2011 QCCQ 11362, 2011 QCCQ 11362

Quality Goods IMD Inc. c. Petersen 2011 QCCQ 11362 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division No: 500-22-170635-109 DATE: July 14, 2011 ______________________________________________________________________ BY THE HONOURABLE SUZANNE HANDMAN, J.C.Q. ______________________________________________________________________ QUALITY GOODS I.M.D. INC. Plaintiff v. JOHN PETERSEN -and- GOWARE DESIGN INC.

Defendants ______________________________________________________________________ RECTIFIED JUDGMENT ______________________________________________________________________ [ 1 ] Plaintiff, Quality Goods I.M.D. inc., is claiming the amended sum of $46,660.62 from Defendants, John Petersen and Goware Design, for outstanding rent and costs. [ 2 ] Defendants dispute the claim. Defendant Goware presented a cross demand for $67,500, alleging a loss of goods, stored in Plaintiff's warehouse, and a loss of profits resulting from Plaintiff's unauthorized sale of its merchandise.

Defendant Petersen seeks $40,000 in damages for stress, inconvenience and abuse of procedure. THE QUESTIONS IN LITIGATION: 1. Is Plaintiff entitled to rent and costs for the storage of Defendants' goods and if so, how much is owed? 2. Did Plaintiff have the right of retention of Defendants' merchandise? 3. Did Plaintiff have the right to dispose of any goods to recover funds owed? 4.

Are Defendants entitled to damages for Plaintiff's sale of their goods and loss of profit, for the alleged damage and disposal of their furniture and showroom material, for stress, inconvenience and abuse of procedure and if so, what is the amount payable? THE EVIDENCE: [ 3 ] Plaintiff, whose principal is Harold Rosen, leased the entire building situated at 6275 Côte-de-Liesse Road.

It sublet part of the premises to Defendant Goware for use as offices, showroom and storage facilities from February 1, 2006 to January 31, 2007; the rent was $1,500 per month, plus tax. [ 4 ] In the fall of 2006, the parties verbally agreed to extend the lease, as of February 1, 2007, on a month-to-month basis; the rent would be $2,000 per month plus tax. [ 5 ] Defendant Goware, an importer/exporter of household products, paid rent until the spring of 2008, at which time Goware's owner, Mr.

Peterson, advised Plaintiff that Goware was having financial difficulties; it was unable to pay rent and intended to liquidate. Mr. Petersen planned to work from his home.

[ 6 ] In June 2008, the parties reached a third agreement. Defendant Goware would relinquish its office space and for six (6) months use only its storage facility in Plaintiff's warehouse to store furniture and goods. The rent for what Plaintiff described as dead storage would be reduced to $1,000 per month, plus tax. [ 7 ] Plaintiff claims its contract was with Mr. Petersen personally, a fact he denies. [ 8 ] Defendants moved all their merchandise into the Plaintiff's storage facility, shrink-wrapping 45 pallets of goods. No inventory was made then or at any time before.

Defendant Goware did not vacate its office and showroom until mid July. Plaintiff therefore charged Defendants $2,000 per month for June and July 2008. [ 9 ] Defendants remitted their keys to Plaintiff but kept one leading to the storage area. Plaintiff roped off that entrance to prevent Defendants from removing merchandise. [ 10 ] For Plaintiff, Defendants' merchandise constituted security for rent, which had not been paid in October 2007 and June 2008.

Plaintiff refused to allow Defendants remove their goods unless they had an order to fill; in such a case, Plaintiff required payment of 50% of Defendants' orders, before releasing their goods. [ 11 ] After Defendants moved their goods into the storage facilities, they only paid part of July's rent and made no further payments for the rest of 2008. Plaintiff advised Defendants in January, February and March 2009 that their merchandise would be liquidated if they failed to pay the arrears. [ 12 ] In March 2009, Plaintiff increased the rent by $1,000 per month.

Plaintiff only received the balance of rent for July 2008 in July 2009 and $4,000 in September 2009, from Mr. Petersen's father. [ 13 ] In May 2009, Mr. Rosen sold his building. In order to provide space for the new owners, Plaintiff moved Defendants' merchandise to another part of its warehouse. It is claiming $5,869.50 to move goods, clean and provide warehousing services. [ 14 ] According to Defendants, all their merchandise was eventually moved, without their consent, from their storage facility in Plaintiff's warehouse into Plaintiff's general warehouse area.

