2011 QCCQ 867, 2011 QCCQ 867

4237773 Canada inc. c. Hagiepetros 2011 QCCQ 867 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL TOWN OF MONTREAL Civil Division No: 500-22-159484-099 DATE: January 28, 2011 ______________________________________________________________________ BY THE HONOURABLE SUZANNE HANDMAN, J.C.Q. ______________________________________________________________________ 4237773 CANADA INC. Plaintiff v.

PETER HAGIEPETROS -and- EMMANUEL HAGIEPETROS Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] 4237773 Canada Ltée is suing Peter and Emmanuel Hagiepetros for the amended sum of $53,000.

After suffering a fire in its leased premises, Plaintiff is seeking the reimbursement of its $25,000 security deposit and $28,000 as free rent, in virtue of its lease. [ 2 ] Defendants deny the claim and presented a cross demand for $57,085, seeking various amounts owed by Plaintiff, damages and extra judicial costs. THE EVIDENCE: [ 3 ] In September 2004, Plaintiff 423773 Canada Ltée leased premises belonging to Defendants in McMasterville, Quebec, to operate a restaurant. Mr. Moraitis and Mr.

Pilarinos were then Plaintiff's two shareholders. [ 4 ] Before signing the lease, both shareholders signed a letter of intent on behalf of 163622 Canada Inc., a company owned by Mr. Pilarinos, to rent Defendants' premises and a $25,000 deposit was remitted to Defendants. However, it was Plaintiff 423773 Canada Ltée which took possession of the leased premises. The two partners ultimately separated; at the time of hearing, Mr. Moraitis was Plaintiff's sole shareholder. [ 5 ] Plaintiff visited the property, which had been empty for two years, before leasing the premises.

Defendants claimed they had suggested that BX wires, hanging from the basement ceiling, be re-wired. Plaintiff denied any discussion in this regard. [ 6 ] The building had no electricity; flashlights were used to examine the site. The building needed to be connected to a Hydro pole but, aside from that, the premises were delivered as being in good working order. Plaintiff hired a licensed electrician to bring electricity from an outside Hydro pole to the building; no changes were made to the basement wiring. [ 7 ] The restaurant opened in December 2004.

On March 23, 2005, at 12:30 a.m., Plaintiff was advised that the restaurant was on fire. He learned from the firemen, there previously had been three major and three minor fires at the site. [ 8 ] Mario Leonard, then Fire Director of McMasterville, and Alain Coté, a fireman with McMasterville Fire Department and an expert in prevention and inquiries, both situated the center of the fire in the basement ceiling, above shelves. The previous fires in the building ranged from one of criminal origin to a fire that had started in a wastebasket.

[ 9 ] Plaintiff was never advised the property had suffered any fires in the past and denied there was any evidence, in the basement, of their occurrence. [ 10 ] Defendants contended Plaintiff did not intend to re-open. Plaintiff claimed it wanted to go back to business but Defendants did not want to rebuild the site. Defendants reproached Plaintiff for refusing access to the premises. Plaintiff agreed to the access if Defendant waived any responsibility on Plaintiff's part.

Defendants refused; they ultimately gained access to the site when their contractor cut the existing lock. [ 11 ] The reconstruction of the property began in the fall 2005 and stopped either at the end of December 2005, or at the beginning of January 2006. The parties ended the lease in January 2006. [ 12 ] Plaintiff occupied the premises from September 4, 2004 until the fire on March 23, 2005, without paying rent.

It claimed no rent was due during the construction phase; thereafter the lease foresaw free rent until October 31, 2005. [ 13 ] Defendants claim Plaintiff never paid taxes or the Hydro account, alleging they gave Plaintiff the bills and had asked Hydro to change the name on its account. [ 14 ] Plaintiff denied having received any invoices for taxes, until the lawsuit was instituted and denied it was in default. During negotiations of the lease, there was no discussion concerning the terms of default or delays for remedying it. As for Hydro's bill, Plaintiff alleges the amount claimed was covered by its deposit.

The amendments: [ 15 ] Defendants' attorney presented an amendment at trial, alleging Plaintiff's default to pay rent from the time Plaintiff took possession in September 15, 2004 until October 31, 2004. Plaintiff claimed the amendment was tardy. [ 16 ] Such an amendment, which was presented after cross-examination of Plaintiff's principal, is permissible.

Amendments, which do not change the nature of the claim, as in this case, may be accepted at any time during the proceedings. ********** [ 17 ] Defendants' attorney presented another amendment, denying that Defendants received a security deposit from Plaintiff and denying the admission made in their defence. Plaintiff argued that Defendants could not amend their statement of fact. The Court took this amendment under reserve of the objection raised. [ 18 ] Defendants’ defence contains a judicial admission as to the receipt of the security deposit.

