COURT OF APPEAL FOR ONTARIO

CITATION: Varcon Construction Co. Ltd. v. 1554098 Ontario Inc. (Mademoiselle Women’s Fitness & Day Spa), 2012 ONCA 43

DATE: 20120123

DOCKET: C53585

Doherty, LaForme and Hoy JJ.A.

BETWEEN

Varcon Construction Co. Ltd.

Plaintiff (Respondent/ Appellant by way of cross-appeal)

and

1554098 Ontario Inc., carrying on business as Mademoiselle Women's Fitness & Day Spa, Premier Fitness Clubs (Meadowvale) Inc., Premier Fitness Clubs Inc. and John Cardillo

Defendants (Appellants/ Respondents by way of cross-appeal)

Counsel:

F. Scott Turton, for the appellants/respondents by way of cross-appeal

Vito S. Scalisi, for the respondent/appellant by way of cross-appeal

Heard and released orally: January 18, 2012

On appeal and cross-appeal from the judgment of Justice Katherine B. Corrick of the Superior Court of Justice, dated March 16, 2011.

ENDORSEMENT

[1] The defendants, 1554098 Ontario Inc., carrying on business as Mademoiselle Women's Fitness & Day Spa (“155”), Premier Fitness Clubs (Meadowvale) Inc. (“PFC Meadowvale”), Premier Fitness Clubs Inc. (“Premier”) and John Cardillo, appeal the March 16, 2011 judgment of the trial judge. The plaintiff, Varcon Construction Co. Ltd., cross-appeals.

[2] The plaintiff entered into contracts with 155 and PFC Meadowvale to construct shell buildings. The plaintiff ran into difficulties obtaining payment. On March 9, 2006, the plaintiff, 155, PFC Meadowvale, and Premier, which is presumably 155 and PFC Meadowvale’s parent company, entered into a settlement agreement. 155, PFC Meadowvale and Premier breached the settlement agreement.

[3] The plaintiff sued for amounts owing under the settlement agreement and for a declaration that the defendants are in breach of trust under s. 713 of the Construction Lien Act with respect to the sums owing. The trial judge ordered that Premier pay the plaintiff $138,510.44 for breach of the settlement agreement and that the other defendants make specified payments to the plaintiff for breach of trust.

[4] The defendants submit that the trial judge erred in finding 155, PFC Meadowvale and Mr. Cardillo liable for breach of trust. They argue that the trial judge correctly found that the effect of the settlement agreement was to release 155 and PFC Meadowvale from liability to the plaintiff, and that, since 155 and PFC Meadowvale do not owe the plaintiff money for services, neither they nor Mr. Cardillo, whose liability flows from this position as a director of those companies, can be liable for breach of trust.

[5] The plaintiff submits that: the trial judge erred in finding the settlement agreement released 155 and PFC Meadowvale; they owe the plaintiff moneys; and they and Mr. Cardillo are in breach of trust.

[6] In our view, the judgment of the trial judge is correct and we accordingly dismiss the appeal. However, we agree with the plaintiff that the trial judge erred in finding that the effect of the settlement agreement was to extinguish 155 and PFC Meadowvale’s liability to the plaintiff, and accordingly allow the cross-appeal.

[7] The settlement agreement requires Premier to provide its corporate guarantee of cheques to be provided pursuant to the settlement agreement. This, in our view, makes clear that its liability is as surety, and 155 and PFC Meadowvale remain primary obligators. Moreover, it makes no commercial sense in the context to construe the settlement agreement as releasing 155 and PFC Meadowvale from their underlying liabilities compromised by the settlement agreement. Given this, the defendants’ appeal based on 155 and PFC Meadowvale having no liability to the plaintiff fails.

[8] In any event, in response to the plaintiff’s claim, the defendants did not plead that 155 and PFC Meadowvale were not liable under the settlement agreement. Indeed, they pled that the defendants ceased making payments under the settlement agreement because the plaintiff failed to complete roof flashing in accordance with the settlement agreement. It is doubtful that it was even open to the defendants to have asserted that the settlement agreement released 155 and PFC Meadowvale in closing argument.

[9] The appeal is dismissed, with costs to the respondent/appellant by way of cross-appeal fixed at $7,500, inclusive of disbursements and applicable taxes.

“Doherty J.A.”

“H.S. LaForme J.A.”

“Alexandra Hoy J.A.”