They contend their goods were stored in different areas and their office furniture went into Plaintiff's conference room. [ 15 ] On November 18, 2009, Plaintiff notified Defendants of its planned liquidation, which took place in December 2009 and January 2010. According to Plaintiff, the sale of its merchandise and that of Defendants generated approximately $2,000; a small portion consisted of Defendants' goods. No records were kept. [ 16 ] In February 2010, Defendants gave Plaintiff $3,000 towards their arrears, which Plaintiff considered insufficient.

Defendants then attempted to fill an order and found that Plaintiff was liquidating their merchandise, without their consent. [ 17 ] Defendants obtained an injunction to remove their goods. They recuperated the remainder of their goods in June 2010. At that time, Mr. Peterson took inventory with Mr. Saunders, an employee of Plaintiff, and found only 20 palettes left and items missing. Defendants evaluated the cost price of their loss at $19,225.93. [ 18 ] Defendants claimed their table was chipped, corner pieces of their desk were missing, wheels on chairs were broken and fixtures were gone. According to Mr.

Saunders, Defendants had retrieved their desk, chairs, counter tops, cabinets and fixtures. Mr. Petersen Sr. testified the furniture left behind was of no value. [ 19 ] In March 2010, Plaintiff sent Defendants an invoice for $37,813.12. Ultimately, Plaintiff's amended claim for rent and warehousing services comes to $41,390.75. ANALYSIS:

A) THE PRINCIPAL ACTION [ 20 ] Plaintiff seeks payment from Defendants for their use of Plaintiff's storage facilities, after Goware relinquished its office space, showroom and keys to these premises and moved its merchandise and furniture into Plaintiff's storage area. [ 21 ] Defendants failed to pay rent in October 2007 and for most months from June 2008 to June 2010. Plaintiff refused to release Defendants' goods from storage unless Defendants provided half the amount of a sales order, beforehand.

Plaintiff considers it had the right of retention to assure payment of Defendants' debt while Defendants consider they were being held hostage and coerced into paying Plaintiff to remove merchandise before being paid by their clients. [ 22 ] Defendants maintain Goware leased premises at a reduced rate of $1,000 per month. They contend they were denied access to their goods, which were scattered throughout the warehouse, unless supervised, despite Goware's status as a lessee and although it owed only one month's rent. Defendants argue no rent is owed, without access.

They dispute Plaintiff's claim of a right of retention. [ 23 ] Defendants submit Plaintiff unlawfully disposed of their goods. They dispute the charge for moving their goods, since they had not been informed. ********** [ 24 ] Defendants qualify the contract as a lease while Plaintiff suggested that the relationship began as a lease but became a mixture of a contract of lease and of deposit. While the distinction is important in certain cases [1] , it is immaterial in this instance, since in either situation, Plaintiff has the right of retention. [ 25 ]

Article 1592 C.C.Q. stipulates:

A party who , with the consent of the other party, has detention of property belonging to the latter has a right to retain it pending full payment of his claim against him, if the claim is exigible and is directly related to the property of which he has detention. [ 26 ]

Article 2293 provides: The depositor is bound to reimburse the depositary for any expenses he has incurred for the preservation of the property, to indemnify him for any loss the property may have caused him and to pay him the agreed remuneration. The depositary is entitled to retain the deposited property until he is paid. (the underlining is ours) [ 27 ] The Honourable Jean-Louis Baudouin, in his text “Les obligations” [2] explains the conditions applicable to the right of retention as follows: « La règle générale est assortie de plusieurs conditions d'application.

D'abord, c'est avec le consentement du débiteur que le créancier doit avoir obtenu le bien sur lequel il veut exercer le droit de rétention (par exemple, pour le réparer); ensuite, le bien doit appartenir au débiteur (ce qui exclut par exemple le cas du locataire qui ferait réparer le bien loué en principe); enfin la créance doit être exigible et elle doit être ‘’intimement liée au bien’’ que veut retenir le créancier (par exemple le prix de la réparation de ce bien, mais pas celui de la réparation d'un autre bien tout à fait distinct). (…) Quand le créancier satisfait à toutes ces conditions, il peut retenir le bien tant et aussi longtemps que sa créance n'a pas été payée au complet. » [ 28 ] In the case of a contract for deposit, the conditions governing the right of retention are the same as those indicated above by the Honourable Jean-Louis Baudoin, except for the ownership requirement.

