SUPERIOR COURT OF JUSTICE - ONTARIO

CITATION: CELADON CANADA, INC. v. HOSS CARTAGE & DISTRIBUTION SYSTEMS INC. et al, 2015 ONSC 4089
COURT FILE NO.: C-14-15 & C-145-15
DATE: 2015/06/29

Parties

RE: CELADON CANADA, INC., Applicant
AND: HOSS CARTAGE & DISTRIBUTION SYSTEMS INC. and MARY TUROCZI, Respondents

AND RE: HOSS CARTAGE & DISTRIBUTION SYSTEMS INC., Applicant
AND: MARY TUROCZI, Respondent

BEFORE: The Honourable Justice D.A. Broad

Counsel

John G. Webster for CELADON CANADA, INC.
Howard Wolch for HOSS CARTAGE & DISTRIBUTION SYSTEMS INC.
Wayne R. Bumstead for MARY TUROCZI

HEARD: April 20 and 22, 2015

ENDORSEMENT

Background

[1] These applications concern disputes about the rights of the parties in respect of a lease of a parcel of vacant commercial property containing an option to purchase.

[2] The lease in question was dated October 22, 2004 and was between Hoss Cartage & Distribution Systems Inc. (“Hoss”) as tenant, and George Turoczi and Mary Turoczi as landlord (the “Lease”) in respect of property municipally known as 112 Earl Thompson Road, in the Township of North Dumfries, in the Region of Waterloo (the “Leased Property’). The Lease was for a ten-year term ending October 31, 2014. The Leased Property was adjacent to another parcel of land occupied by Hoss upon which it carried on its transportation and logistics business. The Leased Property was used by Hoss to store trucks and equipment used in its operations. The Lease contained an option to purchase in favour of Hoss as tenant.

[3] George Turoczi died in or about 2009 and Mary Turoczi (“Turoczi”) remains as the landlord. The option to purchase, if exercised by Hoss prior to expiry of the term of the Lease, required Turoczi to sell the Leased Property to Hoss for fair market value, to be determined by an appraisal.

[4] By an Asset Purchase/Transition Services Agreement dated September 16, 2013 (the “Asset Purchase Agreement”) Hoss agreed to sell what was termed a “significant portion” of its assets to Celadon Canada, Inc. (“Celadon”) to permit Celadon to take over Hoss’ transportation business. The Asset Purchase Agreement provided that Celadon would be entitled, at its discretion, to an assignment of the Lease and obliged Hoss to seek the consent of Turoczi to the assignment upon the direction of Celadon. The Asset Purchase Agreement did not specify a time within which Celadon could exercise its discretion to obtain an assignment of the Lease.

[5] Celadon did not give express written notice of its intention to require an assignment of the Lease until October 22, 2014 (being seven days prior to expiry of the Lease term), the consent of Turoczi to an assignment was never requested by Hoss and no written assignment of lease was ever executed by it. In giving its written notice to Hoss purporting to direct it to assign the Lease, Celadon directed Hoss to exercise the option to purchase on behalf of, and for the benefit of, Celadon. Hoss did not seek Turoczi’s consent to the assignment, but did give notice to her that it was exercising the option to purchase. It purported to do so for its own benefit, not on behalf of Celadon.

[6] Celadon takes the position that it did direct Hoss to assign the Lease to it, either orally in or about September 2013, or in writing on October 22, 2014, and that, although no legal assignment was completed prior to the expiry of the Lease term, there was an equitable assignment of the Lease to it, based on the doctrine of part performance, prior to the exercise of the purchase option by Hoss. Celadon therefore asserts that Hoss’ exercise of the option was for Celadon’s benefit.

[7] Hoss takes the position that there was no equitable assignment of the Lease to Celadon, that Celadon did not exercise its discretion under the asset purchase agreement to require an assignment within a reasonable time after the closing of the asset sale and that Celadon represented by its words and conduct that it had no use for the Leased Property and did not intend to require an assignment of the Lease. Hoss says that it relied, to its detriment, upon the representation by Celadon that it did not require the Leased Property by leasing property across the road to set up a new business, which would also utilize the Leased Property. Hoss also asserts that Celadon released it from any obligation to assign the Lease pursuant to an executed Release Agreement dated August 7, 2014 (the “Release Agreement”). Hoss asserts that it exercised the option to purchase for its own benefit and not on behalf of Celadon.

[8] Turoczi submits that she is not obliged to sell the Leased Property to either Celadon or Hoss because Hoss was not in “good standing” under the Lease at the time it purported to exercise the option, which was a precondition for the valid exercise of the option.

Nature of the Applications

[9] Caledon has brought an application against Hoss and Turoczi in file C-14-15 seeking, in summary:

(a) A declaration that Hoss exercised the option to purchase the Leased Property as agent for, or on behalf of Celadon;

(b) An order declaring that Hoss has assigned or directing it to assign to Caledon the right to complete and close the purchase of the Leased Property from Turoczi; and

(c) In the alternative, damages against Hoss for breach of contract or failure to assign the Lease.

[10] Hoss has brought an application against Turoczi as respondent in file C-145-15 seeking, in summary:

(a) An order requiring Turoczi to transfer the Leased Property to Hoss pursuant to the option to purchase in the Lease.

[11] The parties agreed to the argument of the two applications together, based on the affidavit material filed in file C-14-15. Hoss took the position that there are material facts in dispute and accordingly, the court should not decide the applications on the basis of the written record but should direct a trial of the issues pursuant to Rule 38.10. However, all parties agreed that a determination of whether a trial of all or certain of the issues was required could not be made until the conclusion of full argument based on the written record.

