CITATION: Midland Plaza Inc. v. Midland Medical Services Inc., 2015 ONSC 7608
COURT FILE NO.: CV-14-511091
DATE: 20151208
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Midland Plaza Inc.
Plaintiff/Moving Party
– and –
Midland Medical Services Inc., Midland Health Centre Inc., Abudulhafid Ali, Anthony Alsa Alsayed, Abdulrahman Eddeb aka Abdulrahman Ali Eddeb, Abu Baker, Abu Roghba, Magdy Kamar aka Mejdi Kamar aka Magdy Kumar and Mansour Bendago
Defendants/Responding Parties
COUNSEL:
S. Sopic and R. Malen, for the Plaintiff/Moving Party,
S. Secter, for the Defendants/Responding Parties Ali & Bendago
M. Arnold for the Defendant/Responding Party Kamar
D. Markovitch for the Defendant/Responding Party Eddeb
HEARD: November 17, 2015
Reasons for judgment
Sean F. Dunphy, J.
[1] This is a summary judgment motion brought by a plaintiff landlord against four indemnitors of a commercial lease.
[2] The plaintiff landlord was unsure of the creditworthiness of its prospective new corporate tenant. The landlord required the principal shareholders of the proposed tenant to provide a direct contractual guarantee of the proposed tenant’s obligations. The shareholders agreed to provide the requested indemnity but on a negotiated condition. They would be released unless the corporate tenant fell into “habitual default” during the first three years.
[3] The tenant had a mixed history of periods of repeated default followed by quiet periods of relative compliance. All defaults were eventually cured and rent brought up to date. In the fourth year when two consecutive rent payments were missed, the landlord decided it had had enough and terminated the lease. The indemnitors/shareholders claim that their indemnities had fallen away after three years. They raise other defences as well.
[4] On this motion for summary judgment, I am asked to assess whether any of the defences raised by the shareholder/indemnitors raise issues that require a trial to be determined or whether, as the landlord asks, I am in a position to grant judgment today.
[5] Despite the able and I must say resourceful arguments of counsel for the defendants, I must find in favour of the plaintiff landlord and grant the requested judgment. These are my reasons for doing so.
Overview of Facts
[6] The landlord in this case is the plaintiff Midland Plaza Inc. As the corporate name suggests, the plaintiff owns a retail plaza development in east Toronto.
[7] The first two defendants, Midland Medical Services Inc. and Midland Health Centre Inc. are respectively the original tenant and the assignee of the original tenant under a ten-year lease with the plaintiff commencing December 1, 2009 (the “Lease”). During argument I was advised that both corporate defendants have now been dissolved having apparently insufficient assets between them to warrant any creditor placing them in formal insolvency proceedings. They have been noted in default and have taken no part in the action.
[8] The remaining defendants (Dr. Ali, Mr. Alsayed, Dr. Bendago, Mr. Kamar, Mr. Roghba, and Dr. Eddeb) were shareholders of one or the other of the two corporate defendants and providers of an indemnity in favour of the landlord. Dr. Eddeb’s case is different from the others (he signed a document agreeing to provide an indemnity but the plaintiff has been unable to confirm that he ever provided the formal indemnity document contemplated). Of the six individual defendants, Mr. Alsayed and Mr. Roghba have not defended the action and were not party to this motion either.
[9] The respondents (other than Dr. Eddeb) provided their indemnity in 2009 when the Lease was first granted. They shall be referred to as the “Original Indemnitors”. While the actual indemnity provided by each of the Original Indemnitors (Schedule “C” to the Lease) was general and unconditional in form, the Lease contained an Addendum that all parties agree qualified the terms of the otherwise unconditional and absolute indemnity agreement. Pursuant to the Addendum, the Original Indemnitors “will remain on the Lease as Indemnitors for the term of the Lease but shall be released at the end of the third (3rd) year of the Term provided the Tenant has not been in habitual default under the Lease”. The term “habitual default” was defined to mean “that the Tenant has been in default three or more times under the provisions of the Lease within said three year period”.
[10] The plaintiff concedes that if it is not able to show the required “habitual default”, then the indemnities of the three respondents who were Original Guarantors fell away as of the end of November 2012 and its motion (and indeed claim) must fail. There was no requirement for any particular form of notice or election to be given by the landlord or the indemnitors under the Addendum to the Lease: the release of the indemnity is automatic unless the “habitual default” criterion is satisfied on the facts.
[11] The plaintiff landlord alleges the following defaults occurred in 2011 – each of which was ultimately cured before the end of that year at the latest. Cumulatively, these defaults are alleged to constitute the criterion of “habitual default” as defined in the Addendum:
a. April – October 2011 (7 months): rent received late each month; and
b. NSF cheques received in payment of rent (ultimately replaced and thus rectified): February 2, March 3, March 11 and April 2, 2011.