The depositor does not have to be the owner of the goods that are the object of the deposit [3] . [ 29 ] In this instance, Defendants are indignant that Plaintiff held their property and did not allow them to remove it, without providing payment of a portion of the sales price. They contest their obligation to pay rent based on their lack of free access to their goods. They consider they had the right to use Plaintiff's premises for storage, although they had not paid for the use of their storage space. [ 30 ] Defendants' financial difficulties are not disputed.

However, this issue is not relevant to their obligations towards Plaintiff. They undertook to lease space for storage and pay a given amount every month. They failed to do so. [ 31 ] Given a creditor’s rights, as set out in the Civil Code , the doctrine and jurisprudence, Plaintiff had the right to retain Defendants' merchandise until it received complete payment of Defendants' debt, namely the amount of rent owed.

Plaintiff sought payments when Defendant sought to remove its goods; it was fully entitled to do so since the merchandise constituted its security. [ 32 ] Plaintiff is claiming $41,390.75 in arrears and costs, for October 2007 and from June 2008 to June 2010, as shown on its amended rental account.

It charged a monthly rental of $1,000 plus tax ($1,128.75) except for the period of March 2009 to March 2010, plus June and July 2008, for which Plaintiff charged $2,000 per month plus tax ($2,257.50). [ 33 ] Given the lack of agreement as to the rental increase, the Court maintains the amount owed at $1,128.75 per month.

Plaintiff is entitled to $2,257.50 only for June and July 2008 since Defendants had not yet vacated their office and showroom. [ 34 ] After establishing the rent at $1,128.75 per month for each month in arrears, except for June and July 2008, the Court concludes that the total outstanding rent is $28,976.25. Given that Plaintiff received $7,000 towards these arrears, $21,976.25 is currently owed. [ 35 ] Plaintiff is seeking $5,869.50 for its warehousing services, including moving goods and cleaning Defendants' storage facility.

Defendants claim they were not aware their goods were moved and they had not consented to these costs. In the absence of any prior discussion with Defendants for such services and given the lack of any agreement for same, Plaintiff cannot charge for these alleged costs. [ 36 ] Defendants complained about previous problems they had with Plaintiff but never raised these issues and continued to occupy the premises for four years. In light of these facts, their allegations have no bearing on this case. Who is responsible for the amount owed? [ 37 ] Plaintiff submits Mr.

Petersen is personally responsible along with Goware for the amounts owed. Mr. Petersen denies any personal liability, claiming his implication is not justified. He maintains he paid rent on Goware's behalf, having lent it money. As for the Superior Court's order [4] requiring that he personally provide a deposit in order to obtain the release of Defendants’ goods, he submitted he paid as a surety, which must be a physical person. [ 38 ] The last argument of Mr. Petersen is not valid.

In the case of Elliot vs Wightman et al. and Uwe Christensen [5] , the Court of Appeal held that the new Civil Code removed the alleged incapacity, namely that a surety must emanate from a physical person: « 33 Ainsi, dans le présent cas, la disparition de l'article 1962 C.c.B.-C. lors de l'abrogation du Code civil du Bas-Canada et l'entrée en vigueur du nouveau Code civil font disparaître la cause d'incapacité qu'allègue Wightman. »

[ 39 ] The undersigned notes that to allow the release of Goware's goods, the Superior Court, in the context of injunction proceedings, required Mr. Petersen to deposit funds in his attorney's trust account, despite the fact that he was not a party to the procedures. [ 40 ] Mr. Petersen claimed he had paid on behalf of Goware but presented no evidence regarding Goware's debt to him. The Court also notes that Mr. Petersen senior admitted he lent money to his son, not to Goware. [ 41 ] Most important, the Court considers that Plaintiff allowed Goware to continue to use its facilities only if Mr.

