





CITATION: Capmor Financial
          Services Corporation v. Sibilia, 2011 ONCA 151



DATE: 20110301



DOCKET: C51494



COURT OF APPEAL FOR ONTARIO



Rosenberg, Feldman, Juriansz, JJ.A.



BETWEEN



Capmor Financial Services Corporation




Plaintiff (Respondent)




and



Victor Sibilia



Defendant (Appellant)




Helen A. Daley, for the appellant, Victor Sibilia



Benjamin Salsberg, for the respondent, Capmor Financial
          Services Corporation



Heard: February 2, 2011



On appeal from the order of Justice Spies of the Superior
          Court of Justice, dated December 7, 2009.



Feldman J.A.:

[1]

The respondent sued the appellant for
    arrears owing on an equipment lease more than two years after the appellants
    co-lessee defaulted on the lease by going bankrupt, and after both lessees then
    failed to make the next payment. The motion judge held that the lease signed by
    the two co-lessees amounted, in
effect,
to two
    separate leases and that the two year limitation period had not run against the
    appellant on his lease. For the reasons that follow, I would allow the appeal.

Facts

[2]

The appellant Sibilia owned two companies, Enviro Tire
    Technologies Ltd. and 1446968 Ontario Ltd. Enviro was in the rubber recycling
    business, operating out of premises owned by 144, and using two pieces of large
    equipment, a flocking machine and an oven, both of which were leased from the
    respondent. The oven lease was entered into by Enviro and Sibilia as
    co-lessees. The lease provided in paragraph 29 that if more than one lessee
    is named in this lease, the liability of each shall be joint and several. The
    lease commenced on August 1, 2004.

[3]

Enviro was sold to Unisphere, a public company,
    sometime after the lease was entered into, and before it made an assignment in
    bankruptcy in February, 2005. The February lease payment was not made.

[4]

The appellant later met with the Chairman of the
    respondent and made an oral arrangement regarding the oven. After hearing the
    evidence of the parties, the trial judge made the following finding:

I find that it was agreed that while efforts were being
    made to sell the Equipment, Mr. Sibilia would not have to make the monthly
    payments on the oven lease and during that period of time those payments would
    in effect be forgiven, and Capmor would not have to make any payments for
    storage of the Equipment in the Leased Premises.

[5]

Eventually, 144 sued Capmor for storage fees for the
    oven before it was ultimately sold, and Capmor sued Mr. Sibilia for the amount
    owing under the oven equipment lease. The two actions were tried together.

[6]

The trial judge granted judgment in favour of Mr.
    Sibilia in the 144 action on the basis of
quantum
    meruit
, finding that Mr. Sibilia and 144 had effectively terminated the
    oral agreement on October 1, 2005, and that Capmor was responsible to pay
    storage rent to 144 from November 1, 2005 until December 22, 2006, the date the
    oven was sold. She found that the oven was stored by 144 to the benefit of
    Capmor, and that Capmors conduct constituted acquiescence in that it accepted
    the ongoing storage of the oven. It would have been unjust not to hold Capmor
    responsible for the fair value of the cost of storage. 144
was
entitled to be compensated for the reasonable value of the storage and
    dismantling of the equipment. The judgment in the 144 action was not appealed.

[7]

In the Capmor action, the trial judge granted judgment
    in favour of Capmor, finding that Mr. Sibilias obligation to make the monthly
    payments under the lease resumed as of November 1, 2005 and that Mr. Sibilia
    remained responsible as a co-lessee under the lease. Neither action was pleaded
    or argued on the basis of equitable set-off, which may have avoided the
    limitations issue but raised other issues such as mutuality between 144s claim
    for storage fees and Capmors claim for unpaid rent pursuant to the lease, in
    the period following the termination of the oral agreement.

[8]

This appeal deals only with the Capmor action, and
    specifically, only with the issue of whether the action was statute-barred.

[9]

On the limitation issue, the trial judge first accepted
    Capmors submission that the effect of Mr. Sibilia signing the lease as
    co-lessee is the same as if he had signed a separate lease for the oven on the
    same terms. She further found that the parties agreed to a set-off type of
    arrangement for the period from February, 2005 to when it was terminated in
    October, 2005, whereby Mr. Sibilias lease payments on the oven were set off
    against an amount that Capmor would have otherwise had to pay to 144 for
    storage of its oven at 144 pending its sale.

