Equirex Leasing Corp. v. Medcap Real Estate Holdings Inc.

COURT FILE NO.: 4756/17

DATE: 2018-05-25

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: EQUIREX LEASING CORP., Applicant

AND:

MEDCAP REAL ESTATE HOLDINGS INC., Respondent

BEFORE: Gray J.

COUNSEL: Brian H. Somer, Counsel for the Applicant

F. Scott Turton, Counsel for the Respondent

HEARD: May 18, 2018

ENDORSEMENT

[1] In this application, the applicant (“Equirex”) seeks possession of equipment that is subject to a number of commercial leases. The equipment is used in fitness clubs in Burlington and Hamilton. The respondent (“Medcap”) was, at the time the leases were entered into, the landlord of the premises in which the equipment was located.

[2] The leases themselves were with different numbered companies, who are not parties to this application. In addition to the leases, the numbered companies executed General Security Agreements (“GSAs”).

[3] For the reasons that follow, relief is granted to the applicant.

Background

[4] In order to appreciate some of the issues raised, particularly issues raised by Medcap, some of the corporate background is necessary. Prior to 2011, there was a corporation named Equirex Leasing Corp. That corporation changed its name to Bennington Financial Services Corp., pursuant to articles of amendment dated December 9, 2011.

[5] 7834195 Canada Inc. was incorporated on May 9, 2011. On December 9, 2011, that corporation changed its name to Equirex Leasing Corp.

[6] By agreement dated December 9, 2011, Bennington Financial Services Corp. entered into an agreement with 7834195 Canada Inc., under which Bennington sold to 7834195 Canada Inc. substantially all the assets it owned. Pursuant to article 2.1 of the agreement, “Seller hereby sells, assigns and transfers to Purchaser and Purchaser hereby purchases from Seller all of its property and assets (other than the Excluded Assets), whether real or personal, movable or immovable, tangible or intangible, of every kind and description and wheresoever situate as a going concern…” The assets sold, assigned and transferred included “all rights under leases of personal (movable) property, orders or contracts for the provision of goods or services (whether as buyer or seller), distribution and agency agreements and other contracts not otherwise referred to…” There was valuable consideration for the agreement. The respondent, Medcap Real Estate Holdings Inc., was formerly called Cardillo Capital Corp. The record does not contain information as to when the corporation changed its name.

[7] The relevant properties at which the equipment was, and perhaps still is, located are at 3430 Fairview Street, Burlington (“Fairview’); 92-100 Centennial Parkway, Hamilton (“Centennial”); and 635 Upper Wentworth Street, Hamilton (“Upper Wentworth”). Fairview was owned by Medcap until October 26, 2017. It is now owned by 10351237 Canada Inc. Centennial and Upper Wentworth are still owned by Medcap.

[8] Equirex, while technically the lessor of the equipment in issue, is really a funding organization. If it considers it to be in its interests to do so, it will purchase equipment that is sought to be used by an ongoing business and then lease it to that business.

[9] In this case, what was proposed was that Equirex purchase gymnastic equipment that would be used in the operation of fitness clubs, and then lease that equipment to the operators of the fitness clubs. In addition to executing leases of the equipment, Equirex extracted GSAs from the operators of the fitness clubs.

[10] While there were various other parties to the leases, there were three numbered companies which were the primary operators of the fitness clubs at Fairview, Centennial and Upper Wentworth. They were 1860337 Ontario Inc. (at Fairview); 1860342 Ontario Inc. (at Centennial); and 1860335 Ontario Inc. (at Upper Wentworth). While there were seven leases executed in total, they all related to equipment intended to be used at one of the three locations. In every case, a GSA was executed. All of the leases and the GSAs were properly registered under the Personal Property Security Act. In every case, Cardillo Capital Corp. executed a separate schedule to the relevant lease, and in each such lease Cardillo Capital Corp. (now Medcap) was described as an “Additional Lessee”. While each schedule is headed “Additional Lessee”, it is actually more akin to a guarantee.