[12] Cumulatively, the landlord plaintiff has thus provided evidence of at least nine defaults (counting NSF cheques as a single default rather than counting the corresponding late payment default separately) throughout 2011. It is common ground that each and every one of these defaults was ultimately cured prior to the end of the year and of course the landlord did not in fact take steps to re-enter or terminate the Lease based upon them.
[13] In or about July 2011, the original tenant (the defendant Midland Medical) agreed to sell its assets to the new tenant (the defendant Midland Health). The details of this transaction are not material.
[14] As a result of the sale, however, the parties negotiated and documented an “Assignment of Lease and Consent” (the “Assignment”) that was completed on or about January 12, 2012. The Assignment accomplished the following:
a. Provided for the Landlord’s consent to the assignment of the Lease from Midland Medical to Midland Health;
b. Provided for the confirmation by the Original Indemnitors of their continuing liability under their indemnity despite the assignment; and
c. Provided for the acceptance of new indemnities from the principals of the assignee (i.e. the last two individual defendants, Mr. Roghba and Dr. Eddeb).
[15] All parties agree that any defaults existing and continuing under the Lease had been cured and were thus no longer continuing as of the date of the Assignment (being January 12, 2012).
[16] The rest of 2012 came and went apparently without incident. The assignee Midland Health was, at least initially, a reasonably faithful tenant. Midland Health failed however to provide a batch of post-dated cheques for 2013 as it was required to have done under the Lease. Once again, late payments began to become a problem in early 2013.
[17] On April 30, 2013, the original tenant (i.e. Midland Medical) stepped back into the Lease and took a re-assignment of it as it was permitted to do under the Assignment agreement.
[18] Unfortunately, the return of the original tenant did not bring a lasting improvement. Midland Medical paid November’s rent late and the cheque was returned by the bank for insufficient funds. This was eventually sorted out and December’s rent was received in apparently good order. When rent for January and then February 2014 failed to arrive at all, the Landlord declared a breach of the lease and issued a Notice of Termination dated February 4, 2014. The landlord changed the locks and took possession of the premises on that date. The Notice of Termination informed the tenant and by copy the Indemnitors that the landlord would look to them for damages arising from the premature termination of the Lease for the balance of the term thereof.
[19] Of the Indemnitors, only Dr. Ali, Dr. Bendago, Mr. Kamar and Dr. Eddeb have defended the action and these are the only respondents to this motion. Some of the defendants have cross-claims against each other. Dr. Bendago has a counterclaim against the plaintiff dealing with the manner in which he alleges he was denied access to patient records for a time following termination of the Lease and re-entry by the landlord. None of the cross-claims or the counterclaim are the subject of this motion for summary judgment. These will continue in the usual and ordinary course.
Issues
[20] The following issues are raised by the parties in argument on this motion:
a. Is this an appropriate case for summary judgment?
b. Were the Original Indemnities preserved by reason of “habitual default”?
c. If so, has the landlord been waived reliance upon prior defaults by reason of the Assignment Agreement on January 1, 2012?
d. Has the landlord failed to mitigate damages?
e. Is the defendant Eddeb bound by any indemnity at all?
Analysis and Discussion
(i) Is this an appropriate case for summary judgment?
[21] There appears to be no issue raised by any of the parties contesting the availability of summary judgment to decide the issues raised. Each has filed a factum supporting the applicability of summary judgment to resolve the issues raised. The issues to be determined are primarily legal ones and there are few, if any, actual facts in dispute. I have encountered no issues requiring a trial to be resolved fairly. Indeed, the respondents at varying points in their argument took pains to point out the “best foot forward” principle in asking me to draw negative inferences against their opponent due to the failure to adduce evidence on this or that point in issue and have reminded me of the jurisprudence inviting the court hearing a summary judgment motion to grant judgment in their favour (despite the lack of a cross-motion) should the plaintiff fail to prove its case.
[22] The factual issues in this case are simple ones. Assuming as I do that the parties have placed before me in one form or another evidence of all of the facts that they would intend to rely upon at trial, the issues raised on this motion may appropriately be dealt with by way of summary judgment. Their disposition will avoid an unnecessary trial on matters where there are no material facts in dispute.
(ii) Indemnities Preserved by Habitual Default?
[23] It is common ground that the indemnities of the Original Indemnitors (all of the respondents except Dr. Eddeb) would be considered released as of November 30, 2012 unless the plaintiff can establish that the tenant had, prior to that time, been in “habitual default” as defined by the Addendum. The respondents on this motion sought to make much of the lack of a defined term for “default” in the Lease and in the definition of “habitual default” in the Addendum to the Lease. In their view, absent a definition, there is ambiguity that should be resolved in their favour applying the doctrine of contra proferentem against the landlord whose form of lease this was. They cite in particular the alleged confusion of the property manager on cross-examination where he claimed that he had never allowed rent to get into arrears by reason of his successful efforts at collection each time rent was late or a cheque returned for insufficient funds. They suggest that the fact that the landlord did not in fact move to re-enter or terminate the lease due to late paid rent where the default was cured within the month means that “default” should be interpreted only refer to non-payment of rent going longer than one month.