[10]

Capmor issued a notice of action in June, 2007 and a
    statement of claim in July, 2007, more than two years after February, 2005 when
    Unisphere went bankrupt and the lease payment on the oven for that month was
    not made. The trial judge held that the bankruptcy of Unisphere did not trigger
    a default of the oven lease between Capmor and Mr. Sibilia. Further, there was
    no default in payment by Mr. Sibilia because of the set-off arrangement he made
    with Capmor which covered the period up to the November, 2005 payment. It was
    only when that payment was not made that Mr. Sibilia defaulted on his lease,
    less than two years before the action was commenced.

Issue

[11]

What was the event of default under the lease that
    triggered the commencement of the limitation period?

Analysis

[12]

It is common ground that the applicable limitation
    period is two years from default under the lease (s. 4 of the
Limitations Act, 2002
). There is no
    discoverability issue.

[13]

In my view, the trial judge erred when she accepted
    counsels submission that although Enviro (later Unisphere) and Mr. Sibilia
    were co-lessees, there were, in law, two separate leases with Capmor. There is
    one lease document made between Capmor Financial Services as lessor and Enviro
    Tire Technologies Ltd. and Victor Sibilia - Co-Lessees as lessee.

[14]

As noted above, paragraph 29 of the lease makes
    co-lessees jointly and severally liable. The legal effect of joint and several
liability
is described in
Halsburys Laws of England,
vol. 9(1), 4th ed. (London:
    Butterworths, 1998) at p. 810, para. 1079, as  follows: where two or more persons join in
the same instrument
in making a promise to the same person, and at
    the same time each of them individually makes the same promise to that same
    promisee (emphasis added).  G.H. Treitel
    in
The Law of Contract
, 11
th
ed. (London: Sweet & Maxwell, 2003) at p. 568, states that joint and
    several liability arises where each promisor makes one promise binding both of
    them and in addition  makes a separate promise binding him alone. See also
McLarty v. Dixon
,

[1914] O.J. No. 731 (C.A.) and
Standard
    Trust (Liquidator of) v. Protective Plastics Ltd. (Trustee of)
(1999), 49
    B.L.R. (2d) 159 (Ont. C.A.), where this court adopted the decision of Lord Campbell
    C.J. in
Gardner v. Walsh
(1855), 119
    E.R. 412 (Q.B.), that while a joint and several instrument may contain two
    promises in the alternative, it remains one contract and one instrument.

[15]

There is nothing in the lease document that suggests
    that it is intended to operate as two separate leases, one with each lessee,
    nor would that be a commercially reasonable result. For example in this case,
    the business that used the oven was operated by the corporate lessee, the
    entity that went bankrupt. In such circumstances, a lender would want the
    ability to have its choice of remedies upon default, including removal of its
    equipment from the premises in order to sell it for the best possible price and
    mitigate its damages. A lender and the co-lessee could always enter into
    whatever new arrangement they were able to agree to, but always in the context
    of the original lease that governed the rights and obligations of the parties.

[16]

As found by the trial judge, the lender and the
    co-lessee did enter into such an arrangement. However, it was clearly made
    based on the fact that the assignment into bankruptcy constituted an event of
    default by the co-lessee Unisphere, following which, the equipment was being
    held at 144 not under the lease, but on a storage basis for which Capmor had to
    pay 144 until it could sell the equipment. The storage charges were set off
    against the amount still owing under the lease by the appellant, the co-lessee.
    If the lease was continuing with Mr. Sibilia, Capmor would not have had to pay
    rent to 144 to store the
oven ,
nor could it sell the
    equipment.

[17]

Paragraphs 15 and 16 of the lease are the default
    clauses. Paragraph 15 defines the events of default and paragraph 16 describes
    the consequences of default. The two paragraphs   provide as follows:

15. DEFAULT. The occurrence or happening of any one
    or more of the following events shall constitute an Event of Default: (a) if
    Lessee fails to observe or perform any term, covenant or condition of this
    Lease or of any other lease or other agreement between Lessor and Lessee
    whether heretofore or hereafter made; (b) if any representation or warranty
    made by the Lessee to Lessor herein or pursuant to any document or certificate
    provided by the Lessee in connection with this Lease shall prove to be
    incorrect in any material respect; (c) if Lessee makes any assignment for the
    benefit of creditors; (d) if a receiver or trustee is appointed for Lessee or
    any of its property without its consent and is not dismissed within 30 days;
    (e) if bankruptcy reorganization or insolvency proceedings are instituted by or
    against Lessee and, if instituted against Lessee, not dismissed within 30 days;
    (f) if Lessee admits in writings its inability to pay its debts generally as
    they fall due or commits any other act of bankruptcy or does or omits to do any
    other thing in furtherance of any of the aforesaid purposes; (g) if all or any
    part of the Equipment is, or is in imminent danger of being confiscated,
    attached, sequestered or seized under legal process; or (h) Lessee ceases to
    carry on business in the normal course.

