Court File and Parties
COURT FILE NO.: CV-15-122193-SR DATE: 20161026 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: L.A.K.E.S Leasing Corporation Plaintiff – and – Green Homes Sodding and Landscaping Ltd., and Jack Yalda also known as Jack Kareem Yalda Defendants
Counsel: Ryan Hanna, for the Plaintiff Alex Alton, for the Defendants
HEARD: October 13, 2016
Judgment
GILMORE J.:
Overview
[1] This is a motion for summary judgment brought by the plaintiff, L.A.K.E.S Leasing Corporation (“Lakes”) in a Simplified Rules matter. Lakes seeks damages of $14,133.82 with respect to a deficiency balance on the sale of a leased Mack Dump Truck (“the truck”). In the alternative Lakes seeks partial summary judgment on liability and a mini trial on damages.
[2] The defendants oppose all of the relief sought on the grounds that this motion is both premature and unnecessary given the Simplified Rules summary procedures.
Factual Background
[3] On November 11, 2013, the parties entered into a lease agreement for the truck. The terms required the defendants to make a down payment of $8000 plus HST and 36 monthly payments of $1330.51 plus HST thereafter. The defendants also executed a general security agreement over their assets, property and equipment in favour of Lakes.
[4] In November 2014 the defendants defaulted on their lease payments. On March 11, 2015, the defendants executed a Consent to Take Possession and the truck was repossessed by a bailiff hired by Lakes.
[5] The defendant Yalda deposed that he surrendered the vehicle based on representations made in a phone call he had with Ms. Nikki Bowers at Lakes. Yalda deposed that Ms. Bowers informed him that he would not incur any costs if he surrendered the vehicle before the end of the lease as Lakes was required to sell the truck at a price that ensured they covered all of their costs. Based on this information, Yalda surrendered the truck.
[6] Lakes takes issue with Yalda’s evidence in this regard. The affidavit of Ms. Bowers sworn September 16, 2016 indicates that Yalda’s recollection is inaccurate. At the time of the conversation, the truck had not been sold and the expenses were unknown. Therefore, Ms. Bowers could not have guaranteed Mr. Yalda that he would not be responsible for certain costs or expenses if there was a shortfall.
[7] On April 9, 2015, Lakes sold the truck for $45,200. Lakes submitted that $43,010.91 remained owing on the lease including arrears as of the date of sale. In addition, Lakes incurred expenses totalling $11,102.91 associated with collection, repossession and sale. Those costs are set out below:
i. Collection Fees $1,500.00 ii. Bailiff (collection and towing) $1,867.33 iii. Inspection and Labour $2,524.91 iv. Inspection and Labour $ 690.67 v. Consulting and Sale Fee $4,520.00 TOTAL $11,102.91
[8] Based on what was recovered on the sale (minus the HST), Lakes submits the defendants owe a deficiency balance of $14,113.82.
[9] The defendants challenge the invoices supporting the expenses claimed by Lakes on the basis that they were either not incurred, not reasonable or necessary, or incurred by subsidiaries of Lakes and are only paper debts. Lakes has therefore not suffered any loss and no damages are payable.
[10] The defendants submit that the total value of the lease was $63,164.94. Payments on the lease totalled $28,585.24. That leaves a balance of $34,579.70. Lakes recovered $45,200 on the sale of the truck leaving them $10,620.30 to cover any expenses. Legitimate third party expenses such as the bailiff’s fees would be more than covered by this amount.
Issues and Analysis
Liability
[11] The defendants submit that they are not liable either based on the conversation with Ms. Bowers or on the basis that the sale proceeds of the truck were more than enough to cover any reasonable expenses.
[12] Lakes argues that liability is clear based on the terms of the lease, the General Security Agreement and the Consent to Take Possession.
[13] I agree with Lakes. While the evidence of the conversation with Ms. Bowers is contradictory, I do not find that any factual finding in relation to that conversation will assist on the issue of liability. It is clear that whatever Ms. Bowers said cannot be binding on Lakes in the face of the contracts entered into between the parties.
[14] The lease agreement (paragraph 11) makes it clear that the Lessee (the defendants) is liable for collection charges and interest at 24% on overdue payments.
[15] The General Security Agreement (paragraph 8.14) is clear that the Debtor (the defendants) will indemnify Lakes for “any and all claims, losses and liabilities arising out of or resulting out of this Security Agreement…”
[16] At paragraph 8.14 (b) the General Security Agreement sets out the debtor’s obligations re fees and expenses as follows:
(b) The Debtor will upon demand pay to the Lender the amount of any and all reasonable expenses including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Lender may incur in connection with (i) the administration of this Security Agreement (ii) the custody preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any rights or remedies of the Lender hereunder or (iv) the failure by the Debtor to perform or observe any of the provisions hereunder.