[24] In my view, such arguments have no merit and would entirely defeat the evident commercial purpose of the Addendum. The release of the indemnities was conditional on lack of “habitual default”. By definition this refers to defaults that have not resulted in a termination of the Lease (in which case the future release of the indemnities would be moot).
[25] Where words are not specifically defined in a commercial agreement, the ordinary rules of contractual construction apply. The words are to be construed in their proper context and having regard to their usual and ordinary meaning.
[26] Pursuant to s. 5(a) of the Lease, “The Tenant covenants to pay to the Landlord without demand…an annual minimum rent…payable in equal monthly installments…Rent shall be payable on the first day of each and every month during the Term”. There is no ambiguity on this whatsoever. The plain and ordinary meaning of the word “default” in the context of a lease certainly includes breach of a covenant to pay rent on time. Black’s Law Dictionary (10th ed.) defines the noun “default” as “the omission or failure to perform a legal or contractual duty; esp. the failure to pay a debt when due”.
[27] The respondents have unsurprisingly failed to produce a single case suggesting that late payment of rent is not a default. The case of Arnoldin Construction & Forms Ltd. v. Alta Surety Co. cited by the respondents is no exception. Arnoldin was a “pay to be paid” case where there was ambiguity as to when payment was due to a subcontractor where the contractor had not been paid by the owner due to insolvency. It is of no assistance to the respondents in this case.
[28] If there are instances of commercial leases that do not require the timely payment of rent, they must occur with the frequency of unicorn sightings. I can think of few issues more obviously fitting the definition of “default” in a commercial lease than failure to pay rent in the time prescribed.
[29] The practice of the landlord in having its property manager press for payment first instead of moving immediately to unleash the arsenal of legal remedies for default at its disposition does not alter the character of the default nor the availability of those remedies if called upon. Such a practical and measured response to default is merely indicative of commercial common sense. There is no ambiguity to be resolved or explained by subsequent conduct nor does the subsequent conduct referred to have any bearing on the issue of the meaning of “default”.
[30] The evidence that the tenant failed to comply with this explicit and unambiguous provision for the payment of rent “on the first day of each and every month” is uncontradicted. The Tenant failed to do so on at least nine occasions in 2011. Were confirmation that failure to pay rent on time is considered a “default”, s.25(a) of the Lease provides it. Section 25(a) grants the landlord the right to re-enter if the “Tenant fails to pay any Minimum Rent, Additional Rent or other sums due hereunder on the day or dates appointed for the payment thereof without any notice of default” (emphasis added).
[31] Failure to pay rent when due is a default under the Lease. Failure to pay rent when due three times within the first three years of the Term of the Lease is a habitual default ad defined in the Addendum.
[32] The corporate tenant was given a period of three years to establish a creditworthy record of compliance in order for its principals to be released from their indemnities It missed the mark by a very wide margin. The whole purpose of such a provision in the Lease was to incent the owners to ensure their corporation did not establish a pattern of failing to meet its obligations when due. If they failed as owners to take the steps necessary to ensure this did not occur or even to inform themselves of late payments, they have only themselves to blame. Neither common sense nor the terms of the Lease itself obliged the landlord to provide them with a running tally on cured defaults.
(iii) Waiver by reason of Assignment Agreement?
[33] Even if the Tenant were found to have been in habitual default in 2011, the respondent Original Indemnitors nevertheless argue that those defaults were waived as a result of the January 2012 Assignment.
[34] Section 6 of the Assignment is entitled “Landlord’s Consent and Confirmation” and provides that “the Landlord hereby confirms that the Lease is in good standing and that all requirements thereof have been fulfilled up to the present time” (emphasis added).
[35] The respondents argue that this confirmation operates either as waiver of defaults that had occurred prior to that time or as an estoppel by convention precluding the plaintiff landlord from alleging defaults in prior periods to establish the “habitual default” necessary to prevent the automatic release of the indemnities on November 30, 2012. Since there are no allegations of default occurring after the date of the Assignment and prior to November 30, 2012[^1], the Original Indemnitors argue that their indemnities were therefore released by the terms of the Addendum.
[36] In order to establish an estoppel by convention, the respondents must establish that there was a mutual assumption of fact or law, that they have changed their legal position in reliance upon it and that it would be unfair to allow the plaintiff to resile or depart from that common assumption: Ryan v. Moore, 2005 SCC 38 at para. 59. None of these conditions are present in this case.
[37] There is simply no evidence of a shared assumption that the series of 2011 defaults would not be relied upon so as to permit the release of the indemnities on November 30, 2012 pursuant to the terms of the Addendum to the Lease.