[11] In each case, the lease provides that in the event of default, the lessor is entitled to take immediate possession of any or all of the leased assets. Default is defined as including a failure to make payments under the lease when due, or by losing possession or control of the business premises.

[12] Affidavit evidence has been filed, that has not been contradicted, that in the case of Centennial and Upper Wentworth, the lessees have failed to make required rental payments. In the case of Fairview, it is alleged, without contradiction, that the equipment has been removed without permission from the lessor.

[13] It should be noted that six of the seven leases were executed at a time before the creation of 7834195 Canada Inc.; in other words, before the current version of Equirex existed. Medcap has thus challenged the right of the current applicant, Equirex, to maintain this application. Furthermore, Medcap has demanded the production of a large number of documents that it says are relevant to the question of whether the leases were properly assigned from Bennington to 7834195 Canada Inc. and/or the current version of Equirex.

[14] It should also be noted that Medcap has filed no affidavit material in response to this application. Instead, it has filed various pleadings in other actions in which litigation is ongoing between Equirex, Medcap and various numbered companies in which, among other things, the validity of the leases is challenged.

[15] Equirex has filed unchallenged evidence that when its representative attended at Fairview, the equipment had already been removed and Mr. Cardillo, a representative of Medcap, confirmed that the equipment had been moved to another location but he declined to provide particulars. When a representative attended at Centennial, he was denied access and ordered to leave the property. Access was denied to Upper Wentworth as well.

[16] The only evidence tendered by Medcap was elicited under rule 39.03. One Neil Proctor, who is apparently an officer of the three relevant numbered companies, testified, in substance, that none of the numbered companies now has any equipment belonging to Equirex at the three locations in issue.

Submissions

[17] Counsel for the applicant submits that this court has ample power, pursuant to section 67 of the Personal Property Security Act, to grant relief to the applicant.

[18] Mr. Somer points out that pursuant to the leases and the GSAs, Equirex has the right to secure possession of the equipment once there has been default. It is undisputed that there has been default here.

[19] Mr. Turton, counsel for Medcap, submits that the applicant does not have status to bring this application under at least six of the seven leases. Mr. Turton submits that there is insufficient evidence that there has been a proper assignment of the leases from Bennington (the original lessor) to 7834195 Canada Inc. (which subsequently became Equirex, the applicant). Mr. Turton notes that the applicant has refused to produce documents that would be relevant to the question of whether there have been proper assignments. At the very least, Mr. Turton requests that I make an order that the documents now be produced, and requests that I adjourn the application to be considered after the documents have been produced.

[20] Mr. Turton further points out that there is no evidence that any goods that are subject to the leases are presently on the premises.

[21] Mr. Turton also submits that none of the numbered companies, the lessees, have been named as parties to this application. In addition, contrary to rule 5.03, Bennington, as the assignor, has not been named as a party. Mr. Turton submits that this is fatal to the application.

[22] In reply, Mr. Somer notes that under the agreement between Bennington and 7834195 Canada Inc., all of Bennington’s interest in all of the leases was assigned to 7834195 Canada Inc., and that is more than sufficient. Mr. Somer submits that the documents demanded by Medcap constitute nothing more than a fishing expedition, and an attempt to further delay these proceedings.

[23] Mr. Somer submits that it is unnecessary to name the numbered companies as parties. The uncontradicted evidence is that the leases are in default, and the lessor has rights under the leases and the GSAs to take possession of the equipment. No order is necessary. What Equirex is seeking here is an order that Medcap, the landlord, cease taking steps to impede Equirex in exercising its rights under the leases and the GSAs. Equirex has every right to enter the premises where the equipment was required to be used, and to determine whether its equipment is there. If Equirex’s equipment is there, Equirex requires the assistance of the court in preventing Medcap from obstructing its rights.

[24] Mr. Somer submits that it is unnecessary to add Bennington as a party under Rule 5.03. He points out that the leases themselves contain provisions that permit the leases to be assigned, with or without notice. However, he notes that he is an officer of Bennington, and he consents to Bennington being added as a party if the court considers it to be necessary.

