Pacific Vending Ltd. v. Fraser Valley Playgrounds Date:, 2015 BCPC 250

Citation: Pacific Vending Ltd. v. Fraser Valley Playgrounds Date: 20150921 2015 BCPC 0250 File No: 22083 Registry: Abbotsford IN THE PROVINCIAL COURT OF BRITISH COLUMBIA (SMALL CLAIMS COURT) BETWEEN: PACIFIC VENDING LTD. CLAIMANT AND: FRASER VALLEY PLAYGROUNDS INC. DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE K. D. SKILNICK Appearing for the Claimant: K. Feder Appearing for the Defendant: G. Chu Place of Hearing: Abbotsford , B.C.

Date of Hearing: September 1, 2015 Date of Judgment: September 21, 2015 Introduction [ 1 ] The Claimant Pacific Vending Ltd. is a British Columbia corporation that is in the business of supplying what are described as “amusement machines”, which are coin-operated games primarily for the amusement of children. Its principal is Karl Feder. The Defendant Fraser Valley Playgrounds Inc. carries on a business under the name of Play Abby Indoor Playground & Lazer Tag. Its principal is Dr. Gabriel Chu. [ 2 ] The Claimant brings this action against the Defendant for breach of contract.

The parties entered into an agreement on April 30, 2012 in which the Claimant agreed to supply between 6 and 12 coin-operated amusement machines for the Defendant’s business and the parties would share the revenue from the machines.

The Defendant gave notice of its intention to terminate the contract, but the parties disagree as to when the agreement was to end and what amount if any the Defendant owes the Claimant under the contract. [ 3 ] At the trial of this matter a total of six witnesses testified: both of the principals of the parties, as well as two of the Claimant’s service technicians, the Defendant’s current general manager and another of the Defendant’s employees. Following is a

summary of the evidence given, the positions of the parties and the reasons for the order that is now being made.

Summary of Evidence [ 4 ] On April 30, 2012, a written agreement was made between the Claimant and Defendant. Neither of the parties who executed the agreement testified at trial, but email passing between them was entered as an exhibit at trial. On behalf of the Defendant, the agreement was signed by Jay DeWitt, who was the General Manager of the Defendant at the time. The Claimant’s General Manager, Alan Tam, signed the agreement on behalf of the Claimant. It appears from the email trail that Mr. DeWitt signed the document and forwarded a signed copy to the Claimant as an attachment to an email sent to Mr.

Tam on May 1, 2012. The following day Mr. Tam signed the document and returned a signed copy to the Defendant as an attachment to an email. [ 5 ] The Defendant takes the position that its manager was not authorized to sign contracts on behalf of the Defendant. In support of this proposition the Defendant called its current manager, David Semple, to testify that he presently does not have such authority. This was confirmed in the evidence of the Defendant’s President, Dr. Gabriel Chu. Mr.

DeWitt was not called as a witness to testify as to whether or not he understood this to be the case at the time that he entered into this contract with the Claimant. However the evidence does not disclose anything which would make it apparent to third parties dealing with the Defendant that a person given the position of general manager for the company would lack such authority. [ 6 ] Dr. Chu testified that he was not even aware that there was a written contract in existence between the parties until events leading up to this litigation. While Dr.

Chu personally may not have been aware of this, the evidence provided in the form of email correspondence makes it clear that the Defendant’s general manager at the time was aware of the existence of the contract. [ 7 ] The written agreement was called a “PV Location Agreement”. Under the terms of the agreement, the Defendant permitted the Claimant to place between six and twelve “coin operated amusement machines” on its premises. Net revenue from the machines was to be split with 60% going to the Claimant and 40% going to the Defendant for most items. (The split was 50-50 on pool tables and “kiddy rides”).

The agreement contained the following other provisions, which are relevant to this dispute: [Claimant] will service all games within one week of breakdown. [Defendant] grants unto [Claimant] the exclusive right to operate automatic coin machines upon the premises during the full term hereof, and no other person, persons or corporations shall have the right to operate the same during the full term hereof, including the [Defendant], nor shall any other commercial coin system be operated on said premises during said term.

In the event of any breach of this agreement by the [Defendant], the [Claimant] shall have the right to enjoin the [Defendant] from operating any other equipment in the said premises by an appropriate action in Equity, the [Defendant] agreeing that jurisdiction might vest in Equity without his objection and as a cumulative right, it is further agreed that as liquidated damages and not as a penalty, upon such breach, the [Claimant] shall be entitled to and shall, at time of breach, receive from the [Defendant] a sum equal to the average weekly share of the [Claimant] prior to the said breach, multiplied by the number of weeks remaining in the unexpired term of the agreement.

