any rights it had in law or in equity upon an event of default, and provides that Capmor “may” exercise one or more of the options prescribed therein. There is nothing in the lease that suggests that Capmor was required to explicitly exercise one of the prescribed options. In this case, the parties agreed that rather than take immediate possession of the oven for the purposes of selling it, Capmor would store the oven at its current location while it attempted to find a buyer. The terms of the oral arrangement between Capmor and Mr. Sibilia following the bankruptcy of Unisphere were wholly consistent with an acceptance of termination of the original lease by both remaining parties. Accordingly, Mr. Sibilia remained liable pursuant to paragraph 16 to pay the remaining balance of unpaid rent on the lease. That amount was set off against the storage charges for the oven as agreed.
[19] As the arrangement between Capmor and Mr. Sibilia following the bankruptcy of Unisphere constituted a new agreement to deal with the equipment following the default under the lease, and as the action by Capmor was an action for payment under the lease, the limitation period can run only from the default under the lease, and expired before the action was commenced. I recognize that the result of Capmor having to compensate 144 for the storage charges without receiving the balance of the unpaid rent under the lease from Mr. Sibilia may appear unjust, as Capmor appeared to have been trying to accommodate Mr. Sibilia when it entered into the oral arrangement. However, this outcome is the unavoidable result of the application of the Limitations Act, 2002.
[20] In the result, the appeal is allowed with costs fixed at $15,000 inclusive of disbursements and HST.
Signed: “K. Felmdan J.A.”
“I agree M. Rosenberg J.A.”
“I agree R. G. Juriansz J.A.”