Petersen was added as a contractual party. There was no reason to rent space to a company in financial difficulty. Although Defendant claims only one month was owed, the records show Goware had issued two NSF cheques in August and September 2007, which were later replaced and it failed to pay rent for October 2007 as well as for June 2008. [ 42 ] The Court concludes that Mr. Petersen is a party to the continued rental agreement and is solidarily responsible with Goware for the amount owed to Plaintiff. THE CROSS DEMAND:

a) Mr. Petersen's claim for $40,000: [ 43 ] Mr. Petersen is claiming $40,000 from Plaintiff; $20,000 for stress and inconvenience and $20,000 for having sued him personally. [ 44 ] Counsel for Defendant argued Mr. Peterson suffered humiliation by having to ask Plaintiff’s employee, Mr. Saunders, for his merchandise. However, Mr. Petersen made no mention of humiliation in his testimony. Counsel also submits Mr. Petersen suffered stress and anguish. Again, no evidence was presented on this issue. In the absence of any evidence as to the damages suffered, none are granted. [ 45 ] Mr.

Petersen is claiming $20,000 for abuse of procedure for the lawsuit taken against him, which he qualifies as vindictive. In light of the Court's conclusion in the proceeding section, this aspect of the claim is denied.

b) Goware's claim for $67,500: [ 46 ] Defendants claim Plaintiff, unlawfully, sold their goods in a cash sale and failed to keep any record of what was sold. They seek damages for the loss of goods and profits.

They also seek compensation for damage to office furniture, the loss of this furniture and showroom equipment. [ 47 ] This brings us to the question of whether Plaintiff had the right to dispose of Defendants' property, either by throwing it out or by selling it, after having notified Defendants it intended to do so, if they failed to pay the amounts owed for rent. [ 48 ] Defendants submit they were not aware of the sale of their merchandise and never agreed to it: Plaintiff contends Defendants had ample notice their goods would be sold if they failed to pay their arrears but they did not respond. [ 49 ] Plaintiff considers it had the right to dispose of Defendants' merchandise and furniture to mitigate its damages since it stored their property, without pay.

Plaintiff argues Defendants abandoned the premises and their goods for two years, relinquished their keys and failed to send demand letters to Plaintiff. [ 50 ] Whether the contract concluded by the parties was a lease or a contract of deposit, Plaintiff did not have the right to sell or dispose of Defendants’ goods. [6]

Article 1713 of the Civil code of Quebec states: The sale of property by a person other than the owner or than a person charged with its sale or authorized to sell it may be declared null . The sale may not be declared null, however, if the seller becomes the owner of the property. [ 51 ] The true owner of a good that is sold can demand that the sale be declared null and can claim the good from the purchaser, in virtue of

article 1714 of the Civil code of Quebec : The true owner may apply for the annulment of the sale and revendicate the sold property from the buyer unless the sale was made under judicial authority or unless the buyer can set up positive prescription.

If the property is a movable sold in the ordinary course of business of an enterprise, the owner is bound to reimburse the buyer in good faith for the price he has paid. (the underlining is ours) [ 52 ] Given the non-payment of rent, Plaintiff had recourse to the Courts for reparation, either in the form of a trial or a settlement conference; its recourse did not consist of dealing with Defendants' property as Plaintiff deemed fit. [ 53 ] However, since Plaintiff kept no records, the sales cannot be annulled and the merchandise cannot be remitted to Defendants.

Defendants are entitled to damages for the loss of their property, which Plaintiff unlawfully sold or threw out.

i) Damage for loss of furniture and loss of showroom goods: [ 54 ] Defendants seek $2,500 for their prejudice following Plaintiff's failure to return all their office furniture and for those items that were damaged. They seek $10,000 for their showroom goods that were not remitted to them.

[ 55 ] Defendants submit some of their furniture was missing. According to Mr. Saunders, Defendants had retrieved their chairs, desk, counter tops, cabinets and fixtures. He did not see any furniture in the liquidation sale. Mr. Petersen Sr. testified that furniture was left behind since it had no value. [ 56 ] There is no evidence that Defendants left furniture in Plaintiff's warehouse and if any items remained, the evidence fails to show they had any monetary value. [ 57 ] Defendants also claim their furniture was damaged.

No photographic evidence was presented with respect to the alleged damage and if any items were broken, no evidence was presented as to the cost of their repair or replacement. Therefore, no damages can be granted for this aspect of the claim. [ 58 ] Defendants seek $10,000 in compensation to replace showroom material that was not returned, namely carpeting, fixtures, samples and tables.