These rights shall be cumulative. It is agreed that this agreement shall continue for a period of 2 years from the date hereof and thereafter for an additional period of one year and so on from year to year until written notice of termination be received no less than sixty days prior to the end of any term hereof. [ 8 ] Under the last quoted paragraph, the initial two year term of the agreement ran until the end of April 2014. At that time the parties continued to operate under the agreement until September 2, 2014, when the machines were removed by the Claimant.

The parties disagree about who is at fault for the events which led to a breakdown in their business relationship. The Defendant says that it received poor service from the Claimant and that the Claimant was in breach of its agreement to service all games within a week of their breakdown. The Claimant says that it always serviced the machines in a timely manner and always within a week of receiving word that a machine was broken down. Unfortunately neither party presented much in the way of any documented record to support its respective

version on this issue. [ 9 ] On behalf of the Defendant, Haley Faulks testified that the Claimant’s service record was atrocious. She testified that sometimes calls for service on machines went as long as two or three weeks before the machines would be fixed. She also said that her calls to the personnel in the Claimant’s office who would be expected to deal with service calls (namely the general manager Mr. Tam, the President Mr. Feder, or the service technicians Mr. Reynolds and Mr. Alston) would not be returned.

Out of frustration, she would call the Claimant’s bookkeeper and this seemed to get the Defendant’s attention. Ms. Faulks testified that at times as much as half of the machines supplied by the Claimant were out of order. This occurred at busy periods for the Defendant and it generated complaints from the Defendant’s customers. She also testified that sometimes the Defendant’s technicians would attend but would be unable to fix the machinery. [ 10 ] This is at odds with the evidence of the Claimant’s service technicians Anthony Reynolds and David Alston. Mr.

Reynolds, who is the Claimant’s service manager, testified that all service calls were responded to within a week. David Alston, a service technician with the Claimant also testified that service calls were answered promptly and always within a week. [ 11 ] The Defendant is unable to document specifics of when machines were not serviced with a week of breakdown, although it is adamant that this occurred. The Claimant is equally insistent that this never happened. The two versions are inconsistent and there is little in the way of independent evidence to help determine which perception is more accurate.

What is clear from the evidence however is that by June of 2014, the Defendant was not satisfied with the service that it was getting from the Claimant. On June 18, 2014, the Defendant, under the signature of its general manager Anyssa Carruthers, wrote to the Claimant as follows: “We are writing this note to request that you remove all vending and services from Play Abby. “Our staff has spent too much time running after you for repairs, being treated poorly and over all your service and communication has been a challenge.

Dealing with angry parents because of malfunctions is really hard on the staff. “Please remove your machines within 30 days and we hope that the staff will be treated kindly through the process.” [ 12 ] Although the Claimant says that it was always prompt in responding to the Defendant’s concerns, that doesn’t seem to be the case with this letter. According to Dr. Chu’s evidence, the Defendant didn’t get any response to the letter of June 18 th from the Claimant. The Defendant did get the Claimant’s attention in early August however when it informed Mr.

Feder that it would be hiring a bailiff to remove the Claimant’s machines from its premises unless the Claimant took steps to remove them. On August 11, 2014, Mr. Feder emailed the Defendant and threatened legal action if the Claimant’s machines were removed from the Defendant’s premises. Further email passed back and forth between the parties over the next two weeks.

The Claimant insisted that it had never received any notice or letter from the Defendant and the Defendant insisted that it had left too many unanswered messages to count with the Claimant. [ 13 ] On August 25, 2014, the Defendant emailed the Claimant stating that if the Claimant did not want to pick up its machines, the Claimant would store them until the end of the term of the contract.

On August 28, 2014 the Claimant stated in an email that it would pick up its machines the following Tuesday (September 2) and this was done, with the exception of some sort of small car ride that was left in the foyer of the Defendant’s premises. [ 14 ] The Claimant says that under the terms of the contract it is entitled to damages for the amount of money that it would have earned if the Defendant had honoured its contract. This amount is calculated to be $11,498.40.

This figure is arrived at by taking the average daily income earned by these machines ($47.91) and multiplying that by the number of days remaining on the unexpired term of the contract (240 days). The Claimant asks for judgement in this amount. Mr. Feder testified that he was unable to mitigate his damages because there is no other market for these machines. He has been unable to find anyone else to use these machines and they have not generated any other income for him. [ 15 ] The Defendant has subsequently found a new supplier for its amusement machines. According to Dr.

