2012 ONSC 1315
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: CIT Financial Ltd, Applicant.
and:
Susan Duesling, Douglas Duesling, Continental Carriers Inc. and Ridgley Receivers Inc., Respondents.
BEFORE: Mr. Justice D. R. McDermid
COUNSEL: K. Daniel Reason, for the Applicant.
P. Quinlan, for the Respondents Duesling, and Continental Carriers Inc.
No one appearing for the Respondent Ridgley Receivers Inc.
HEARD: January 9, 2012.
ENDORSEMENT
1By Notice of Application dated August 19, 2008, CIT sought an order that it was entitled to possession of six trailers and also sought incidental relief, including an order that the respondents pay $194,389.44 to it.
2CIT and the respondents, Mr. and Mrs. Duesling and Continental Carriers Inc. delivered a factum. Ridgley Receivers did not because the company has been wound up.
3Paragraph 1 of the factum delivered on behalf of the Dueslings and Continental Carriers states that it does not dispute certain numbered paragraphs contained in the applicant's factum.
4From the evidence before me, I make the following findings of fact:
a. At all material times, the six trailers in issue were owned by CIT Financial Ltd.
b. A Corporation known as 1260995 Ontario Inc., doing business as D.A. Duesling Transportation and controlled by Mr. and Mrs. Duesling, entered into various leases with CIT for the six trailers. Neither Mrs. nor Mr. Duesling signed the leases in their personal capacity or in the capacity of a guarantor. The leases were signed only by Mr. Duesling as president of 1260995 Ontario Inc. doing business as Duesling Transportation. Mrs. Duesling did not sign any of the leases in any capacity.
c. At all material times, the leases were perfected by registration under the Personal Property Security Act, (PPSA), thereby creating a perfected security interest in CIT.
d. In May, 2007, Mr. and Mrs. Duesling sold their shares in 1260995 Ontario Inc., which was amalgamated with a new entity by the name of Duesling Transportation Inc. Mr. and Mrs. Duesling took back a General Security Agreement over the new company's assets in their joint names personally.
e. CIT amended its PPSA registrations to continue the perfection of its security interest with respect to its six trailers.
f. On April 4, 2008, Duesling Transportation Inc. made an assignment in bankruptcy.
g. On April 17, 2008, CIT prepared and filed a secured Proof of Claim with the Trustee in bankruptcy regarding its six trailers.
h. On the same date, Mr. and Mrs. Duesling appointed Ridgley Receivers Inc. as Receiver to enforce their general security agreement. The person from Ridgley with whom they dealt was a Mr. John Smith.
i. On April 18, 2008, the Dueslings decided to incorporate a new company to go back into the trucking business.
j. All of the parties agree that CIT remained the owner of the six trailers and that its security interest was paramount to the general security agreement in favour of the Dueslings.
k. The Receiver, Ridgley, did not contact CIT to give notice of its intention to sell any assets, despite the fact that CIT was registered under the PPSA and that the Receiver had done a PPSA search.
l. The Receiver obtained a letter of opinion from a lawyer that stated that Mr. and Mrs. Duesling's security was subordinate to all other security interests registered against the assets, including the PPSA registration by CIT.
m. Mr. and Mrs. Duesling filed a Proof of Claim in the bankruptcy proceeding. The Trustee received an independent legal opinion confirming that the Duesling's General Security Agreement was not an effective security as against the Trustee and that CIT had priority over the Trustee.
n. On the basis of this opinion, the Trustee gave notice to Mr. and Mrs. Duesling that they held invalid security and that all property relating to the bankrupt Corporation should be delivered to the Trustee. That notice was sent to the Receiver who had been appointed by Mr. and Mrs. Duesling and also to Mr. and Mrs. Duesling directly.
o. Notwithstanding that this fact was known to the Dueslings, they incorporated a new corporation by the name of Continental Carriers Inc. and instructed Ridgley to proceed with the sale of certain assets owned by Duesling Transportation Inc. to Continental Carriers Inc.
p. On May 30, 2008 the Receiver received a telephone call from a Bailiff acting for CIT indicating that the Bailiff had a warrant from CIT to take possession of the trailers. The Bailiff also indicated he had a letter from the Trustee confirming that CIT had valid security as against the Trustee. The Bailiff sent the warrant and the trustee's letter to Smith, who then sent them to Mr. and Mrs. Duesling. As of that time, Mr. and Mrs. Duesling were aware that CIT was looking for specific assets.
q. By June 6, 2008 the lawyer for the Receiver acknowledged that CIT's security was valid as against the trailers.
r. Mr. and Mrs. Duesling, who controlled Continental Carriers Inc., caused it to sell two of the six trailers for a total of $68,500 plus GST. Mr. Quinlan concedes that Continental Carriers Inc. is liable to CIT for the $68,500 but takes the position that there is no liability on Mr. or Mrs. Duesling.
s. The Dueslings failed to deliver the remaining four trailers to CIT.