[12] It is noted that no cross-examinations were conducted by any of the parties on the affidavits filed in these proceedings. Accordingly, the evidence of each of the affiants should be considered to be undisputed, except where such evidence conflicts with evidence in another party’s affidavit material. Furthermore, Celadon’s claim for damages against Hoss was not argued, and accordingly, the parties were agreed that if that claim remained relevant following the disposition on the balance of the issues, the application in file C-14-15 should be adjourned for the purpose of giving directions.

Issues

[13] The issues to be determined are as follows:

(a) Did Celadon direct Hoss to assign the Lease and obtain the consent of Turoczi within the time required by the Asset Purchase Agreement?

(b) Was the Lease equitably assigned by Hoss to Celadon?

(c) Did the Release Agreement operate to release Hoss from any obligation to assign the Lease to Celadon?

(d) Did Hoss exercise the option to purchase the Leased Property from Turoczi on behalf of Celadon, or on its own behalf?

(e) Is Turoczi bound to sell the Leased Property under the option to purchase to the party found to be entitled to the benefit of the option to purchase?

(f) Are there factual issues in dispute which would require a trial to be directed?

(g) Is it appropriate to direct a trial with respect to Celadon’s claim against Hoss for damages?

Analysis

(a) Asset Purchase Agreement and Lease

[14] The first recital to the Asset Purchase Agreement stated “whereas Seller [Hoss] agrees to sell, and Purchaser [Celadon] agrees to purchase, a significant portion of the assets used in the operation of Seller’s business and take over control of Seller’s transportation operations.”

[15] Section 1 of the Asset Purchase Agreement set forth the assets to be purchased as “all the tractor (sic), trailers and other equipment as set forth on the list of equipment appended, and customer and customer lists, employees, as determined by Celadon, and the Hoss name.”

[16] Pursuant to section 2, Celadon was given the right to occupy what was described in the third recital as Hoss’ “headquarters”, being the property adjoining the Leased Property, until the closing of the purchase of that property by Celadon pursuant to a separate real estate purchase agreement to be entered into, and if no real estate purchase agreement is entered into, for 90 days. Section 2 went on to provide as follows:

Purchase (sic) shall also be entitled, at Purchaser’s discretion, to an assignment of lease to the adjoining property that is currently under lease to Seller with George and Mary Turoczi (collectively “Landlord”), more commonly known as 112 Earl Thompson Rd., Ontario, Canada, and Seller shall seek permission from Landlord to such assignment as directed by purchaser upon the execution of this Agreement. The Property and adjoining leased property is collectively referred to as “Office Space.” In addition to the Office Space, Purchaser and its employees and agents shall have access to all common areas, including but not limited to restrooms and break areas that are currently utilized by employees performing services for Seller, while occupying said Office Space, Purchaser’s employees and agents shall observe all of Seller’s policies governing employee conduct, including but not limited to those governing security, safety, drug and alcohol-free workplace, and non-harassment, as the same exist on the date hereof or as may be reasonably adopted in the future.

[17] The Asset Purchase Agreement contained “entire agreement” and “non-waiver” provisions at paragraphs 12 and 13 as follows:

Section 12. Entire Agreement

This Agreement, including all referenced documents and appendices, constitute the entire agreement of the parties with reference to the subject matter hereof, and unless otherwise noted, there are no other agreements of any kind, including written or oral, between the parties. The terms of this Agreement may not be changed, waived or modified except by written agreement signed by both parties specifically stating that such writing is an amendment to this Agreement.

Section 13. Non-Waiver

Failure by either party to insist upon the other party’s performance under this Agreement or to exercise any rights or privilege herein shall not be a waiver of any of the rights or privileges provided for in this agreement.

[18] The Lease between Hoss and Turoczi, at section 4, provided as follows:

4.1 The Tenant shall not permit any part of the Premises to be used or occupied by any persons other than the Tenant, its employees, customers and others having lawful business with it.

4.2 The Tenant shall not assign or sub-let or part with the possession of all or part of the Premises without leave, which leave shall not be unreasonably withheld; provided however, such leave to any assignment or sub-letting shall not relieve the Tenant from its obligations for the payment of Rent for the full and faithful observance and performance of the covenants, terms and conditions herein contained.

[19] The language of the provision of the Asset Purchase Agreement which conferred a right on Celadon, in its discretion, to an assignment of the Lease is problematic. It does not expressly provide for Celadon to give notice of the exercise of its discretion to require an assignment of the Lease. It does provide that “Seller shall seek permission from Landlord to such assignment as directed by purchaser upon the execution of this Agreement.” The “direction” appears to refer only to Hoss seeking permission from Turoczi to the assignment and not to the giving of the assignment itself. The provision also appears to require such “direction” to be given upon the execution of the agreement. It is not clear from the provision how Celadon would be required to notify Hoss of the exercise of its discretion to require an assignment of the Lease, and the time within which it would be open to Celadon to exercise its discretion and to give such notice is not specified.

[20] In the case of 3869130 Canada Inc. v. I.C.B. Distribution Inc. 2008 ONCA 396 (C.A.) at para 31 the Court of Appeal reaffirmed the basic principles governing the interpretation of commercial contracts, as follows:

Broadly stated, a commercial contract is to be interpreted,

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract),

(d) in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity.