Chu there is no written agreement between the supplier and the Defendant. (Collective wisdom gathered in small claims courts would suggest that this is an unwise course of action and a recipe for disaster, but the Defendant is free to disagree and to follow its own course of action.) According to the witnesses called on behalf of the Defendant, its relationship with the new supplier has been much more satisfactory than its relationship with the Claimant. Applicable Law 1. Burden of Proof [ 16 ] The burden of proof in a civil case rests with the Claimant to prove its case on a balance of probabilities.

As the Supreme Court of Canada stated in F. H. v. McDougall 2008 SCC 53 ; [2008] 3 S.C.R. 41, at para. [49] : “[I]n civil cases there is only one standard of proof and that is proof on a balance of probabilities. In all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred.” 2. Authority of Mr.

DeWitt to Contract on Behalf of the Defendant [ 17 ] The Defendant has argued that it should not be bound by the subject contract made on its behalf by its former general manager because that general manager exceeded his authority. On the evidence presented in this case, I find that there is no merit at law to this defence. At common law, under the doctrine of ostensible authority (sometimes called “apparent authority”), when a corporation holds another person out as acting on behalf of the corporation such that persons dealing with the corporation might reasonably assume that the

person has the authority to enter into contracts on behalf of the corporation, it is no defence for the corporation to say that the person didnot have such authority, unless the corporation can prove that the other party to the contract knew that the person lacked such authority. [18] This principle is stated in Bowstead & Reynolds on Agency (17th ed. 2001) at page 307 as follows: “Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, heis bound by the acts of such other person with respect to anyone dealing with him as an agent on the faith of any such representation, tothe same extent as if such other person had the authority that he was represented to have, even though he had no actual authority.” [19] This principle has been codified in section 146 (1) (

c) of the British Columbia Business Corporations Act which provides that “acompany may not assert against a person dealing with the company, or dealing with any person who has acquired rights from thecompany, that… a person held out by the company as a director, officer or agent: (

i) is not, in fact, a director, officer or agent of the company, as the case may be, or (ii) has no authority to exercise the powers and perform the duties that are customary in the business of the company or usual for suchdirector, officer or agent”. [20] In this case it is clear that Mr.

DeWitt was the general manager of the Defendant (and therefore its agent) and that it would bereasonable for persons dealing with the Defendant to assume that its general manager would have the authority to enter into contracts onits behalf. [21] It is also inequitable for the Defendant to accept delivery of the Claimant’s machines, participate in a sharing of revenues fromthose machines for over two years only to later claim that it was not a party to the agreement.

It is also unfair for the Defendant to state“we didn’t know there was a contract” when the evidence clearly shows that a contract was provided to it and that its general manageracknowledged the existence and receipt of the contract. Any fault for this lies within the Defendant’s management systems and corporatestructure and can in no way be said to be the fault of the Claimant. 3.

Interpretation of the Contract [22] The existence of a written contract entered into between the Claimant and Defendant has been proven. The next issue concernsthe

interpretation of that contract. In construing the “PV Location Agreement”, I keep in mind the following principles of law: 1. The contract must be read as a whole, giving the words used in the contract their ordinary and grammatical meaning, consistent withthe surrounding circumstances known to the parties at the time of the making of the contract. While the surrounding circumstances willbe considered in interpreting the terms of the contract, they must never be allowed to overwhelm the words in the agreement. SattvaCapital Corp. v. Creston Moly Corp. 2014 SCC 53; Robb v. Walker 2015 BCCA 117. 2.

If there is an ambiguity in the terms of an agreement, the subsequent conduct of the parties can be taken into account to assist inresolving the ambiguity. Silver Standard Mines Ltd. (N.P.L.) v. Granby Mining Company Ltd. (1971) (BC CA), 19D.L.R. (3d) 578 (B.C.C.A.) 3. A party cannot take advantage of and benefit from a state of affairs produced by its own wrong. Within the context of contract law, aparty cannot use its own breach or default as a basis for being relieved of its contractual obligation. Barclays Bank PLC v. Trustee ofDevonshire Trust 2013 ONCA 494. 4.

In cases where the language used in a contract is ambiguous, that language should always be construed against the party who preparedthe contract. (This is often called the contra proferentem rule.) Arthur Anderson Inc. v. Toronto Dominion Bank (1994) (ON CA), 17 O.R. (3d) 363 (Ont. C.A.) [23] The parties are before the court to enforce the contract that they actually made, not the one that one or both of them may wishthey had made. The parties and the outcome of this litigation will be governed by the terms of that agreement and the law directing howagreements are to be interpreted. 4.

