889267 Ontario Ltd. v. Norfinch Group Inc. et al., (1998) 76 O.T.C. 31 (GD)

• Judge: Himel, J.
• Court: Ontario Court of Justice General Division (Canada)
• Case Date: September 25, 1998
• Jurisdiction: Ontario
• Citations: (1998), 76 O.T.C. 31 (GD)

889267 Ont. Ltd. v. Norfinch Group Inc. (1998), 76 O.T.C. 31 (GD)

MLB headnote and full text

Temp. Cite: [1998] O.T.C. TBEd. OC.035

889267 Ontario Ltd. (plaintiff) v. The Norfinch Group Inc., Arie Ziering, White & Co. Bailiffs Limited (defendants)

The Norfinch Group Inc. (plaintiff by counterclaim) v. 889267 Ontario Ltd. and Nader Hanaalla (defendants by counterclaim)

(Court File No. 95-CU-85149)

Indexed As: 889267 Ontario Ltd. v. Norfinch Group Inc. et al.

Ontario Court of Justice

General Division

Toronto

Himel, J.

September 25, 1998.

Summary:

The plaintiff operated a convenience store in rented premises. The plaintiff sold the business to Ratna. The outstanding purchase price was financed by three promissory notes secured by a general security agreement securing the business's assets in favour of the plaintiff. Ratna fell into rental arrears. On April 7, 1995, the landlord took possession of the premises, distrained the goods and closed the business. Subsequently, the plaintiff petitioned Ratna into bankruptcy. The trustee in bankruptcy took possession of the business on April 27, 1995. The air conditioning units and freezers were not working and much of the food inventory had gone bad. The plaintiff gained possession of the premises on May 5, 1995. The plaintiff removed equipment and vacated the premises after 19 days. The plaintiff sued the landlord, claiming priority under its general security agreement. The plaintiff also sued the landlord as bailee for damages for conversion and negligence for allowing the inventory to spoil and for the destruction of goods and equipment caused by the landlord's failure to properly secure and maintain the premises. The landlord counterclaimed for trespass, rent arrears and occupation rent.

The Ontario Court (General Division) held that the landlord had a right to distrain Ratna's goods and property following the nonpayment of rent that took priority over the plaintiff's security interest. However, the landlord's rights involved obligations to gather the property, conduct an inventory and independent appraisals, sell the assets and account to the plaintiff and the tenant. The bankruptcy order displaced the landlord's priority and any goods not sold reverted to the trustee. The trustee then lawfully transferred possession to the plaintiff under the general security agreement. The court dismissed the conversion action because the plaintiff did not have possession or a right to immediate possession at the time the landlord had control over the goods and property. The landlord turned the property over to the trustee once the bankruptcy order was obtained. Therefore, the landlord's conduct was not an intentional interference or an intentional exercise of control over the chattels which seriously impeded the true owner's rights. By taking possession of the property, the landlord became a bailee and had a duty to maintain and preserve the goods. The landlord breached that duty by allowing goods to spoil and equipment to be destroyed. The court awarded the plaintiff damages for negligence. The court dismissed the landlord's counterclaim for conversion, holding that the goods removed by the plaintiff were chattels and not fixtures. The court dismissed the claim for rent arrears but awarded the landlord occupation rent for the time the plaintiff was in possession following the bankruptcy. The court dismissed the plaintiff's claim for punitive damages.

Bailment - Topic 2134

Liability of bailee - Bailment for benefit of bailee - Standard of care - See paragraphs 40 to 44.

Bankruptcy - Topic 3608

Creditors - General - Rights of landlord - See paragraphs 20, 34 to 36.

Damages - Topic 1297

Exemplary or punitive damages - Conditions precedent or when awarded - See paragraph 49.

Landlord and Tenant - Topic 621

Occupation rent - Persons liable - General - See paragraph 46.

Landlord and Tenant - Topic 627

Occupation rent - Persons liable - Trustee in bankruptcy - See paragraph 46.

Landlord and Tenant - Topic 8203

Fixtures and personalty - General principles - What constitutes a fixture - See paragraphs 28 to 31, 45.