[21] Applying these principles, in my view it should be implied that a “direction” by Celdon to Hoss to seek permission from the landlord to assignment should be treated as notice by Celadon to Hoss that it was exercising its discretion to require an assignment of the Lease.

[22] What is unclear is what is meant by the phrase “upon the execution of this Agreement” in reference to the giving of such direction. The following issues are raised by this provision:

(a) What would be the consequence of Celadon not giving such direction upon the execution of the agreement?

(b) Would a failure to give such direction upon the execution of the agreement mean that Celadon had thereby lost the right to require an assignment of the Lease?

(c) If Celadon would be required to exercise its discretion to require an assignment at the time of execution of the agreement, why did the agreement not simply provide for such assignment to be given rather than conferring upon Celadon a discretion to require an assignment?

[23] The fact that Celadon was given a discretionary right to require the assignment would suggest, in my view, that it was intended that Celadon would retain that right for some time after execution of the agreement. The inclusion of the phrase “upon the execution of this Agreement” prima facie runs counter to this. In my view, it is difficult to reconcile the plain meaning of this phrase with the conferring of a discretion on Celadon to require an assignment of the Lease to it. The provision is therefore ambiguous. In order to interpret the provision in a fashion which “accords with sound commercial principles and good business sense, and that avoids a commercial absurdity,” the phrase purporting to require Celadon to give a direction to Hoss to request the landlord’s approval of an assignment “on the execution of this agreement” should be interpreted as conferring on Celadon the right to call for an assignment of the Lease at some time after the entering into of the agreement i.e. effectively meaning “following execution of this agreement”.

(b) Time for Exercise of Discretion by Celadon to Require an Assignment of the Lease

[24] In the case of 688350 Ontario Ltd. v. Piron (1996) 5 R.P.R. (3d) 69 (Ont. Ct.(Gen. Div.) Justice Epstein, as she then was, stated at para. 21:

Where a conditional contract for the sale of land fixes no date for completion of the sale, then the law is clear that the condition must be completed within a reasonable time: see Aberfoyle Plantations Ltd. v. Cheung, [1959] 3 All E.R. 91 0 (P.C.) and Shackleton v. Hayes, 1954 CanLII 359 (SCC), [1954] 4 D.L.R. 81 (S.C.C.).

[25] The Supreme Court of Canada in the cited case of Shackleton v. Hayes stated simply “if a contract for the sale of real estate contains all other material terms but does not fix the date for completion the law will, as a rule, imply a term that the sale shall be completed within a reasonable time.”

[26] In my view, the Asset Purchase Agreement, insofar as it conferred upon Celadon the right to require Hoss to assign the Lease, was an agreement for the conveyance of an interest in land, and therefore the principle in Shackleton is applicable. Accordingly, the discretion to call for an assignment of the Lease was the required to be exercised by Celadon within a reasonable time.

[27] What is a “reasonable time” is to be determined having regard to the purpose of the particular provision under consideration in the context of the contract as a whole, as well as the reasonable expectations of the parties. It is well-established that an important purpose of the law of contracts is to protect the reasonable expectations of the parties to a contract (see Waterman v. IBM Canada Ltd. 2013 SCC 70 (S.C.C.) at para. 72).

[28] The first recital to the Asset Purchase Agreement, referred to above, sheds light on its purpose, namely to permit Celadon to take over control of Hoss’ transportation operations. However, it is evident that at the time of execution of the agreement there had been no final determination that Celadon would continue Hoss’ operations at the same location, utilizing Hoss’ “headquarters” property with or without the Leased Property.

[29] Section 2 made it clear that an agreement of purchase and sale for the “headquarters” property had not been entered into and it was specifically provided that, if no such agreement was entered into, Celadon’s right to occupy that property would end after 90 days. Section 2 went on to provide that Celadon would have the right, after closing, to occupy the “headquarters” property and the Leased Property, collectively defined as the “Office Space”. Although not stated, it is reasonable to infer that the parties intended that the period that Celadon would be permitted to occupy the Leased Property, in the event that no agreement was entered into for the purchase by Celadon of the “headquarters” property, would coincide with the 90 day period of occupation provided in respect of the “headquarters” property.

[30] The Asset Purchase Agreement contemplated a 90 day period for Celadon to acquire the “headquarters” property, thereby affording it an opportunity to make a determination on whether it would operate the business at that location or move to another location. Viewed in this context, the purpose of the reasonable period for Celadon to exercise its discretion to require an assignment of the Lease was to afford Celadon time to acquire the “headquarters” property (i.e. within 90 days), should it wish to do so, and to determine whether it required the Leased Property for use in its operations at that location. In the context of section 2 of the Asset Purchase Agreement as well as the agreement as a whole, and in consideration of the reasonable expectations of the parties, a period extending to the expiry of the term of the Lease, being over 13 months after the date of the Asset Purchase Agreement, would not be considered to be a reasonable period for Celadon to exercise its discretion to acquire an assignment of the Lease. Moreover, any assignment would be conditional upon the obtaining of Turoczi’s consent as landlord, something which would require a reasonable time to obtain. Exercising the discretion to require an assignment of the Lease seven days prior to its expiry, as Celadon did on October 22, 2014, would therefore not be considered to be reasonable.

[31] Celadon argues that Hoss had a duty to warn and could not simply quietly allow the reasonable time to elapse and then take the position that it was not obliged to assign the Lease.