[38] In order for there to be a “shared” assumption, there has to be some evidence that it was actually shared by each of them. There is no evidence from any of the respondents that the subject was raised or discussed in any way. Indeed, Mr. Kamar’s affidavit claims that he signed the Assignment documents “because it was my understanding that the Assignment had no effect whatsoever on the time limited indemnity that I had agreed to”. Dr. Ali and Dr. Bendago filed affidavits alleging that they were personally unaware of the late payments and NSF cheque defaults at the time since the payment of rent was attended to by a “silent partner” in the business. This being a motion for summary judgment, I am entitled to assume that if any evidence existed of the parties discussing the matter of “habitual default” or the subject of the release of the indemnities in connection with the Assignment, the respondents would have placed it before me.
[39] Neither the language of s. 6 nor the context of the Assignment document where it is found can support the weight the respondents would place upon them. Section 6 refers to “requirements of the lease”. It does not reference “defaults” at all, still less does it refer to the Addendum and the issue of the expiry of the indemnities. It would require a considerable stretch of the imagination to construe this language as amounting to an actual resurrection of the already expired[^2] conditional right to a release of the indemnities as provided for in the Addendum.
[40] Paragraph 7(c) of the Assignment on the other hand does mention the subject of defaults by that name and is quite precise and limited, providing only that “the Landlord confirms that the Assignee will not be responsible for any defaults arising or incurred prior to the Effective Date of any of the tenant’s covenants, obligations or agreements under the Lease” (emphasis added).
[41] Paragraph 11(a) of the Assignment specifically addressed the issue of the indemnities without making any mention of any waiver of prior defaults or a revival of a potential right to a release of the indemnity. To the contrary, it provides that: “[t]he Indemnity of the Original Indemnitors on their obligations under the Lease shall continue and the Original Indemnitors shall remain liable during the balance of the Term of the Lease”. If the Assignment were intended to revive the hope of the indemnitors for a possible release of their indemnities, one would have expected at least a passing mention of so important an agreement in the only paragraph of the Assignment that actually dealt with the indemnities.
[42] Having regard to the commercial context of the Assignment agreement itself, the express language of s. 7(c) and s. 11(a) of the Assignment and the lack of any evidence of the respondents taking part in the negotiation of the Assignment or having had any negotiations of any sort regarding the status of their indemnity, I cannot find that there was a shared assumption of either the non-existence of prior defaults or a waiver of reliance upon them for purposes of the indemnity.
[43] The respondent’s submissions would require me to find that the phrase “all requirements thereof have been fulfilled up to the present time” in section 6 was intended to operate as a waiver by the landlord in favour of the original indemnitors of the “habitual default” condition in the Addendum to the Lease. I agree with the submissions of the plaintiff that an enforceable waiver must arise from an “unequivocal and conscious” decision to abandon a right: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.. The language in section 6 of the Assignment is neither unequivocal nor conscious. The landlord already had the right to treat the indemnities as being in force for the full term of the Lease. There is no evidence that the Indemnitors bargained to restore the right to a release or that the Landlord received any consideration from them to grant it.
[44] The respondents are also unable to demonstrate detrimental reliance upon this alleged representation in s. 6 of the Assignment. The only detrimental reliance alleged by the respondents consisted of suggestions that, had they been aware of the existence of prior defaults that would have precluded the indemnities from being released on November 30, 2012, they would not have gone through with the Assignment. These self-serving statements are neither credible nor consistent with their own actions. I have three reasons for reaching this conclusion.
[45] Firstly, the agreement to sell the business of Midland Medical to Midland Health had been entered into in July, 2011 – five months prior to the Assignment being executed – and contained no closing conditions relating to the survival of the indemnities. The recitals to the Assignment contain no mention of the indemnities as being even a subsidiary purpose of the agreement. The indemnities provided by the Original Indemnitors already provided (para. 2) that the indemnities survived any transfer of the Lease consented to by the landlord. The confirmation of the continuation of the indemnities contained in the paragraph 11(a) of the Assignment did no more than re-affirm an existing obligation and was not necessary.
[46] Secondly, Dr. Ali and Dr. Bendago expected to receive substantial benefits from the sale (in the form of payments from the purchaser under its promissory note). The fact that Dr. Bendago did not actually receive those benefits later is not relevant.
[47] Finally, it is not credible to suggest that the respondents would not have gone through with the sale to Midland Health if they had known their indemnities would not be released since they never made inquiries on the subject and were at all events running the risk that Midland Health might default subsequent to closing.
[48] Lastly, I can find no basis to conclude that it would be unfair or unjust to allow the plaintiff to rely upon its contractual indemnity rights as against the indemnitors. The respondents did not bargain for a release in conditions where the tenant (controlled by them) had been so egregiously and consistently in default as Midland Medical had been in 2011, including for several months after the agreement to sell Midland Medical’s business in July 2011. While they claim now to have been unaware of the existence of the NSF cheques and late payment defaults at the time, Midland Medical was their company. There was no impediment to finding out such information if they were not aware of it and they did not bargain for any requirement in the Lease that the landlord assume the responsibility of advising them of defaults by their tenant. The Assignment entered into does not purport to revive an already dead release of the indemnities nor did anyone negotiate or give consideration for such an agreement.