Landlord and Tenant - Topic 8204

Fixtures and personalty - General principles - What constitutes a trade fixture - See paragraphs 28 to 31, 45.

Landlord and Tenant - Topic 8703

Distress - General principles - Validity - See paragraphs 34 to 36.

Landlord and Tenant - Topic 8710

Distress - General principles - Custody of distrained goods - Duty of landlord - See paragraphs 40 to 44.

Landlord and Tenant - Topic 8824

Distress - Priorities - Re chattel mortgages - See paragraphs 16 to 21, 34 to 36.

Landlord and Tenant - Topic 8828

Distress - Priorities - Bankruptcy of tenant - Effect of - See paragraphs 20, 34 to 36.

Landlord and Tenant - Topic 8830

Distress - Priorities - Re security interests - See paragraphs 16 to 21, 34 to 36.

Real Property - Topic 4205

Fixtures - General principles - What constitutes a fixture - See paragraphs 28 to 31, 45.

Torts - Topic 3093

Trespass - Trespass to goods - Conversion - What constitutes conversion - See paragraphs 37 to 39, 45.

Torts - Topic 3094

Trespass - Trespass to goods - Conversion - Sufficiency or requirement of possession to maintain action - See paragraphs 37 to 39.

Cases Noticed:

859587 Ontario Ltd. v. Starmark Property Management Ltd. (1997), 32 O.T.C. 104; 34 O.R.(3d) 43 (Gen. Div.), affd. [1998] O.J. No. 3022 (C.A.), refd to. [para. 17].

Carroll v. Beard (1896), 27 O.R. 349 (C.A.), refd to. [para. 18].

Commercial Credit Corp. v. Shields (Harry D.) Ltd. et al. (1980), 29 O.R.(2d) 106 (H.C.), affd. (1981), 32 O.R.(2d) 703 (C.A.), refd to. [para. 19].

Stan-Don Supply (Sudbury) Ltd. v. Hobbs and Rubic, [1968] 2 O.R. 53; 11 C.B.R.(N.S.) 243; 11 C.B.R.(N.S.) 243; 68 D.L.R.(3d) 125 (S.C.), refd to. [para. 20].

Robb v. Scheunemann, [1994] O.J. No. 234 (Gen. Div.), refd to. [para. 21].

Shibamoto & Co. et al. v. Western Fish Producers Inc. (Bankrupt) et al., [1991] 3 F.C. 214; 43 F.T.R. 1 (T.D.), affd. (1992), 145 N.R. 91 (F.C.A.), refd to. [para. 22].

Stack v. Eaton (T.) Co. (1902), 4 O.L.R. 335 (C.A.), refd to. [para. 28].

Deloitte & Touche Inc. v. 1035839 Ontario Inc. et al. (1996), 28 O.R.(3d) 139 (Gen. Div.), affd. [1998] O.A.C. Uned. 284 (C.A.), refd to. [para. 29].

Canada v. Edmundston Lumber Co. (1985), 63 N.B.R.(2d) 129; 164 A.P.R. 129 (T.D.), refd to. [para. 30].

Richardson Equipment Ltd. v. Jaybee Warehousing Enterprise Ltd. and Colpitts (Archie) Ltd. (1977), 16 N.B.R.(2d) 428; 21 A.P.R. 428 (Q.B.), refd to. [para. 31].

Punch v. Savoy's Jewellers Ltd. et al. (1986), 14 O.A.C. 4; 54 O.R.(2d) 383 (C.A.), refd to. [para. 40].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 136(1)(f) [para. 20].

Authors and Works Noticed:

Fleming, John G., The Law of Torts (9th Ed. 1998), pp. 58 to 83 [para. 24].

Klar, Lewis N., Tort Law (2nd Ed. 1996), pp. 76 [para. 22]; 79 [para. 23].

Counsel:

Frank I. Liebeck, for the plaintiff and defendants by counterclaim;

Patrick Martin, for the defendants and plaintiff by counterclaim.

This matter was heard on April 21 to 23, 1998, before Himel, J., of the Ontario Court (General Division), who released the following judgment on September 25, 1998.