[32] The principle that a party may not simply bring a contract to an end by doing nothing and merely plead that a reasonable time had passed is well-established and is exemplified in a passage from the case of British Columbia (Egg Marketing Board) v. Jansen Industries Ltd. (1992) 24 R.P.R. (2d) 36 (B.C.S.C.) at para. 28 as follows:

Here, if Jansen wished to end the contract, it was obliged to set a deadline and have made it clear to the B.C.E.M.B. that Jansen would cancel or terminate the agreement if the execution of a mutually satisfactory lease agreement was not met by a certain date. Jansen did not do so. It never demanded or even requested that the plaintiff execute a formal lease. As the new landlord, Jansen never delivered an instrument in a form registrable under the Land Title Act and had never indicated that it was prepared to be bound by the terms of the formal lease which had been negotiated between the solicitors for Vedder and the B.C.E.M.B. Jansen could not simply bring the contract to an end by doing nothing and merely plead that a reasonable time had passed. See Dallas v. Dallas Oil Co., 1930 CanLII 264 (AB CA), [1930] 2 W.W.R. 301, 24 Alta. L.R. 445, [1930] 2 D.L.R. 788 (C.A.), at p. 791 [D.L.R.].

[33] Although a party may not be permitted to simply do nothing and then plead that a reasonable time had elapsed, the Court is permitted to look at all of the circumstances, including the length of the lapse of time as well as the conduct of the parties and to draw an inference that both parties thought that each of them had treated the contract as at an end. The following passage from Dallas v. Dallas Oil Co., cited in British Columbia (Egg Marketing Board), at para. 13 quoting the case of Pearl Mill Co. Ltd. v. Ivy Tannery Co. Ltd., [1919] 1 K.B. 78, 88 L.J.K.B. 134, 120 L.T. 28 illustrates this:

Reliance is placed upon the judgment in Pearl Mill Co. Ltd. v. Ivy Tannery Co. Ltd., [1919] 1 K.B. 78, 88 L.J.K.B. 134, 120 L.T. 28, where a delay from 1913 to 1917 in requesting delivery of a balance of goods to be delivered only as required under contract for sale entered into in 1913 occurred. The plaintiff had forgotten the existence of the contract and no steps had been taken by either party to have the contract completed. Rowlatt, J. in giving judgment, discusses the leading case of Jones v. Gibbons (1853) 8 Ex. 920, 22 L.J. Ex. 347, as follows:

The first point decided was that when goods are to be delivered as required, that requirement must be within a reasonable time. The Court held further, that if the defendant desired to put an end to the contract on the ground that a reasonable time had expired, he must give notice to that effect. *** the seller can bring him to the point by saying: 'I shall cancel unless you ask for delivery by such and such a day.' But he cannot bring the contract to an end by doing nothing and merely pleading that a reasonable time has elapsed. That case is not the same as the one we have to consider, which does not turn in that sense upon merely the lapse of a reasonable time but upon a lapse of time which may be very much more than that which would be a reasonable time for the purposes of the question in Jones v. Gibbons — viz.: a lapse of time allowed to pass on both sides, so long as to induce the Court to draw the inference that both parties thought that each of them had treated the contract as at an end.

[34] In the present case, Celadon occupied the leased premises, as contemplated in section 2 of the Asset Purchase Agreement. It also reimbursed Hoss for the monthly rental payments, which Hoss continued to pay to Turoczi pursuant to the Lease, as well as for the property taxes, however, it discontinued such payments with the May 2014 payment. Celadon argues that it discontinued the rent and property tax payments at that time because it was embroiled in a dispute with James Hostler, the principal of Hoss, over a number of issues, including the fact that Hoss was holding some $446,000 of monies received from Celadon’s customers after the closing of the asset purchase. However, there was no evidence in Celadon’s affidavit material that this was the reason that the rent and property tax payments to Hoss were discontinued and, in particular, there is no evidence that any written or verbal notice was given by Celadon to Hoss that it was setting off the rent and property tax payments against the monies which it claimed were owed to it by Hoss.

[35] The contractual basis for Celadon reimbursing Hoss for the rental and property tax payments on the Leased Property after the closing of the asset purchase is not made clear in the affidavit material. Eric Meek, the Chief Operating Officer of Celadon, in his reply affidavit sworn March 5, 2015, listed it as one example of the circumstances supporting the basis upon which Celadon was operating, namely that the Lease had been assigned by Hoss to it. However, this appears to be in the nature of an argument or submission rather than a statement of fact. It is not clear on the evidence when the reimbursement payments commenced nor what communications between the parties, if any, led to them being made. If the payments commenced immediately following closing it is difficult to see how they could support an inference that the Lease had been assigned to Celadon as there is no evidence that Celadon had formed an intention to request an assignment by that time and certainly no consent had been obtained from the landlord.

[36] The Release Agreement dated August 7, 2014 provides some insight into the question of whether the parties thought that each of them had treated the covenant in the Asset Purchase Agreement respecting the assignment of the Lease as at an end.

[37] The Release Agreement dealt with, amongst other things, the termination of Mr. Hostler’s employment with Celadon and with the release by Hoss of the $446,000 held by it in connection with its post-closing collection of accounts receivable belonging to Celadon. Paragraph 2 f. of the Release Agreement provided as follows:

The Employer [Celadon] will be responsible for any and all other invoiced expenses properly payable by the Employer and will indemnify and hold harmless Hoss Cartage & Distribution Systems and the Employee [Mr. Hostler] in connection with the same provided that the Employee will provide a list of assumed contracts within 30 days of the execution of the Release Agreement and the Employer will then have a period of 15 days within which to verify and acknowledge such assumed contracts.