(iv) Landlord’s reasonable mitigation of damages?
[49] The plaintiff has provided evidence of its efforts to mitigate. Such evidence includes numerous private showings of the premises in 2014 as well as two listing agreements in 2014 with commercial realtors.
[50] The property was ultimately re-leased on August 1, 2015 (with rent commencing in November 2015). The landlord’s claim has been reduced by the amount of rent collected or to be collected under such new lease until the end of the term.
[51] Particulars of the claim now advanced are as follows:
a. Rent from January 1, 2014 until October 31, 2015 @ $9,263/mo = $203,786;
b. Rent differential under new leases compared to old = $22,540.37;
c. Unpaid hydro = $7,066.31;
d. Locksmith/Bailiff = $881.40;
e. Remove Lettering from window = $565.00
f. Commission of Realtor = $23,789.21
Total: $259,912.12
[52] At the hearing, the landlord conceded that its figures had failed to give the defendants credit for a deposit received in the amount of $20,859.79.
[53] The landlord’s claim is thus $239,052.33 in total.
[54] I find each of the elements of the landlord’s claim listed above to be provable damages arising from the breach of the Lease by the tenant. The responding indemnitors have taken no substantive issue with the calculations per se. Rather, their challenge is more generally directed at the overall reasonableness of the landlord’s mitigation efforts.
[55] There is no serious issue taken with the idea that the landlord is entitled to claim contract damages for loss of bargain notwithstanding that it has elected to accept the tenant’s breach of the lease as a repudiation of the lease contract and re-enter: Highway Properties Ltd. v. Kelly Douglas & Co., (1971), 17 D.L.R. (3d) 710 (S.C.C.). The Lease specifically preserves the landlord’s right to do so in paragraph 26 and the Notice of Termination dated February 4, 2014 specifically reserved that right as well.
[56] While there is a general obligation upon all plaintiffs (including landlords) claiming damages for breach of contract to take reasonable steps to mitigate damages, the onus is upon the defendant to establish that the plaintiff’s efforts have failed to meet that standard of reasonableness. The responding defendants in this case have raised two facts that they claim discharge their onus and ought to deprive the plaintiff of all or substantially all of its claim.
[57] Firstly, it is claimed that the plaintiff unreasonably declined to accept Dr. Bendago’s offer to take over the lease which, had such offer been accepted, would have avoided virtually all of the damages claimed. Secondly, Dr. Bendago claims that he visited the property several times and saw no “for lease” sign in the window of the premises. It is claimed that the landlord’s efforts to re-let the property were thus characterized more by torpor than by vigour and that a more energetic leasing effort would have generated a tenant earlier.
[58] In my view, neither argument has sufficient evidentiary foundation to discharge the onus upon the respondents.
[59] In addition to being one of the principals of the tenant, Dr. Bendago was also a sub-tenant, carrying on his medical practice on a part of the premises. He alleges that on the day following the re-entry by the landlord he came to work at his offices and found the locks changed. He telephoned one of the principals of the plaintiff (Mr. Gutstein) and discussed the matter. In the course of the call, he claims to have offered to pay the back rent owing and to continue paying it going forward. His affidavit evidence is as follows:
“On the 5th of February, 2014, not only did I offer to pay whatever amount was owing to the Landlord, I offered to pay the rent going forward. I made this offer to Mr. Gutstein on the phone during the same conversation where I requested access to the building and the medical records. I could not afford to have my practice move again, so I was willing to pay the rent on a continuing basis to Mr. Gutstein and Mr. Sloan to stay in the Leased Property”.
[60] Later, he characterized this offer as being an offer to “take over the lease on the exact terms of the Lease”.
[61] Much was made by the respondents, in particular Dr. Bendago, of the fact that the plaintiff did not file responding material of Mr. Gutstein to contradict these assertions. The evidence filed by the plaintiff was that of the property manager who took no part in the call in question. However, that affidavit material merely recites that Mr. Gutstein does not recall the offer as having been made but does not otherwise seek to contradict the direct, first person evidence of Dr. Bendago.
[62] Dr. Bendago was cross-examined on his affidavit and related the conversation somewhat more tersely than his affidavit, but to similar effect:
“And I said, ‘No. Okay. We will take over the lease, whatever. We will take over’. He said ‘No.’ I said ‘Okay. I need to get access to the file…”
[63] I accept the position of the respondents that the failure to put the plaintiff’s “best foot forward” on this issue affecting its case can and should give rise to an adverse inference. However, there are limits to what that adverse inference would be. Mr. Gutstein’s evidence – even if delivered via hearsay – amounts to no more than “I don’t recall”. He does not contradict the evidence of Dr. Bendago. I accept that Dr. Bendago made the statements he related during his cross-examination on this subject.
[64] The issue is whether this almost casual offer, never repeated and never made in writing, is sufficient evidence to conclude that the plaintiff was unreasonable in refusing to accept it on the spot. In my view it is not.