[17] The Consent to Taking of Possession at paragraph 3 sets out as follows:
- I have surrendered or intend to surrender the Security to the Creditor. The Creditor may immediately proceed to dispose of the Security. I waive any obligation to provide me with any notices of intended sale. I understand I will receive credit only for amounts received by the Creditor from such dispositions as and when the payments are received. I also agree that payments received will first be applied to any costs of the Creditor in taking possession, repairing, holding, processing, preparing for sale, selling and other reasonable costs incurred by the Creditor in relation to the Security or permitted by applicable legislation.
[18] Clearly there is liability for the defendants for all the various costs, charges, fees and expenses set out in those contracts. Further, the lease agreement is clear that no provision can be waived except in writing (paragraph 34) and the General Security Agreement specifies that there can be no collateral warranties which affect the Agreement (paragraph 8.9).
[19] Therefore, the defendants are liable as set out in those contractual documents. However, the matter does not end there. The question remains as to what the defendants are actually liable for. Summary judgment is indeed premature on the issue of damages.
Damages
[20] Based on the defendants’ calculations, there would be sufficient sale proceeds to cover expenses, and the liability issue would essentially become moot. However, for the sake of the trial judge and the parties, it is important to articulate the reasons why summary judgment cannot be granted on damages.
The amount of arrears and residual damages
[21] Lakes submits this amount is $43,101.91 but it has not provided any detailed breakdown of this number. The defendants submit that proper supporting documentation has not been provided. For example, the number may already include fees and interest. That is simply not known.
[22] This number is important as it is the base number used to calculate the residual deficiency before expenses. There appeared to be some confusion at the motion as to exactly what this number represented. Lakes must properly meet its burden to establish this number which I find they have not yet done.
Work done by Eagle Service Centre Inc.
[23] The invoice relating to the sale of the truck dated April 9, 2015 indicates the truck was sold “as is, where is.” The defendants therefore question why work needed to be done on the truck by Eagle Service Centre Inc. totalling $3215.58 when the truck was in good condition and repair when repossessed. The defendants also take issue with the vagueness of the invoices citing a possible duplicated inspection and no breakdown of items such as “inside work.”
[24] Lakes submits that the truck had to be readied for sale. It is standard procedure. Such costs were both reasonable and necessary.
[25] The defendants assert the charges were not necessary and Lakes that they were. I agree with the defendants that the invoices were vague. No supporting documentation was provided indicating that such work was necessary although I infer that some preparation for sale (even a fuel fill up and exterior and interior washing) was perhaps necessary. The issue requires more evidence before a determination as to reasonableness can be made by this court.
The Subsidiary Companies
[26] The defendants take issue with the fact that Eagle Equipment Sales Inc., the company which rendered the consulting fee invoice of $4520, and Eagle Service Centre Inc., were subsidiaries of Lakes. They referred to the letter from BDO dated June 16, 2016 in which Mr. Michael Bank indicates that invoices rendered by those corporations to Lakes are treated as “Due to Related Party” and paid down during the year as management sees fit with no fixed terms of repayment. As of July 31, 2015, Lakes had paid only $5000 on invoices from the subsidiaries totalling $99,832. The defendants therefore submit that the invoices are mere paper debts and a means by which Lakes seeks to charge more to defaulting lessees.
[27] Lakes denies that such practices are inappropriate. The subsidiaries were valid and existing companies at the time, and having subsidiaries for accounting purposes is a normal business practice. The defendants have in fact benefited from this arrangement as the amounts charged by the subsidiaries, especially Eagle Service Centre, are far less than what would have been charged by a third party service.
Reasonable and Necessary Expenses
[28] Both parties have made bald allegations about what expenses were reasonable and necessary. Lakes submits it has provided expert evidence through the Affidavit of Alfred Chisholm, the President of Lakes, who has significant experience in the leasing business. The defendants respond that Mr. Chisholm is not a qualified expert and therefore cannot give opinion evidence.
Analysis and Final Orders
[29] It is clear from the above factual disputes that the issues of damages cannot form the subject of a summary judgment at this stage in the litigation.
[30] I am not persuaded that Lakes has met its obligation to provide properly supported evidence of the amount of arrears and remaining term of the lease, the necessity of all of the incurred expenses as well as a proper breakdown of the amounts and the reasonableness of those expenses. While it is clear that the defendants are liable for such expenses, the quantum is very much in issue.
[31] As per Gafney v. Vainshtein, 2016 ONSC 2822, I do not see the benefit of referring any remaining “mini trial” back to myself pursuant to the expanded powers in Rule 20. I agree with Mulligan, J. in that case (at para 18) that the parties are better served by the summary procedures in the Simplified Rules.
[32] As such, partial summary judgment is granted on the issue of liability. Damages are to be determined by way of the usual Simplified Rules procedure and next steps are to be scheduled immediately.
[33] The parties have had some mixed success but if there is no agreement on costs I will receive written submissions of no more than 2 pages, exclusive of any Offers to Settle or Bill of Costs, on a 7 day turnaround commencing with the plaintiff. If no written submissions are received within 35 days of the release of this judgment, costs shall be considered to be settled.