[38] On November 14, 2014 Mr. Hostler delivered to Celadon a list entitled “List of Assumed Contracts Expenses incurred up to August 7, 2014.” Included on the list were three amounts paid to Turoczi being two payments of $2,847.60 each in respect of rent for June and July, 2014 respectively and $711.90 for the August 2014 rent prorated to the date of the Release Agreement being August 7, 2014. The evidence is not clear as to whether Hoss was credited with these rent payments adjusted to August 7, 2014, but there is no evidence that Celadon paid anything in respect of rent or property taxes for the Leased Property attributable for any period after August 7, 2014.

[39] On September 16, 2014 Mr. Hostler sent an email to Sam Caradonna, the Fleet Manager of Celadon, with a copy to Robert Corbin, Celadon’s Vice President of Canadian operations entitled “Truck removal” stating “Sam, as per our conversation this morning, please arrange to have these units removed from our property within 24 hours.” Mr. Caradonna responded by email on the same date, again with a copy to Mr. Corbin, stating “arrangements to start moving equipment will being(sic) tomorrow morning.” In his affidavit sworn January 29, 2015, Mr. Hostler deposed that Celadon complied with Hoss’ demand and vacated the Leased Property a few days later.

[40] Although Mr. Corbin provided a reply affidavit, he did not respond or comment on Mr. Hostler’s evidence respecting the exchange of emails on September 16, 2014 nor the fact that Celadon vacated the Leased Property pursuant to the demand of Mr. Hostler on behalf of Hoss.

[41] For his part Mr. Meek, in his reply affidavit, stated:

“Celadon moved the trucks off the Earl Thompson property after a legal dispute arose with Hoss Cartage that resulted in a separate court application. Celadon expected to be able to resume using the Earl Thompson property after the outcome of the separate court application.”

[42] Mr. Meek does not explain the connection between the “separate court application” and the vacating of the Leased Property pursuant to the exchange of emails on September 16, 2014. Neither does he depose that any communication was made on behalf of Celadon to Hoss that it was vacating the Leased Property due to the “separate court application” and that it intended to resume using the property after it was resolved. It is noteworthy that Mr. Caradonna did not provide an affidavit addressing the evidence of Mr. Hostler respecting the circumstances of Celadon vacating the Leased Property in mid-September, 2014.

[43] In my view, the lapse of time as well as the conduct of the parties, as described above, leads to the inescapable inference that both parties thought that each of them had treated the contract for the assignment of the Lease as at an end by September 16, 2014, if not before. Accordingly, Hoss is not prevented from asserting that Celadon failed to exercise its right to require it to obtain the consent of the landlord and to assign the Lease with a reasonable time as contemplated by the Asset Purchase Agreement. I find that Celadon did fail to exercise that right within the time contemplated by the Agreement of Purchase and Sale.

[44] I find this notwithstanding Celadon’s assertion that it effectively directed Hoss to assign the Lease by November 26, 2013, when there was an exchange of e-mails by which a draft assignment agreement was provided by the lawyers for Hoss and comments on the draft were made by the lawyers for Celadon. It is difficult to see how this exchange of e-mails could constitute a “direction” by Celadon to seek permission from the landlord to an assignment, which was the trigger under the Asset Purchase Agreement for the exercise by Celadon of its discretion to require an assignment of the Lease. The provision of comments on a draft assignment agreement, without more, did not constitute, in my view, a firm exercise of discretion on the part of Celadon to require an assignment of the Lease to it. Mr. Elschide, in-house counsel for Celadon’s US parent Celadon Trucking Services, Inc., deposed in his supplementary affidavit that he “personally informed Mr. Hastler and directed him, in conjunction with the closing of the Asset Purchase Agreement in August and September, 2013 that the Lease of the Earl Thompson Property must be assigned from Hoss Cartage to Celadon.” Mr. Elschide does not advise how he provided this advice to Mr. Hastler. It is hard to reconcile such advice being given in August 2013, prior to the Asset Purchase Agreement, with the term of the Asset Purchase Agreement which provided Celadon with a discretion to require an assignment of the Lease. If Celadon had previously advised Hoss that the Lease “must be assigned,” why did the Asset Purchase Agreement not simply provide for that?

[45] Although the Asset Purchase Agreement did not specify how notice of a direction to request the landlord’s consent to an assignment must be given by Celadon, it was still incumbent on Celadon, as the party purporting to exercise the discretion, to ensure that such notice would be clear and unequivocal. The evidence of Mr. Elschide falls short of establishing that a clear and unequivocal notice of direction was given to Hoss in August or September 2013. Contrary to Mr. Elschide’s evidence, Mr. Hostler, in his affidavit, denied that any such direction was given and deposed that during the fall of 2013 and the winter of 2014, Robert Corbin, on behalf of Celadon advised him on a few occasions that Celadon was not sure whether or not they wanted the Leased Property.

[46] Moreover, Celadon’s conduct after the exchange of e-mails on November 26, 2013, including its failure to follow up on the provision of the draft assignment agreement, its discontinuance of reimbursement payments to Hoss for rent and taxes effective August 7, 2014, and its vacating of the Leased Property pursuant to Hoss’ demand in September, 2014, was inconsistent with any subsisting belief that it had exercised its discretion to require an assignment of the Lease.

[47] On the basis of the foregoing, I find that Celadon did not give notice of the exercise of its discretion to require an assignment of the Lease within the reasonable time required by the Asset Purchase Agreement.