Could the Defendant Terminate the Contract For Dissatisfaction of Service? [24] Non-performance of a term of a contract in any way, even if only to a slight degree, may amount to a breach of contract, unlessthe non-performance is excused, justified, or otherwise permitted or excused by law. The law also distinguishes between a breach thatjustifies the innocent party treating the contract as at an end, and one that only allows the innocent party to claim damages for the lossincurred.

In the former case, terms whose nature is such that their performance is fundamental to the contract may entitle the wrongedparty to end the contract. In the latter case, terms of lesser importance, called “warranties”, only entitle the wronged party to damageswhich flow from the breach. [25] Only breaches of conditions or breaches of terms with serious consequences can lead to the remedy of termination of thecontract. The test of whether a breach discharges the innocent party from further performance was stated as follows by the court in HongKong Fir Shipping Co. Ltd. v.

Kawasaki Kisen Kaisha Ltd., [1962] 1 All E.R. 474 at 485 (C.A.) and is paraphrased as follows: “Does the breach deprive the party who has further undertakings still to perform of substantially the whole benefit which it was theintention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?”

[26] In this case, the Defendant has complained that there were periods of time for which the machines supplied by the Claimant didnot work and were not repaired in a timely fashion. The Claimant has denied this and says it met its obligation to repair any non-workingmachines within a week of breakdown as required under the contract.

Unfortunately neither party kept any record of how frequently thisoccurred; (or if they did, that party chose not to disclose those records or enter them into evidence.) What is clear from the evidencehowever is that throughout the time that the machines were on the Defendant’s premises, some of the machines were working becausethe Claimant has presented records detailing the income generated from the machines throughout the contract.

It cannot be said that therewas a total failure of consideration on the part of the Claimant. [27] Applying the test to determine what kind of breach of contract any failure of the Claimant to maintain the machinery was, thebest that can be said is that if the Claimant was in breach of this term, it was not to such a degree that it deprived the Defendant ofsubstantially the whole benefit of the contract. It was not a breach of a fundamental term and therefore the Defendant was not justified inending the contract merely because of dissatisfaction with the Claimant’s customer service.

At best, the Defendant might be entitled todamages for breach of a warranty if it had presented clearer evidence of when and how often the Claimant was in breach of its obligationto service all games within a week of breakdown. No such evidence was presented as to how often it happened that any breakdowns werenot repaired within a week, and precisely what damages in lost income or other damage was suffered as a result. Accordingly this allegedbreach has not been proven. 5.

Did the Contract Automatically Renew for a Year? [28] Under the terms of the PV Location Agreement, after the end of the initial two year term, the contract was to continue for “anadditional period of one year and so on from year to year until written notice of termination be received no less than sixty days prior tothe end of any term hereof.” The Claimant states that this should be interpreted to mean that when the initial term of two years ended, anew term of one year would begin unless either party gave notice to the other party to end the contract no less than sixty days before theend of the two year term.

Here, no such notice was given by either party. Because of that, the Claimant says that the contract should beread to mean that a new term of one year began. When the Defendant gave notice in June that it was terminating the contract, theClaimant says that the Defendant was still bound by the contract for the remainder of that one year term. [29] The Defendant disagrees with this

interpretation. It says that, following the end of the initial two year term, the agreement wasto continue for another year, but that if either party gave sixty days’ notice of its intention to end the contract, then the contract wouldend sixty days after the notice was given. It says that since it gave the Claimant notice of its intention to terminate the contract on June 18th (or at the latest, on August 11, when Mr.

Feder acknowledges in an email that he learned of the Defendant’s desire to terminate thecontract) it is only responsible for damages for sixty days. [30] Automatic renewal clauses (clauses contained in standard form contracts in which the term of the contract renews automaticallyunless the other party takes steps to end the contract) have been considered unfair because often consumers of services are either unawareof the renewal, or are too preoccupied with the running of their day-to-day businesses to take notice at the time that the automaticrenewal is scheduled to kick in.

It is easy for a party to such a contract to miss the closing of the window in which it is able to prevent anew term from beginning. For the party who receives the benefit of the automatic renewal, there is usually no motivation to alert theother party that the time of renewal is at hand.