Again, no details were provided as to the specific items that were allegedly missing or as to their replacement value, precluding the Court from granting any damages. ii) The disposal of Defendants' inventory and loss of profits: [ 59 ] Defendants submit they suffered prejudice from Plaintiff's sale of their inventory and seek $45,000 for loss of profits, which includes the sum of $19,225.93 (namely the cost of missing items listed in D-7) plus $10,000 for loss of business. [ 60 ] It is not disputed that Plaintiff disposed of some of Defendants' merchandise. The problem is that of quantifying the loss.

An accounting of the number of items that remained in storage was done in March 2010 but no inventory was done when the goods were put into storage in June 2008. [ 61 ] Defendants attempted to show the merchandise they had purchased by submitting documents from custom brokers, from the shipper [7] and evidence of wire transfers.

Although 424 containers were transported from China on June 16, 2007, there is no indication of how many goods were in each category listed or how many were sold during the ensuing year. [ 62 ] Defendants submitted the sales history of their goods, from December 1, 2006 to December 14, 2010.

However, they failed to provide a paper trail indicating the sales of each item both before and after the goods were placed in storage in 2008, in order to establish the number that should have remained when the count was done in 2010. [ 63 ] In addition, the cost price that is listed in Defendants' claim, as indicated in D-7, entitled “Physical Inventory Worksheet” , in some cases is higher than the price Defendants charged Stokes for the sale of goods.

Defendants explained their sale to Stokes was a liquidation sale but it nevertheless seeks the full sale price from Plaintiff. [ 64 ] In sum, in the absence of any inventory in 2008, the Court has no evidence as to the total number of each item that went into storage nor how many items in each category were subsequently sold, in order to determine what should have been left when the count took place in 2010 and what merchandise was missing.

Defendant, who is seeking damages, has the burden of proof. [ 65 ] The only evidence the Court has as to Defendants' loss is Plaintiff's admission that approximately $2,000 worth of goods were sold in a liquidation sale, part of which belonged to Defendants. The Court, in its discretion, grants Defendants the sum of $1,500 for its goods that were unlawfully sold by Plaintiff. [ 66 ] Both attorneys have funds in trust from their respective clients, in virtue of Court orders.

These funds are to be released, in executing the present judgment. [ 67 ] Finally, as obiter , the judgment in this case, in all probability, will not satisfy any of the parties; presumably, each anticipated a very different result. Their feud should have been resolved long ago by mediation. It is unfortunate that they did not choose such an option.

FOR THESE REASONS, THE COURT: GRANTS , in part, the principal action; CONDEMNS Defendants, John Petersen and Goware Design inc., solidarily to pay Plaintiff, Quality Goods I.M.D. inc., the sum of $21,976.25 (including tax), plus interest at the legal rate and the additional indemnity foreseen by

section 1619 of the Civil code of Quebec , since May 18, 2010, for a total of $23,356.58; THE WHOLE , with costs ; GRANTS , in part, Defendants' cross demand; CONDEMNS Plaintiff, Quality Goods I.M.D. inc., to pay Defendants, John Petersen and Goware Design inc., the sum of $1,708.88 ($1,500 + tax) plus interest at the legal rate and the additional indemnity foreseen by

section 1619 of the Civil code of Quebec , since September 29, 2010, for a total of $1,784.84. THE WHOLE , with costs ; And effecting compensation: CONDEMNS Defendants, John Petersen and Goware Design inc., solidarily to pay Plaintiff, Quality Goods I.M.D. inc., the sum of $21,571.74 plus interest at the legal rate and the additional indemnity foreseen by

section 1619 of the Civil code of Quebec , from the

date of judgment. ORDERS the parties to compensate the amount of their respective bills of costs ; ORDERS the attorneys in the present case to release the funds provided by their respective clients, namely the parties hereto, which have been held in their trust accounts. __________________________________ SUZANNE HANDMAN, J.C.Q. Me Dominic Bianco Mercadante di Pace Attorney for Plaintiff Me Jacinthe Lucie Leroux Étude Me Jacinthe Lucie Leroux Attorney for Defendants Dates of hearing: January 12 and 13, 2011 and April 20 and 21, 2011