(c) Equitable Assignment

[48] In Anger & Honsberger’s Law of Real Property 3rd ed. (Dec 2014), vol. 1, p. 7-36, it is stated that “an assignment not made by deed, and thus void at law, may operate as an agreement if supported by writing or part performance.”

[49] Since Celadon failed to exercise its discretion to require an assignment of the Lease within the reasonable time required by the Asset Purchase Agreement, the doctrine of part performance does not, in my view, assist it to support an argument that the Lease was equitably assigned to it by Hoss. The issue is not that no legal written assignment was given as required by the Statute of Frauds – the issue is that Celadon did not exercise its discretion to require an assignment of the Lease to it within the time required by the Asset Purchase Agreement.

[50] As between Celadon and Hoss, there was no part performance of an assignment agreement by Celadon due to its failure to give a direction to Hoss to request the landlord’s consent to the assignment within a reasonable time. Once the reasonable period had elapsed, there was no subsisting enforceable agreement for the assignment of the Lease to perform.

[51] Occupation of the property and payment of rent alone do not necessarily support a conclusion that Celadon had agreed to assume the Lease (see Bentall Properties Ltd. v. Control Data Systems, Inc. 1998 CanLII 3811 (BC SC), [1998] 9 W.W.R. 431 (B.C.S.C.) at para. 25 and 31, aff’d 1999 BCCA 413 (B.C. C.A.)).

[52] Moreover, no privity of estate was formed between Celadon and Turoczi since no rent payments were made directly by Celadon to Turoczi and the latter did not accept any such assignment by accepting any rent payments proffered by Celadon (see Price v. American Investments Ltd. [1922] B.C.J. No. 1383 (B.C.S.C.) quoted in Barmond Builders Ltd. v. Mark 3 Investment Corp [1993] O.J. No. 1186 (Ont. Ct. – Gen Div.) at para. 25. For there to be found that a lease was equitably assigned there must be factors indicating that the landlord and the proposed assignee decided to treat each other as tenant and landlord, in addition to the elements of occupation and payment of rent (see Bentall Properties at para. 30).

[53] I therefore find that the Lease was not equitably assigned by Hoss to Celadon.

(d) Effect of Release Agreement

[54] I find that, in any event, the Release Agreement operated to bring Celadon’s right to require an assignment of the Lease to it to an end.

[55] The parties to the Release Agreement were Celadon, James Hostler, his wife Denise Hostler, Toland Investments Inc. and Hoss.

[56] Included in paragraph 4 of the Release Agreement is the following language:

The parties do on behalf of themselves and their respective heirs, executors, administrators, successors and assigns here by wholly releases (sic) one another and their respective officers, directors, agents, employees, servants and representatives of and from any and all actions, causes of action, complaints, demands and claims whatsoever in existence prior to, on or after the date hereof, directly or indirectly arising from the contractual relationship between the parties or the termination thereof.

[57] Mr. Elschide, the corporate attorney of Celadon, deposed in his supplementary affidavit that the Release Agreement was intended to address solely the employment of Mr. Hostler and employment-related matters and was not intended to affect the respective rights of Celadon and Hoss in respect of the Leased Property.

[58] In my view, Mr. Elschide’s assertion that the Release Agreement addressed only matters related to the employment of Mr. Hostler by Celadon is not borne out by a review of the terms of the document itself. Paragraph 2d specifically obligates Mr. Hostler to transfer to Celadon the amount of approximately $446,000 held in the bank account of Hoss and to provide Celadon with the most current balance sheet for Hoss and provided that the amount of $446,000 would be adjusted to reflect any additional account receivables which have been received and any vehicle and uniform cleaning costs for which Celadon is responsible. As indicated above, paragraph 2f deals with “assumed contracts” in respect of which Celadon agreed to indemnify and hold Hoss harmless. These matters relate to the contractual relationship between Celadon and Hoss, not to Mr. Hostler’s employment by Celadon.

[59] Mr. Webster on behalf of Celadon makes reference to Justice Rady’s summary of the relevant principles respecting the interpretation of releases in the recent case of Ontario v. Imperial Tobacco Canada Ltd. 2012 ONSC 6027 (S.C.J.) at paras. 25 to 27, as follows:

Releases are subject to the same principles that guide contractual interpretation: see Geoff R. Hall, Canadian Contractual Interpretation Law, 2007 (Markham: Lexis Nexis).

Hall goes on to explain that releases are subject to a special rule, which is derived from an 1870 decision of the House of Lords: London & South Western Railway v. Blackmore (1870), L.R. 4 H.L. 610 (U.K. H.L.). In that case, the rule was expressed in this way:

The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given. But a dispute that had not emerged or a question which had not at all arisen, cannot be considered as bound and concluded by the anticipatory words of a general release.

The rules governing the analysis are neatly summarized in Bank of British Columbia Pension Plan, Re, 2000 BCCA 291, [2000] B.C.J. No. 903, 137 B.C.A.C. 37 (B.C. C.A.) quoting from Chitty on Contracts:

Chitty on Contracts sums up the relevant case law with respect to the interpretation of a discharge of a contract or release as follows (pp. 1084-5):

1. No particular form of words is necessary to constitute a valid release. Any words which show an evident intention to renounce a claim or discharge the obligation are sufficient.

2. The normal rules relating to the construction of a written contract also apply to a release, and so, a release in general terms is to be construed according to the particular purpose for which it was made.

3. The court will construe a release which is general in its terms in the light of the circumstances existing at the time of its execution and with reference to its context and recitals in order to give effect to the intention of the party by whom it was executed.

