CITATION: Cleland Metal Products Ltd. v. Proctor, et al., 2016 ONSC 1679
COURT FILE NO.: 55938/15
DATE: 2016/03/08
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CLELAND METAL PRODUCTS LTD.
R. Slingerland, for the Plaintiff/Respondent
Plaintiff/Respondent
- and -
NEIL PROCTOR, 1540958 ONTARIO INC. O/A PREMIER FITNESS CLUBS
F. S. Turton, for the Defendants/Appellants
Defendants/Appellants
HEARD: February 26, 2016
The Honourable Mr. Justice J.R. Henderson
DECISION ON APPEAL
INTRODUCTION
[1] This is an appeal from the decision of Small Claims Court Deputy Judge J. Sloniowski, dated May 25, 2015, whereby judgment was granted in favour of the plaintiff in the amount of $23,222.74, plus interest, plus costs, against both the personal defendant (hereinafter called “Proctor”) and the corporate defendant (hereinafter called “154”). Only Proctor appeals this decision.
[2] The issue on the appeal is whether the two year limitation period regarding the plaintiff’s claim against Proctor has expired. More specifically, the question is whether a part payment of the debt made by the debtor, 154, served to extend or refresh the limitation period as against the guarantor, Proctor.
[3] The issue on the appeal is a question of law, and therefore the standard of review is correctness.
THE FACTS
[4] The material facts are not in dispute. Pursuant to a contract the plaintiff performed work and supplied materials for 154. 154 made some payments to the plaintiff on the contract, but 154 owed the plaintiff the sum of $47,715.13 as of early July 2006.
[5] By way of a written settlement agreement dated July 7, 2006, the parties acknowledged the outstanding debt of $47,715.13; agreed that 154 would make an initial payment of $10,000.00; agreed that 154 would pay the balance in six equal monthly instalments of $6,285.86 commencing August 1, 2006 and ending January 1, 2007; and agreed that Proctor would provide a personal guarantee of the amount outstanding.
[6] Proctor was the secretary/treasurer of 154 at the time. Proctor signed the settlement agreement on behalf of 154 and on behalf of himself. The sum of $10,000.00 was paid by 154 to the plaintiff on or about July 7, 2006.
[7] Thereafter, by way of a letter dated July 14, 2006, Proctor provided his personal guarantee to the plaintiff. It read in part as follows:
Please accept this letter as my personal guarantee of the payments due to your company from 1540958 Ontario Inc. as per the settlement agreement dated July 7, 2006 which is attached. This guarantee is for the amount of $37,715.13 and will be reduced by the amount of each payment made by 1540958 Ontario Inc. This letter is your authority to proceed against Neil Proctor personally should there be a default in the payments as per the settlement agreement.
[8] The parties agree that four of the six monthly payments were not made, and that there was a default by 154 on or before January 1, 2007. Therefore, for the purposes of this appeal the parties agree that it is appropriate to use January 1, 2007 as the date of default.
[9] The Small Claims Court action against 154 and Proctor was commenced on April 22, 2010. At trial, the defendants submitted that the cause of action arose on January 1, 2007, and this action was commenced more than two years after that date. Therefore, unless there was intervening conduct that refreshed or reset the limitation period, the defendants submitted that the claim against both defendants was statute barred.
[10] At trial, the plaintiff called evidence to show that a partial payment in the amount of $1,920.67 was made by 154 to the plaintiff on April 22, 2008. The plaintiff submitted that this partial payment constituted an acknowledgment of the debt pursuant to the Limitations Act, 2002, S.O. 2002, c. 24, and accordingly that the claim was not statute barred as against either defendant.
[11] The Deputy Judge found that the part payment had been made on April 22, 2008, and that the limitation period had been refreshed. Judgment was granted against both defendants.
[12] On this appeal, the defendants acknowledge that they are bound by the findings of the Deputy Judge that the part payment extended the limitation period against the debtor, 154. However, Proctor submits that the Deputy Judge erred in law by implicitly finding that the part payment by 154 extended the limitation period against the guarantor, Proctor.
ANALYSIS
[13] Relevant sections of the Limitations Act, 2002, provide as follows:
Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
(1) If a person acknowledges liability in respect of a claim for payment of a liquidated sum, the recovery of personal property, the enforcement of a charge on personal property or relief from enforcement of a charge on personal property, the act or omission on which the claim is based shall be deemed to have taken place on the day on which the acknowledgment was made.
(10) Subsections (1), (2), (3), (6), and (7) do not apply unless the acknowledgment is in writing and signed by the person making it or the person’s agent.
(11) In the case of a claim for payment of a liquidated sum, part payment of the sum by the person against whom the claim is made or by the person’s agent has the same effect as the acknowledgment referred to in subsection (10).
[14] The plaintiff’s right to claim against a guarantor depends upon a plain reading of the written guarantee. In this case, it is clear that Proctor guaranteed the entire debt of $37,715.13, as well as the payments referenced in the settlement agreement. It is also clear that the plaintiff had the right to proceed against Proctor upon default of any of the aforementioned payments. Thus, I accept that in this case, the guarantee is not a demand guarantee.