Defendants wish to amend their defence such that the judicial admission no longer exists. However, given

article 2852 C.C.Q., this admission cannot be withdrawn by simple amendment. [ 19 ]

Article 2852 C.C.Q. states that an admission made by a party to a dispute or by an authorized mandatory makes proof against him if it is made in the proceeding in which it is invoked. It may not be revoked, “unless it is proved to have been made through an error of fact.” [ 20 ] When an attorney makes an admission in a judicial proceeding, the admission may be withdrawn, either by invoking the absence of authorisation by the attorney, in virtue of 243 C.C.P., or the existence of an error, in virtue of

article 2852 C.C.Q. [ 21 ] If the admission was made without authorisation, the party himself must present a motion of disavowal and no such motion was made in this instance nor is there any proof that the attorney who prepared the motion exceeded his mandate. [ 22 ] If the admission was made by error, either the lawyer or the party who made the error must not only invoke the existence of the error but must also make proof in this regard. [ 23 ] In the present case, Defendants' attorney attempted to withdraw the admission but presented no evidence regarding the factual error made, other than to claim that the money was paid by a third party.

Furthermore, at no time during trial did Defendants, in their testimony, deny having received $25,000 as the deposit. [ 24 ] Accordingly, there is no basis for granting the amendment presented. It is not sufficient for an attorney to present a motion denying a judicial admission without any evidence in its support. [ 25 ] Moreover, the proposed amendment is not made in virtue of

article 199 and following C.C.P.; rather it constitutes an indirect means of withdrawing an admission. As indicated above, this manner of proceeding is not admissible and does not modify the admission contained in the defence. The Objections: [ 26 ] Defendants presented numerous objections during the hearing. The objection regarding the presentation of letters from Plaintiff's attorneys, in the absence of notice in virtue of

article 403 C.C.P. was taken under reserve. After consideration, the Court, while recognizing that the objection technically has some basis, concludes there is no doubt as to the authenticity of the letters by counsel representing both parties and consequently dismisses the objection. [ 27 ] There is no need to deal with the other objections taken under reserve; the disputed issue in each instance was not considered in the analysis of this case.

ANALYSIS: [ 28 ] Both parties made claims with their respective insurance companies, which have since been settled. What remains are Plaintiff's claims for the reimbursement of its security deposit and recovery of free rent under the lease.

A) The Principal Action :

a) The Security Deposit [ 29 ] Plaintiff is seeking the reimbursement of its $25,000 security deposit. Defendants submit that the Letter of intent, which refers to receipt of the deposit, was signed by Peter Hagiepetros, for the landlord, and by 163622 Canada Inc., represented by Nick Moraitis and Costas Pelaronis, but not by Plaintiff 423773 Canada Ltd.. Defendants maintain Plaintiff 423773 Canada Ltd. does not have a legal interest to make this claim. [ 30 ] The lease for premises situated at […] in McMasterville, Quebec, was signed by Plaintiff 423773 Canada Ltd., on September 21,

Article 3.7 states: “the Tenant shall deposit with the Landlord the amount of twenty-five thousand dollars ($25,000) by certified cheque.” [ 31 ] On the same date as the lease was signed, a money order for $25,000 was given to the Landlord with the inscription “Leased Premises Security Deposit […], McMasterville” . [ 32 ] It is immaterial whether the sum of $25,000 was provided by 423773 Canada Ltd., as security, or by another physical or moral person.

Article 1555 C.C.Q. foresees that payment may be made by any person, even if he is a third person with respect to the obligation. [ 33 ] In this case, it is clear the money was provided as a deposit on behalf of the Tenant, as required by the Landlord, in virtue of the Letter of intent and the lease. Furthermore, the landlord acknowledged receipt of the deposit when it was provided. [ 34 ] Defendants' attorney attempted, by means of an amendment, to withdraw the admission in the defence, namely that Defendants received the sum of $25,000.

As already indicated, such an admission cannot be revoked, “unless it is proved to have been made through an error of fact” . [ 35 ] However, at no time during trial did Defendants, in their testimony, deny having received that amount and no evidence was presented as to any error of fact. [ 36 ] Consequently, Defendants’ acknowledgment of receipt of the deposit is sufficient to confirm that the undertaking was met and that the money was provided to Defendants to enable Plaintiff to occupy the premises, in accordance with its contractual undertaking. [ 37 ] Defendants also argue that payment was made by money order and not by certified cheque, as stipulated in the Letter of Intent and the lease.