4. In particular, it will not be construed as applying to facts of which the party making the release had no knowledge at the time of its execution or to objects which must then have been outside his contemplation.

5. The construction of any individual release will necessarily depend upon its particular wording and phraseology.

[60] Firestone, J. recently made the following observations with respect to the principles governing the interpretation of releases in the case of 1420041 Ontario Inc. v. 1 King West Inc., 2015 ONSC 252 (S.C.J.) at paras. 46 to 48:

When interpreting a release, the court must consider the language of the document itself, the circumstances surrounding its execution, as well as the evidence of the intention of the parties: Taske Technology Inc. v. Prairiefyre Software Inc. (2004), 2004 CanLII 66295 (ON SC), 3 B.L.R. (4th) 244, [2004] O.J. No. 6019 (Ont. Master) at para. 25.

In the decision of Abundance Marketing Inc. v. Integrity Marketing Inc., [2002] O.T.C. 731, [2002] O.J. No. 3796 (Ont. S.C.J.) the court at para. 23 summarized the holding of La Forest J.A. (as he then was) in White v. Central Trust Co. (1984), 1984 CanLII 3002 (NB CA), 7 D.L.R. (4th) 236 (N.B. C.A.) that the words used in a release govern its interpretation, and the document must be read as a whole:

This is particularly important to bear in mind in construing releases, the operative parts of which are often written in the broadest of terms. Thus reference is frequently made to the recitals to determine the specific matters upon which the parties have obviously focused to confine the operation of the general words. As Lord Westbury stated...in Directors of London & South Western R. Co. v. Blackmore (1870), L.R. 4 (H.L.) 610 at p. 623, "The general words in a release are limited always to that thing or those things which were specifically in the contemplation of the parties at the time when the release was given."

As stated by Fred Cass in The Law of Releases in Canada (Aurora, ON: Cartwright Group Ltd., 2006) at p. 83, releases are often expressed in "the broadest possible words" and "there is often discord between the broad wording of a release and the apparent intentions of the parties." A release purporting to encompass all existing and future claims will be interpreted according to the objectively determined intention of the parties: ibid., p. 100.

[61] Whitten J. in Abundance Marketing, cited in 1420041 Ontario Inc., observed at paras. 16 and 17 as follows:

This contextual analysis, in so far as it touches upon the intentions and expectations of the parties, must be an objective one. Lord Wilberforce in Reardon Smith Line v. Hansen-Tangen, [1976] 3 All E.R. 570 (U.K. H.L.) at page 574 stated:

When one speaks of the intentions of parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim or object, or commercial purpose, one is speaking objectively of what a reasonable person would have in mind in the situation of the parties. (as quoted by Wilkinson J. in Cinabar Enterprises Ltd. v. Bertelson, Ibid. para.51)

Justice Iacobucci in Eli Lilly & Co. v. Novopharm Ltd., 201, 1998 CanLII 791 (SCC), 1998 CarswellNat 1061 (S.C.C.); [1998] S.C.J. No. 59 (S.C.C.) echoes this admonition against the use of the evidence of a party as to his or her subjective intention. To hold otherwise leads to potential mischief, and undermines the ability of parties to resolve matters contractually.

[62] In my view, the context of Release Agreement was that Hoss and its principal Mr. Hostler, on the one hand, and Celadon on the other, were, by means of the Release Agreement, seeking to entirely disengage from one another. This disengagement included, in my view, anything arising from the Asset Purchase Agreement, including any rights or obligations respecting the Leased Property.

[63] The fact that the parties intended, by the Release Agreement, to bring an end to any right for Celadon to occupy the Leased Property, is confirmed by the parties’ conduct after the Release Agreement was entered into, including adjusting for the termination of Celadon’s reimbursement payments for rent and taxes as of the date of the Release Agreement, and Celadon vacating the property in mid-September, 2014.

[64] The jurisprudence is clear that the subsequent conduct of contracting parties may aid in interpreting the meaning of a contract. The Court of Appeal, in the case of 3869130 Canada Inc. v. I.C.B. Distribution Inc. 2008 ONCA 396 (C.A.) stated at para 55:

Under modern Canadian law, the subsequent actions of the parties may be helpful in explaining the true meaning and intent of their agreement. In Montreal Trust Co. of Canada v. Birmingham Lodge Ltd. (1995), 1995 CanLII 438 (ON CA), 24 O.R. (3d) 97 (Ont. C.A.) at 168 Laskin J.A. said:

Moreover, I think that the respondent's subsequent conduct resolves any doubt about the extent of the appellants' liability under art. 10.1. Subsequent conduct may be used to interpret a written agreement because "it may be helpful in showing what meaning the parties attached to the document after its execution, and this in turn may suggest that they took the same view at the earlier date": S.M. Waddams, The Law of Contracts, 3rd ed. (1993), at para. 323. Often, as Thomson J. wrote in Bank of Montreal v. University of Saskatchewan (1953), 1953 CanLII 166 (SK QB), 9 W.W.R. (N.S.) 193 at p. 199 (Sask. Q.B.): "there is no better way of determining what the parties intended than to look to what they did under it".

See also Arthur Andersen Inc. v. Toronto Dominion Bank (1994), 1994 CanLII 729 (ON CA), 17 O.R. (3d) 363 (Ont. C.A.) at 372.

(e) Did Hoss exercise the option to purchase the Leased Property from Turoczi on behalf of Celadon, or on its own behalf?