16. CONSEQUENCES OF REPUDIATION OR DEFAULT. In the
    event of repudiation of this Lease by the Lessee or upon the happening of an
    Event of Default, Lessor may in addition to any of the rights it may have in
    law or in equity at its option and upon notice to the Lessee exercise any one
    or more of the following:

(a) enter upon the
    premises where the Equipment is located and take immediate possession thereof,
    whether it is affixed to the realty or not, and remove the Equipment without
    liability to Lessor for or by reason of such entry or taking of possession,
    whether for damage to property or otherwise, and to sell, lease or otherwise
    dispose of the Equipment for such consideration and upon such terms and
    conditions as Lessor may reasonably deem fit.

(b)  in the name of and as the irrevocably
    appointed agent and attorney for Lessee without terminating or being deemed to
    have terminated this Lease, take possession of the Equipment and proceed to
    lease the Equipment to any other person, firm or corporation on such terms and
    conditions, for such rental and for such period of time as Lessor may deem fit
    and receive such rental and hold the rental and apply it against any monies
    expressly payable from time to time by Lessee hereunder.

(c) terminate this
    Lease and by written notice to Lessee specifying a payment date not earlier
    than five days from the date of such notice, require Lessee to pay to Lessor on
    the date specified in such notice, as a genuine pre-estimate of liquidated
    damages for loss of a bargain and not as a penalty, the entire unrecovered
    cost, including residual of said Equipment leased hereunder as at the date of
    repudiation calculated in accordance with the Rule of Seventy-Eights.

(d) As a late charge
    require the payment of interest at the Interest Rate per annum on any overdue
    amount until paid.

Upon the occurrence of
    an Event of Default Lessee shall be liable for any and all unpaid additional
    rent due or to become due hereunder and other costs and expenses incurred by
    reason of the occurrence of any Event of Default or the exercise of Lessors remedies
    in respect thereof, including all costs and expenses incurred in connection
    with the placing of the Equipment in the same conditions as when delivered,
    ordinary wear and tear excepted.

[18]

The trial judge found that on the happening of an event
    of default, Capmor had a number of options including whether or not to
    terminate the
lease,
and that there was no evidence 
    that Capmor exercised any of [these] options.  However, the language in paragraph 16 is permissive, not mandatory and
    speaks to a choice of remedies upon default. Paragraph 16 expressly reserves to
    Capmor any rights it had in law or in equity upon an event of default, and
    provides that Capmor may exercise one or more of the options prescribed
    therein. There is nothing in the lease that suggests that Capmor was required
    to explicitly exercise one of the prescribed options.  In this case, the parties agreed that rather
    than take immediate possession of the oven for the purposes of selling it,
    Capmor would store the oven at its current location while it attempted to find
    a buyer. The terms of the oral arrangement between Capmor and Mr. Sibilia
    following the bankruptcy of Unisphere were wholly consistent with an acceptance
    of termination of the original lease by both remaining parties. Accordingly,
    Mr. Sibilia remained liable pursuant to paragraph 16 to pay the remaining
    balance of unpaid rent on the lease. That amount was set off against the
    storage charges for the oven as agreed.

[19]

As the arrangement between Capmor and Mr. Sibilia
    following the bankruptcy of Unisphere constituted a new agreement to deal with
    the equipment following the default under the lease, and as the action by
    Capmor was an action for payment under the lease, the limitation period can run
    only from the default under the lease, and expired before the action was
    commenced. I recognize that the result of Capmor having to compensate 144 for
    the storage charges without receiving the balance of the unpaid rent under the
    lease from Mr. Sibilia may appear unjust, as Capmor appeared to have been
    trying to accommodate Mr. Sibilia when it entered into the oral arrangement.
    However, this outcome is the unavoidable result of the application of the
Limitations Act, 2002
.

Result

[20]

In the result, the appeal is allowed with costs fixed
    at $15,000 inclusive of disbursements and HST.


Signed:           K. Felmdan
    J.A.

I
    agree M. Rosenberg J.A.

I
    agree R. G. Juriansz J.A.

RELEASED: MR MARCH 1, 2011