[15] As to the commencement of the limitation period against a guarantor, I adopt a passage from Graeme Mew, The Law of Limitations, 2d edition (Markham: Butterworths, 2004), at page 197 para. 8.2 as follows:
The general rule is that the liability of the surety and the creditor’s cause of action against the guarantor start at the moment of the debtor’s default... The actual wording of the guarantee must always be carefully considered to ascertain when the liability of the surety to compensate the principal, will arise... Although obligations of a surety and principal debtor are often concurrent, they are nevertheless separate and distinct obligations.
[16] There is clear authority in the case law to support the abovementioned statements, including the decisions in Meridian Developments Ltd. v. Nu-West Group Ltd., 1984 ABCA 75 (ACA), Alar Investments NA Ltd. v. Zakharov, [2012] O.J. No. 5838, and Canada (Attorney General) v. McCann, [1996] O.J. No. 3781.
[17] In the present case, given that this is not a demand guarantee and given the wording of the personal guarantee, the liability of the guarantor arises upon any default in payment by the debtor. Therefore, the plaintiff’s cause of action against Proctor arose on January 1, 2007, the date of default by 154. Similarly, the plaintiff’s cause of action against 154 also arose on the same date for the same reason.
[18] Thereafter, although the causes of action against both 154 and Proctor arose on the same date, I find that the plaintiff’s claims against 154 and Proctor were nevertheless separate and distinct. Consequently, the question of whether any acknowledgement or part payment extends the limitation period needs to be considered separately for each of the two causes of action.
[19] At page 4 of his decision, the Deputy Judge wrote: “...I accept the evidence of Mr. William Cleland Sr. that he received a call from someone at 154 operating as Premier Fitness Clubs... to come and pick up a bank draft for $1,920.67...” Further, at page 4, the Deputy Judge wrote: “…the bank draft came from 154 as partial payment...” And, at page 5, the Deputy Judge wrote: “…for this purpose the bank draft was from 154...”
[20] Having found that 154 made a part payment that constituted an acknowledgement of the debt, the Deputy Judge found that s. 13 of the Limitations Act, 2002, applied so as to extend the limitation period against both 154 and Proctor. However, for the purposes of the limitation period issue, the Deputy Judge did not separately consider the two distinct causes of action. In his Reasons, the Deputy Judge did not provide any analysis as to how the part payment by 154 extended the limitation period for a cause of action against Proctor. In my view, this constitutes an error in law.
[21] At trial, it was suggested that Proctor had made the arrangements for the part payment to the plaintiff. However, the Deputy Judge did not make that finding. In fact, the Deputy Judge specifically found that the plaintiff received a call “from someone at 154.” Therefore, in this case, there is no evidence that the debtor acted as agent for the guarantor.
[22] Furthermore, the provisions of the Limitations Act, 2002 clearly state that in order for an acknowledgement or part payment to trigger an extension of the limitation period, the acknowledgement or part payment must be made by the person against whom the claim is made.
[23] The relevant sections read:
(10) Subsections (1), (2), (3), (6) and (7) do not apply unless the acknowledgment is in writing and signed by the person making it or the person’s agent.
(11) In the case of a claim for payment of a liquidated sum, part payment of the sum by the person against whom the claim is made or by the person’s agent has the same effect as the acknowledgment referred to in subsection (10). [Emphasis added]
[24] Therefore, in this case, in order for the limitation period to be extended against Proctor, the plaintiff must prove an acknowledgement in writing signed by Proctor or a part payment made by Proctor.
[25] There was no evidence at trial that there was an acknowledgement by Proctor or a part payment made by Proctor, and the Deputy Judge did not make such a finding. Therefore, on the facts of this case, it was an error in law for the Deputy Judge to find that the limitation period had been extended against both Proctor and 154. The judgment against Proctor must be set aside.
[26] As an alternative argument, counsel for the plaintiff submitted that the judgment against Proctor should not be set aside for equitable reasons. In particular, plaintiff’s counsel submitted that both of the defendants are now impecunious, and that 154 has gone into receivership. In my view, there is no authority for this court to dismiss an otherwise successful appeal solely on the basis of the impecuniosity of the appellant.
[27] For these reasons, the judgment in favour of the plaintiff as against Proctor is set aside. The judgment against 154 remains.
[28] If there are any other issues, including costs, that cannot be resolved, I direct that the party seeking relief shall deliver written submissions to the trial co-ordinator at St. Catharines within 20 days of the release of this judgment with responding submissions to be delivered within 10 days thereafter. If no submissions are received within this timeframe, the parties will be deemed to have settled all of the remaining issues as between themselves.
Henderson J.
Released: March 8, 2016
CITATION: Cleland Metal Products Ltd. v. Proctor, et al., 2016 ONSC 1679
COURT FILE NO.: 55938/15
DATE: 2016/03/08
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CLELAND METAL PRODUCTS LTD.
Plaintiff/Respondent
- and -
NEIL PROCTOR, 1540958 ONTARIO INC. O/A PREMIER FITNESS CLUBS
Defendants/Appellants
DECISION ON APPEAL
Henderson J.
Released: March 8, 2016