[65] By e-mail dated October 27, 2104 Mr. Hostler wrote to Turoczi’s lawyer advising of his intention to exercise the option to purchase. By letter dated October 30, 2014, Hoss’ lawyer delivered a letter to Turoczi and to her lawyer giving formal notice that Hoss was exercising its option to purchase pursuant to the terms of the Lease.

[66] Given my findings that Celadon had not exercised its discretion to require an assignment of the Lease within the required time, that the Lease had not been equitably assigned to it and that it had released any claim to an assignment of the Lease, it follows that Hoss’ exercise of the option to purchase was done on its own behalf and for its own benefit and not on behalf of Celadon.

(f) Is Turoczi bound to sell the Leased Property under the option to purchase to Hoss?

[67] Turoczi points to the provision in paragraph 8.1 of the Lease which states that the option to purchase may only be exercised if the Tenant is in good standing under the terms of the Lease. She argues that, at the time of the giving of notice of exercise of the option, Hoss was not in good standing as it had breached certain provisions of the Lease, and she is therefore not obliged to sell the Leased Property to it pursuant to the option to purchase. The provisions which Turoczi says Hoss breached are as follows:

(a) Paragraph 4.1 which provides that “the Tenant shall not permit any part of the Premises to be used or occupied by any persons other than the Tenant, its employees, customers and others having lawful business with it”;

(b) Paragraph 4.2 which provides that “the Tenant shall not assign or sub-let or part with the possession of all or part of the Premises without leave, which leave shall not be unreasonably withheld”; and

(c) Paragraph 7.1. which provides, in part, that “the Tenant covenants and agrees that… if the Tenant shall make any assignment for the benefit of creditors or any bulk sale…the Landlord may re-enter and take possession of the Premises as though the Tenant…[was] holding over after the expiration of the Term and the Term shall, at the option of the Landlord, forthwith become forfeited and determined.”

[68] Turoczi argues that Hoss breached paragraph 4.1 by permitting Celadon to use or occupy the Leased Property without her consent and breached paragraph 4.2 by parting with possession of the Leased Property in favour of Celadon, again without her consent. She further argues that Hoss breached paragraph 7.1 by making a bulk sale to Celadon.

[69] In my view, the requirement in paragraph 8.1 that the option to purchase may only be exercised if the tenant is in good standing under the Lease relates to whether there was any current ongoing breach of a covenant under the Lease on the part of the tenant at the time of the exercise of the option. Even if Hoss could be regarded as having breached paragraph 4.1 by permitting Celadon to use or occupy the Leased Property, at the time of the exercise of the option Celadon on was no longer in possession, having been requested by Hoss to remove its equipment in mid-September, 2014. Moreover, it is arguable as to whether Celadon was a party having lawful business with Hoss and therefore no breach of paragraph 4.1 had occurred.

[70] With respect to paragraph 4.2, no assignment or subletting of the Lease to Celadon had, at any time, taken place. It is arguable as to whether Hoss ever parted with possession of the Leased Property, as it continued to pay the rent to Turoczi and exercised control over the property by requiring Celadon to remove its equipment in mid-September, 2014. In any event, Celadon was not in possession of the Leased Property at the time of the exercise of the option to purchase.

[71] With respect to paragraph 7.1 the term “bulk sale” is not defined in the Lease. Even if the Asset Purchase Agreement gave rise to a sale in bulk, the provision simply conferred on the landlord the right to re-enter and take possession of the premises and, at the option of the landlord, forfeit the balance of the term of the Lease.

[72] Ms. Turoczi deposed in her affidavit that she first heard of a sale of Hoss’ assets to Celadon shortly before October 23, 2014. However, she also deposed that if Hoss or Celadon had requested her consent to an assignment of the Lease, she would have attempted to negotiate an amendment of the Lease to remove the option to purchase in return for giving consent to the assignment, however, if that negotiation was not successful, she would have given her consent subject to being provided with satisfactory evidence of Celadon’s ability to honour the terms of the Lease. It is evident from this that Turoczi did not forfeit the term of the Lease upon learning of the asset sale, and had no intention of doing so. The bulk sale in September, 2013 did not therefore have the effect of rendering Hoss not in good standing under the Lease at the time of its exercise of the option to purchase.

[73] On the basis of the foregoing, I find that the option to purchase was validly exercised by Hoss and Turoczi is obliged to sell the property to it pursuant to the terms of the Lease.

(g) Are there factual issues in dispute which would require a trial to be directed and is it appropriate to direct a trial with respect to Celadon’s claim against Hoss for damages?

[74] Given my findings set forth above, I find that there are no factual issues in dispute which would require a trial to be directed and Celadon’s claim for damages against Hoss is dismissed.

Disposition

[75] With respect to file C-14-15, the application of Celadon is dismissed.

[76] With respect to file C-145-15, the application of Hoss is allowed and Turoczi is ordered to transfer the Leased Property to Hoss pursuant to the terms of the option to purchase in the Lease.

Costs

[77] If the parties cannot agree on costs, the Hoss may make brief written submissions as to costs in respect of each file within 14 days of the release of these Reasons. Celadon and Turoczi have 10 days after receipt of the Hoss’ submissions to respond. All such written submissions are to be forwarded to me at my chambers at 85 Frederick Street, 7th Floor, Kitchener, Ontario N2H 0A7 and shall not exceed five double-spaced pages, exclusive of Bills of Costs, any Offers to Settle and authorities. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

D. A. Broad

Date: June 29, 2015