Analysis

[25] The relevant provisions of the Personal Property Security Act are attached as an Appendix to these reasons.

[26] I am satisfied that the applicant has the necessary status to maintain this application.

[27] The former Equirex Leasing Corp., which changed its name to Bennington Financial Services Corp., properly assigned its interest in six of the seven leases to 7834195 Canada Inc., which itself became the current applicant, Equirex Leasing Corp. The agreement entered into on December 9, 2011 is crystal clear in this respect. Nothing further is required, and in my view Medcap’s demands for further documents are nothing more than a fishing expedition and an attempt to delay this application.

[28] As a matter of prudence, I will order that Bennington be added as a respondent to this application. Rule 5.03 does not specify whether the assignor must be added as an applicant or a respondent. It simply requires that the assignor be made a party so that all of the proper parties are before the court. Naming Bennington as a respondent will accomplish this.

[29] Medcap has filed no evidence on this application to contradict the affidavit evidence filed by Equirex. The leases were properly entered into, as well as the GSAs. They were all properly registered under the Personal Property Security Act. The leases are in default, and Equirex has a right to possession of the equipment that was the subject of the leases. Equirex has the right to enter property where the equipment might be located and, if the equipment is located there, has the right to possession of the equipment. It is not necessary to name the numbered companies as parties to this application. Equirex has rights against them under the leases and the GSAs, and it is exercising those rights. No orders against them are necessary.

[30] Section 67 of the Personal Property Security Act provides ample authority for the court to lend its aid to Equirex in exercising its rights under the leases and the GSAs. The court has the right to order Medcap, as the landlord, to stop impeding Equirex in pursuing its rights. Furthermore, as an Additional Lessee under each of the leases, orders can be made directly against Medcap to turn over possession of the equipment to Equirex.

[31] An order will issue accordingly. If there is any dispute over the form of the order, I may be spoken to.

[32] I will entertain brief written submissions with respect to costs, not to exceed three pages, together with a costs outline or bill of costs. Mr. Somer will have five days, and Mr. Turton will have an additional five days to respond. Mr. Somer will have three days to reply.

Gray J.

Date: May 25, 2018

APPENDIX

Excerpts from the Personal Property Security Act

1 (1) In this Act,

“collateral” means personal property that is subject to a security interest;

“financing statement” means the information required for a financing statement presented in a required format;

“security agreement” means an agreement that creates or provides for a security interest and includes a document evidencing a security interest;

“security interest” means an interest in personal property that secures payment or performance of an obligation, and includes, whether or not the interest secures payment or performance of an obligation,

(a) the interest of a transferee of an account or chattel paper, and

(b) the interest of a lessor of goods under a lease for a term of more than one year;

9 (1) Except as otherwise provided by this or any other Act, a security agreement is effective according to its terms between the parties to it and against third parties.

19 A security interest is perfected when,

(a) it has attached; and

(b) all steps required for perfection under any provision of this Act have been completed,

regardless of the order of occurrence.

23 Registration perfects a security interest in any type of collateral.

45 (1) In order to perfect a security interest by registration under this Act, a financing statement shall be registered.

59 (1) Where the debtor is in default under a security agreement, the secured party has the rights and remedies provided in the security agreement and the rights and remedies provided in this Part and, when in possession or control of the collateral, the rights, remedies and duties provided in section 17 or 17.1, as the case may be.

67 (1) Upon application to the Superior Court of Justice by a debtor, a creditor of a debtor, a secured party, an obligor who may owe payment or performance of the obligation secured or any person who has an interest in collateral which may be affected by an order under this section, the court may,

(a) make any order, including binding declarations of right and injunctive relief, that is necessary to ensure compliance with Part V, section 17 or subsection 34 (3) or 35 (4);

(e) make any order necessary to ensure protection of the interests of any person in the collateral, but only on terms that are just for all parties concerned;