[65] The landlord had re-entered and terminated the lease less than 24 hours previously. It had done so following a lengthy history of repeated defaults by its tenant of whom Dr. Bendago was a principal and a sub-tenant. Rent was in arrears by two months (January and February). Dr. Bendago claims to have been personally in the dark as to the extent of defaults that had occurred, particularly the failures to pay January and February rent which were the proximate causes of the actual Notice of Termination on February 4, 2014. He also claims to have always paid his own rent (as sub-tenant) to the tenant on time. Assuming both facts to be true (no cancelled cheques or bank account data was provided by him on the motion), the landlord is not charged with knowledge of such matters internal to the affairs of its defaulting tenant. Dr. Bendago, on the other hand, was well positioned to know of the failures of the tenant in whose affairs he had such a direct interest.
[66] Importantly, Dr. Bendago did not take any steps to tender the overdue rent.
[67] The landlord had no basis to assume that Dr. Bendago would offer it a better or more stable tenant than the defaulting tenant whose lease had just been terminated. In over three years of leasing history, the principals of the tenant had shown a spotty history of keeping their company on the fiscal straight and narrow even if defaults had, eventually, been straightened out. It would have been an exercise in choosing hope over reason for the landlord to have leapt at such a casual and entirely unenforceable oral offer on the spot. Had Dr. Bendago made a formal written offer, tendered overdue rent and presented some basis to assess his credit, the situation might have been different. This did not occur. Of course had he done so, the landlord would have had a serious commercial proposition to evaluate.
[68] Dr. Bendago was clearly looking to find a means to get the doors open to his practice from which he was locked out. I fully appreciate that this situation greatly inconvenienced him and, more importantly perhaps, his patients. The landlord had no reason to assume that his casual offer made to seek relief from that immediate problem would have survived calm reflection and resulted in a serious and actionable commercial proposition.
[69] Dr. Bendago in fact took immediate steps to re-locate. His interest in taking over the lease was not pursued and waned almost immediately. In the matter of commercial leasing, money talks. Dr. Bendago tendered none. I cannot credit a casual oral offer made in the heat of the moment and never followed up in writing as a serious commercial prospect that the landlord was unreasonable for not immediately accepting.
[70] I cannot find that this casual offer discharges the respondents’ duty of demonstrating that the landlord’s efforts at mitigation were unreasonable.
[71] Dr. Bendago’s suggestions that the landlords’ re-leasing efforts were listless is not much more convincing. He testified to having driven by the premises from time to time for a while and having seen no sign in the window. The landlord’s answer is simple. For the first several months, the plaintiff agrees that there was no sign in the window of the premises. The first of the two listing brokers preferred to place its sign on the edge of the plaza rather than in the window and did so. Dr. Bendago’s evidence is impressionistic and not dispositive of much.
[72] The landlord’s evidence of two commercial listings, of multiple showings, of ultimately finding a tenant at a lower rent than that provided for in the Lease are all indicative of reasonable levels of activity. The landlord had no reason to want to leave the premises vacant for any period of time. Vacancies in retail and commercial plazas bring the whole place down. The landlord had no commercial reason to prefer to take a lease at a lower rent and pursue the Indemnitors in legal proceedings at uncertain cost and risk.
[73] I reject the defence of unreasonable mitigation and accept the landlord’s evidence of the damages arising from the termination of the Lease following the tenant’s breaches of it. I find that the damages arising from the breach of the Lease by the tenant amount to $259,912.12 as claimed by the plaintiff less the deposit to be credited for a total proven claim of $239,052.33.
(v) Is Dr. Eddeb bound at all?
[74] Dr. Eddeb is in quite a different position from the other respondents on this motion. He was not an Original Indemnitor and thus does not claim to be affected by the alleged waiver in paragraph 6 of the Assignment nor is he able to claim his indemnity fell away after the third year pursuant to the Addendum. Dr. Eddeb’s allegation is that he never actually provided the indemnity at all.
[75] Dr. Eddeb has provided evidence that he had sought to resign from the “partnership” of Midland Health prior to closing and that the accountant processed his resignation as a director of the corporation in December 2011 (prior to closing). While acknowledging that he signed all of the closing documents after having allegedly abandoned any claim to participation in Midland Health in October 2011, he claims that he did so because of the assurances of his erstwhile partner Mr. Roghba that his signature was required “since my name appeared on the Articles of Incorporation” and he wanted to assign to ensure that Midland Health would be able to close on the purchase of the assets of Midland Medical. He claimed that he thought he was protected by having added below one copy of his signature on the Assignment document: “resigned first month”. Finally, Dr. Eddeb claims that, although a doctor, he is not “sophisticated in business or legal affairs” and trusted Mr. Roghba that the lawyer for Midland Health would look after his interests.