This argument has no merit. A sum of money that is owed may be paid by remitting a money order or a certified cheque or by any other instrument of payment that offers the same guarantee to a creditor (article 1564 C.C.Q.). [ 38 ] Defendants claim Plaintiff received full indemnification with respect to all losses resulting from the fire, from its insurers.

However, Defendants could not point to any moneys received from the insurance claim, which cover the security deposit. [ 39 ] Defendants allege Plaintiff failed to prove the fire was caused by failure of the electrical system; it failed to inquire whether the premises ever suffered fire damage; it failed to prove gross negligence or willful misconduct by Defendants; and Mr. Moraitis had presented himself as a qualified electrician, able to deal with electrical problems. [ 40 ] In addition, Defendants maintain Plaintiff has no recourse against them for any payment or loss based on

article 8 of the lease : “Notwithstanding any other term, obligation and condition contained in this Offer and/or the Lease, including without limitation, the Tenant shall indemnify and save the Landlord harmless from and against any and all loss, claim, action, damage, liability and expense in connection with … damage to property or any other loss or injury whatsoever arising from or out of this Offer and/or the Lease or any occurrence in upon at the leased premises or the occupancy or use by the Tenant of the leased premises or any part thereof caused or occasioned wholly or in part by any act or omission of the Tenant or by any one permitted to be on the leased premises by the Tenant or from any other cause or matter whatsoever other than the gross negligence or willful misconduct of the Landlord …” (the underlining is ours) [ 41 ] The arguments have no merit.

Plaintiff's claim is for the reimbursement of the security deposit paid at the outset whereas the above limitation of liability clause is related to property damages or losses arising out of the lease. [ 42 ] The obligation to remit the security deposit is a contractual obligation and the claim for its reimbursement is not related to an action in damages.

The clause is therefore not applicable. [ 43 ] Irrespective of the nature of the claim, the Court considers that Defendants acted in bad faith by failing to provide Plaintiff with any information as to the existence of previous fires, although they had full knowledge of each of them. This omission, in the Court's view, constitutes willful misconduct, which would allow an action to be instituted.

[ 44 ] In sum, the security deposit is a deposit and not money the Landlord is entitled to keep. Given that the lease has ended, irrespective of the reasons, Plaintiff has the right to recover the security deposit, which Defendants received, subject to the last rents or additional rents payable under the lease.

b) Recovery of Free Rent: [ 45 ] Plaintiff is claiming $28,000 for the loss of the last eight months of free rent, to which it was entitled, under the lease. [ 46 ]

Article 3.6 entitled Free Rent Period states: “Notwithstanding

Section 3.1 above, it is understood and agreed between the parties that, for the period from November 1st, 2004 to October 31st, 2005 inclusive, provided that the Lease is signed and the Tenant is not in default under any provision of the Lease, the Tenant shall not be obligated to pay the Base Rent but the Tenant shall be subject to all other terms and conditions of this Offer and/or the Lease insofar as they are applicable.” [ 47 ] Plaintiff alleges it was entitled to free rent for the first year of occupancy.

Since it was unable to benefit from the use of the premises after the fire because Defendants failed to rebuild the site, it is claiming eight months of free rent, from the time of the fire in March until the end of October 2005. [ 48 ] In this instance, Plaintiff is claiming a benefit for which it was eligible while it leased the premises. If it had continued to operate its restaurant, it would have profited from free rent for eight additional months.

If it had established a restaurant elsewhere, because of the fire, and paid rent until the end of October 2005, it would have lost the benefit of the free rent period, foreseen by his lease. [ 49 ] However, Plaintiff did not operate its restaurant in Defendants' premises after the fire nor did it operate another restaurant. In the absence of any evidence that Plaintiff paid rent elsewhere to run a business, it has not shown that it suffered a loss. Therefore, it is not entitled to compensation for this aspect of its claim.

B) The Cross Demand:

a) Property Taxes: [ 50 ]

Article 3.3 of the lease entitled Taxes and Utilities states: “The Tenant shall be responsible for the payment of

a) all property taxes, school taxes, business taxes, surtaxes and other taxes that might arise in respect of the Building and the business carried on therein,

b) all utilities including telephone, power, consumed or used within the Leased Premises, and

c) all water and garbage taxes, rates, duties or levies and all other taxes, rates, duties, …, as of September 14, 2004.” [ 51 ] Defendants/Cross Plaintiffs (hereinafter referred to as Defendants) are claiming $4,634.83 as taxes for the period from September 14, 2005 to March 23, 2005. Defendants produced a copy of their accounts. Plaintiff did not pay this amount, insisting it never received a copy of the bills. [ 52 ] The lease stipulates that Plaintiff is responsible for the payment of all taxes in respect of the building. Defendants are therefore entitled to the said sum of $4,634.83, representing the Municipality of McMasterville’s tax bill for the period in question.