5Mr. and Mrs. Duesling blame Mr. Smith from Ridgley for the predicament in which they now find themselves. Their position is that he took advantage of their lack of sophistication in this matter for his profit and their loss. They claim they did not understand that they did not own the trailers and thought they were free to deal with them as they wished. However, Ridgley was acting as their agent pursuant to their instructions and they are bound by its actions. They may have a claim over against Ridgley, but because Ridgley has been wound up, it is likely of little or no value. Knowing that both the trustee and CIT had priority over their general security agreement, Mr. and Mrs. Duesling instructed the receiver to sell the trailers owned by CIT, which they had absolutely no right to do.
6Mr. Reason submits that Mr. and Mrs. Duesling, acting under their General Security Agreement, knowingly converted the trailers and are liable personally to CIT for doing so as is Continental Carriers.
7I find that when the Dueslings disposed of the trailers, they were not acting as lessees under the lease with CIT. The original lessee was 1260995 Ontario Inc. They disposed of the trailers pursuant to the General Security Agreement that they held personally. Therefore, they were acting in their personal capacity and are liable personally for their conversion of the trailers.
8Mr. Quinlan submits that what should have happened is that CIT should have seized the trailers, sold them, and claimed for any deficiency in the bankruptcy and that Mr. and Mrs. Duesling are not liable personally to CIT. He asked, "How can CIT do better by doing nothing than if they had seized and sold the trailers?" He suggests that CIT had a duty to act in a commercially reasonable way and that by doing nothing they failed to do so.
9Mr. Quinlan submits further that Mr. and Mrs. Duesling had a responsibility to ensure that Continental made the trailers available for repossession, which he suggests they did as of the end of November, 2008 when they gave an undertaking on their cross examination to cease using them.
10According to paragraphs 17 to 21 inclusive of the affidavit of Isobel Heaps sworn August 15, 2008 CIT contacted Ridgley to ascertain the location of the trailers. Correspondence ensued between counsel for Ridgley and counsel for CIT in an attempt to settle the matter. This effort was unsuccessful.
11I find that Mr. Mrs. Duesling and Continental Carriers converted the trailers to their own use and failed to return them to CIT and that they are liable to CIT in damages for doing so.
12What is the measure of the damages? Counsel agree that Continental Carriers is liable to CIT for the $68,500 Continental Carriers received from the sale of two of the trailers. I find that Mr. and Mrs. Duesling are also liable because it was they who appointed the Receiver and instructed it to seize the trailers pursuant to their general security agreement.
13With respect to the remaining four trailers, there are two issues:
a. What was their value?
b. Are Mr. and Mrs. Duesling and Continental Carriers entitled to a set off?
14In my opinion, the damages crystallize at the time of the conversion after which, despite correspondence between counsel for CIT and Ridgley, the Receiver for and agent of Mr. and Mrs. Duesling, the trailers were never returned to CIT.
15With respect to the value of the remaining 4 trailers, I note that the Receiver appointed by Mr. and Mrs. Duesling sold them to the Dueslings’ new corporation for a total of $31,000, which is the value Mr. Quinlan urges me to accept. I do not view this as an arms' length transaction. I prefer the more objective appraisal from Mr. House in the sum of $61,000. Therefore, I assess the value of the six trailers at $129,500.
16The respondents claim a set off for storage fees based on the fact that the trailers were sitting in their yard to the knowledge of CIT and available to be retrieved. They claim $10 a day for 1108 days, or, $11,080. They also claim for new tires and other expenses necessary to return the trailers to working order in the sum of $9,000. Therefore, they claim a set off of $20,080.
17In my opinion, it is the ultimate expression of effrontery knowingly to convert trailers to your own use, refuse to return them to the acknowledged owner and then claim storage fees and maintenance expenses during the period of your wrongful detention. Moreover, they continued to use the four trailers between July and November, 2008. Therefore, the claim for set off is dismissed.
18Judgment is granted to CIT Financial Ltd. against Susan Duesling, Douglas Duesling, and Continental Carriers Inc. For $129,500.
19The application is stayed as against Ridgely Receivers Inc. without prejudice to any party moving to set aside the stay on appropriate grounds.
20If counsel are unable to agree about the costs of this application:
a. If either party wishes to appear and make oral submissions, both sides shall do so on a date to be fixed by the trial coordinator and the submissions of each side shall be limited strictly to 15 minutes.
b. If both parties are content to make written submissions, they shall not exceed five pages in length, double-spaced, in Times New Roman font, size 12, or another font of comparable point size, and shall be exchanged between them and delivered to me within 30 days of the date of this order.
c. If the material of either side, or both sides, is not delivered within 30 days, I shall make an order in the exercise of my discretion based on the material before me, if any.
Mr. Justice D. R. McDermid
Date: February 24, 2012.