[76] Dr. Eddeb points out that this is a motion for summary judgment where the plaintiff must put its best foot forward and, if its case is found lacking, risk dismissal of its claim even if the defendants do not bring a cross-motion. The plaintiff has candidly admitted that it does not possess an actual signed copy of the form of indemnity (Exhibit C to the Lease) signed by Dr. Eddeb.
[77] The “best foot forward” position of course works in both directions. Dr. Eddeb has provided quite equivocal evidence as to his participation in Midland Health and the reasons for his signature of documents assuming personal liability. He has not provided copies of any actual share transfer to Mr. Roghba evidencing his abandonment of an interest in the company. While he claims to have done so in October 2011, his signature on the Assignment in January is not qualified in one counterpart, and is qualified only by “resigned after one month” in the other. No evidence of Mr. Roghba has been tendered by Dr. Eddeb nor any explanation as to why this might not have been feasible.
[78] In my view, the status of Dr. Eddeb’s shares in Midland Health in January 2012, his ambiguously qualified signature on the document and his alleged lack of understanding of the effect of the Assignment he signed are all something of a red herring.
[79] He does not dispute (i) having executed the Assignment as an “Additional Indemnitor”; and (ii) having done so “in order to allow [Midland Health] to take over the premises”. Further, he makes no suggestion that the plaintiff had any reason to be privy to any of the alleged representations attributed to the absent Mr. Roghba or to be aware of Dr. Eddeb’s alleged mistake as to the effect of what he was signing.
[80] Whether I accept as credible or not the allegations of having been misled by Mr. Roghba (and the allegations appear quite self-serving and lacking in credibility to me), there is no suggestion that the plaintiff was in any way aware of these at the time the Assignment was executed and Dr. Eddeb’s agreement to act as “Additional Indemnitor” accepted. Unilateral mistake on Dr. Eddeb’s part can be no defence to the enforcement of the Assignment agreement he entered into absent some element of knowledge by the plaintiff of the mistake of Dr. Eddeb and a strong basis to find that it would be unjust to permit the plaintiff to rely upon an agreement procured under the influence of such a mistake.
[81] Dr. Eddeb appears to be arguing for the application of the doctrine of non est factum without mentioning it by name. I agree with Faieta J. in Patel v. Borges 2015 ONSC 6606 that a party seeking to deny their consent to an agreement by reason of non est factum must establish (1) the absence of carelessness and (2) that the document signed is fundamentally different from that which the person thought they were executing (Patel v. Borges, supra at para. 15). See also Saunders v. Anglia Building Society, 1970 3 All E.R. 961 (H.L.). Where, as here, the alleged mistake in executing the document is attributed to the misdeeds or undue influence of a third party (in this case, Mr. Roghba), there must be a credible basis to attribute constructive knowledge of that situation to the plaintiff.
[82] The evidence in this case does not satisfy the requirements of the defence of non est factum nor any basis to attribute knowledge of Mr. Roghba’s alleged misdeeds to the plaintiff. The burden of proof to establish the defence of non est factum is a heavy one and lies squarely upon Dr. Eddeb. He has not discharged it.
[83] Dr. Eddeb wanted the plaintiff to rely upon his signature and allow the deal to close. His admission of this motive belies any suggestion of constructive knowledge of the plaintiff of the misrepresentations of Mr. Roghba alleged. The ambiguous qualification of “resigned after one month” handwritten by Dr. Eddeb on one copy of the Assignment does not in any way suggest that the plaintiff was or should have been aware of any of the allegations of ignorance made by Dr. Eddeb in his affidavit.
[84] Dr. Eddeb has provided no basis to accept that he failed to appreciate that a document entitled “Assignment of Lease and Consent” and that he signed as “Additional Indemnitor” was anything other than what those seven words suggested that it appeared to be. The suggestion that a trained medical doctor would have failed to extract at least that much from the document beggars belief.
[85] Finally, his rather far-fetched explanations of why he signed the document in the manner he did are, at the very least, an admission of exceptional carelessness that would disentitle him to the benefit of the equitable defence of non est factum.
[86] Dr. Eddeb argued that his signature was qualified on the signature page of the Assignment. Indeed, in the copy of the Assignment produced by the plaintiff, there are multiple counterpart signature pages (as is not uncommon and is indeed contemplated by the agreement). On one of the two otherwise identical signature pages bearing his signature, Dr. Eddeb printed beside his own name “resigned first month”. His signature is not so qualified on the second of the two copies of that page produced by the plaintiff nor does it appear on the copy of the Assignment produced by Dr. Bendago in his responding record.
[87] I cannot attribute any particular meaning to this qualification. There is no evidence before me to suggest that the plaintiff had its attention drawn to the ambiguous insertion made by Dr. Eddeb nor that there was any agreement as to its meaning. It does not negate his consent to the Assignment, his signature thereto as an “Additional Indemnitor” or his own desire to ensure that the plaintiff allow Midland Health to complete the acquisition of assets including the Lease.
[88] This leaves Dr. Eddeb with one substantive defence to liability on this motion, namely the inability of the plaintiff to locate the actual signed indemnity agreement that the Assignment refers to.