This unfairness was addressed by the British Columbia Law Institute in their February2005 report entitled “Unfair Contract Terms: An Interim Report”. (The report is available online at the following link: http://www.bcli.org/sites/default/files/Unfair_Contract_Terms_Interim_Rep.pdf.) [31] While, as a general rule, parties to the contract are bound to follow the terms of the contract as spelled out in the writtenagreement, the courts of this province have applied different considerations in the

interpretation of automatic renewal clauses. Forexample in AT&T Capital Canada, Inc. v. Globe Printers Ltd. 2001 BCSC 1215, Madam Justice Loo of the BC Supreme Court held thatin order for a party to rely on an automatic renewal clause, it is not enough simply to point to the existence of the clause in the contract.The party seeking to rely on the clause must show that the existence of the clause was drawn to the other party’s attention. The courtfollowed the Ontario Court of Appeal decision in Tilden Rent-a-Car v. Clendenning (1978) (ON CA), 18 O.R. (2d)601 (Ont.

C.A.) where the court said, at page 609: “Under such circumstances… the party seeking to rely on such terms should not beable to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party.” [32] In 32262 B.C. Ltd. v.

Balmoral Investments Ltd. 1999 BCCA 184, the British Columbia Court of Appeal considered anautomatic renewal clause and held that any ambiguity in interpreting that clause was to be resolved in favour of the party who did notdraft the clause. [33] In the present case, the parties have proven, from the email sent back and forth at the time the contract was signed, that theDefendant was aware of the contract, and that it properly entered into the contract. However nothing in the evidence shows that theClaimant ever drew to the attention of the Defendant the existence of the automatic renewal clause.

While it is true that the Defendantwas capable of reading the contract and discovering the existence of the clause, the unfair nature of automatic renewal clauses imposes ahigher duty on the Claimant. The law requires that the party relying on such a clause must specifically draw the clause to the attention ofthe other party if it seeks to enforce the clause. Here there is no evidence that the existence of this clause was brought to the Defendant’sattention until after the Defendant gave the Claimant notice of its intention to terminate the contract. [34] The clause itself is also ambiguously written.

While one might imagine that the clause intended for a notice of termination toend the contract at the end of the year in which the notice was given, that is not clear from the language used. The automatic renewalclause extends the contract for “an additional period of one year and so on from year to year until written notice of termination be

received no less than sixty days prior to the end of any term hereof.” What it does not spell out is what happens when the notice of termination is given. For the contract to clearly have the meaning that the Claimant argues for, it ought to have clearly said that on receipt of notice, the contract would end when the current one year term expired. It did not do so. The clause simply says that the contract renews automatically for a year until notice of termination occurs. It is silent on what happens when that notice is given. When notice is given is the Defendant on the hook for the remainder of the year or only for the next sixty days? [ 35 ] The contra proferentem rule of

interpretation of contracts states that in the case of an ambiguity such as this, the Defendant is entitled to the

interpretation that is most favourable to it. Under these circumstances, the Claimant is only entitled to damages for sixty days. This conclusion is reached firstly because, by failing to highlight the automatic renewal clause as it is required to do, the Claimant is precluded from relying on the

interpretation it asserts. Secondly, under the contra proferentem rule of construction, the contract is unclear as to what happens when the Defendant gives notice to terminate. All the Claimant can clearly count on is that it would have a contract for another sixty days. 6. What is the Measure of Damages? [ 36 ] For the foregoing reasons, the Claimant is only entitled to be put in the same position it would be if the contract had continued for another sixty days. There is a dispute as to when the sixty day period began.

The Defendant states that it gave notice to the Claimant on June 18, 2014, and relies on its letter of the same date to prove this. The notice period does not commence on the day that the Defendant dated its letter, but rather on the day that the Claimant received it. The Claimant states that the letter was not received until later in August, and the Defendant has no direct proof of how and when the letter was delivered to the Claimant. The best evidence comes from the email sent by Mr. Feder on August 11, 2014, in which he admits knowledge of the Defendant’s intention to terminate the contract.

The machines remained in operation on the Defendant’s property for a further period of 21 days (August 12 th to September 1 st ) before they were removed on September 2 nd . [ 37 ] If the Defendant had honoured its contract, the Claimant would have received additional daily revenue for another 39 days. I accept the Claimant’s evidence that the average daily revenue generated by the machines was $47.91. The amount of the Claimant’s damages is calculated to be $47.91 for 39 days or $1,868.49. Order [ 38 ] For the foregoing reasons, the Claimant is awarded damages against the Defendant in the sum of $1,868.49.

The Claimant is also entitled to interest in this amount from September 2, 2014 calculated in accordance with the Court Order Interest Act (which will be calculated by the Court Registry). Because there has been divided success on the part of both parties, the Claimant and Defendant will each be responsible for their own costs. Dated at the City of Abbotsford, in the Province of British Columbia, this 21 st day of September, 2015. _______________________________________ (The Honourable Judge K. D. Skilnick)