[89] Unable to locate a copy of a stand-alone indemnity signed by Dr. Eddeb, the plaintiff relies instead on the terms of the Assignment itself that Dr. Eddeb has admitted to having signed. The Assignment provided in paragraph 11(b) thereof that Dr. Eddeb and Mr. Roghba (defined as “Additional Indemnitors”) “shall provide their personal indemnity and will remain on the Lease as new additional Indemnitors for the term of the Lease. The Additional Indemnitors shall execute the Indemnity Agreement attached hereto as Exhibit “A” for the purpose of acknowledging each of the Additional Indemnitor’s agreement to indemnify and save the Landlord harmless from and against non-payment of Rent and any non-performance of any of the terms, covenants and conditions contained in the Lease to be observed and performed on the part of the tenant herein”. Dr. Eddeb’s signature appears on the document as one of the two “Additional Indemnitors”, but Exhibit “A” – being the actual form of the indemnity to be executed – has not been located and was not attached to any copy of the Assignment document that has been produced by the parties.
[90] Paragraph 11(b) of the Assignment contains both the agreement of Dr. Eddeb to execute the indemnity agreement and a description of it sufficient to identify its material terms. Dr. Eddeb’s “personal indemnity” was to “indemnify and save the Landlord harmless” from any of the listed harms including non-payment of Rent and failure of the tenant to perform any other obligations. Each of the amounts of the plaintiff’s damages claim as found by me on this motion are in respect of obligations specifically referenced in paragraph 11(b) and are thus explicitly tied to the promise contained therein. The lack of a stand-alone indemnity document does not alter the obligation undertaken in that paragraph. Paragraph 11(b) has all of the components needed to establish the nature and content of Dr. Eddeb’s agreement.
[91] I therefore reject the defences raised by Dr. Eddeb and conclude that he is liable under paragraph 11(b) of the Assignment to indemnify the plaintiff for the amounts claimed as damages arising from the repudiation of the Lease.
Disposition
[92] I find that the plaintiff is entitled to judgment for its claim as against the four respondent indemnitors (Dr. Ali, Dr. Bendago, Mr. Kamar and Dr. Eddeb) in the amount of $239,052.33 being the amount of damages it has proved to arise from the termination of the Lease on February 4, 2014 less the deposit held. The counterclaim and cross-claims remain outstanding.
[93] I have not made any order as to prejudgment interest given the nature of the damages claims and the lack of any particulars. Post-judgment interest shall be applicable on the full amount of the judgment and shall be calculated in the usual way pursuant to the Court of Justice Act.
[94] There remains the matter of costs. The plaintiff has been successful on this motion and would normally be entitled to its costs. Obviously I am not aware of any offers made by any party under Rule 49.
[95] If the parties are unable to resolve the matter of costs between themselves within 14 days of the date these reasons are released, I direct the following procedure to be followed:
a. The plaintiff is to deliver its Outline of Costs to the respondents along with its written submissions (not to exceed five pages in length excluding Outline) by January 4, 2106;
b. The respondents shall each respond with submissions (not to exceed five pages in length, not including Outline if any) by January 18, 2016;
c. The plaintiff shall deliver the submissions of ALL parties including its own reply if any (limited to TWO pages) by January 21, 2016 to the attention of my assistant at via email, fax or memory stick (copied to the Responding Parties);
d. All written submissions should be hyperlinked to citations where cases are referred to (pdf copies of other cases may be attached if needed);
e. All written submissions should assume full familiarity with Rule 57.01 and focus on issues particular to this case; and
f. If no ruling from the Court is received within three weeks, kindly remind my assistant.
Sean F. Dunphy, J.
Date: December 8, 2015
CITATION: Midland Plaza Inc. v. Midland Medical Services Inc., 2015 ONSC 7608
COURT FILE NO.: CV-14-511091
DATE: 20151208
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Midland Plaza Inc.
Plaintiff/Moving Party
– and –
Midland Medical Services Inc., Midland Health Centre Inc., Abudulhafid Ali, Anthony Alsa Alsayed, Abdulrahman Eddeb aka Abdulrahman Ali Eddeb, Abu Baker, Abu Roghba, Magdy Kamar aka Mejdi Kamar aka Magdy Kumar and Mansour Bendago
Defendants/Responding Parties
REASONS FOR JUDGMENT
Sean F. Dunphy, J.
Released: December 8, 2015
[^1]: The respondents filed affidavits evidencing a letter from the plaintiff to the assignee Midland Health dated April 3, 2013 confirming that there had been no defaults during the assignee’s tenancy which has not been contested by any party. The letter makes no such statement regarding the assignor’s period of tenancy.
[^2]: Since “habitual default” had already been demonstrated by the tenant prior to January 12, 2012 when the Assignment agreement was executed, s. 6 would have to be construed as reviving in favour of the Original Indemnitors the right to a release per the Addendum that had already been lost.