b) School Taxes: [ 53 ] Defendants established that the yearly amount payable to the Commission scolaire des Patriotes is $1,061.22. They are claiming $547.12 for school taxes for the period from September 14, 2004 to March 23, 2005, based on

article 3.3 of the lease. [ 54 ] Plaintiff did not pay this amount, claiming it did not receive any invoice. It is nevertheless responsible for the payment of school taxes in virtue of the lease. [ 55 ] Given Plaintiff's obligation to pay these taxes, Defendants are entitled to the said sum of $547.12.

c) Electricity bill: [ 56 ] Defendants are claiming payment for an electricity bill of $2,812.62. Defendants produced an invoice, dated April 11, 2005, addressed to Mr. Hagiepetros for consumption at the restaurant's premises, from April 30, 2003 to March 8, 2005. [ 57 ] Plaintiff produced a second bill, dated July 14, 2005, for $2,812.62, covering the period from October 8, 2004 to March 8, 2005.

At Defendants' request, Hydro had sent the second bill to […] in McMasterville; this time the invoice was addressed to the Nouveau Moulin, namely Plaintiff's trade name. [ 58 ] Defendants presented no evidence they paid this bill. Plaintiff, however, had sent Hydro a deposit in the fall of 2005 for $3000, which Hydro accepted as payment. [ 59 ] Given that Plaintiff's deposit exceeds the amount allegedly owed and since Defendants have not shown they paid the Hydro bill, they have not established to the Court's satisfaction, their entitlement to the sum of $2,812.62.

d) Unpaid rent from November 1, 2004 to March 23, 2005:

[ 60 ] Defendants are claiming rent for the period of November 1, 2004 to March 23, 2005; the amount being $16,596.77 plus tax for a total of $19,090.43. [ 61 ]

Article 3.6 of the lease foresees that the Tenant is not obliged to pay the base rent from November 1, 2004 to October 31, 2005, provided the lease is signed and the Tenant is not in default under the provisions of the lease. [ 62 ] Defendants submit that Plaintiff forfeited any right to the free rent period under the lease, alleging its failure to sign the lease, its failure to pay rent due from September 15, 2004 to October 31, 2004 and from November 1, 2004 to March 23, 2005 as well as its failure to pay taxes and an electrical bill. - Failure to sign a lease [ 63 ] The Court does not retain Defendants' argument that Plaintiff failed to sign a lease.

An offer by one party, which is accepted by another is a binding contract. [ 64 ] In the present instance, Defendants offered to rent premises to Plaintiff, which Plaintiff accepted. Both Defendants, as Landlord, and Plaintiff, as Tenant, signed the document containing the terms and conditions governing the rental of the premises. Furthermore, the document signed by both parties is entitled “LEASE” . Accordingly, the Court concludes that a lease for the premises was executed. - Failure to pay rent [ 65 ] Defendants claim Plaintiff failed to pay rent from September 15, 2004 to November 1, 2004.

However, the provisions governing this period are far from clear. When there is doubt as to the

interpretation of a contract, it is interpreted in favour of the person who contracted the obligation and against the person who stipulated it (article 1432 C.C.Q.). [ 66 ] The lease indicates the term is five years, ending on October 31st 2009. Although the commencement date is foreseen as September 15 th , 2004, when one considers the total term, the rental period necessarily begins on November 1, 2004. [ 67 ] Moreover, the payments for each year cover a 12 month period. Given that the second year's rent begins on November 1, 2005, then the preceding 12 month period necessarily runs from November 1, 2004 to October 31, 2005. According to

article 3.6 of the lease, no rent is payable during this first year of occupancy. In sum, the period of rent begins on November 1, 2004 but the lease provides that there is a free rent period until October 31, 2005. [ 68 ] Plaintiff claims no rent was payable during the renovation phase.

While Defendants now contend that Plaintiff is in default for failing to pay rent from September 15 to November 1, 2004, it never sought this rent before trial nor did it ever advise Plaintiff that any amount was owed for this period. [ 69 ] It is inconceivable that Plaintiff was to pay rent during its renovations but not be required to pay any rent thereafter for a one- year period. The Court concludes that it was never the intention of the parties that rent be paid before November 1, 2004.

Moreover, the amount claimed is now prescribed. [ 70 ] In light of the foregoing, the Court concludes that Plaintiff was not in default with respect to any arrears in rent. - Default to pay the electrical bill and taxes : [ 71 ] Finally, Defendants point to Plaintiff's default to pay the electrical bill and taxes. According to the lease, the Tenant is considered to be in default if the Tenant fails to comply with the terms and conditions of the lease and the default is not cured within the delays set forth in the lease.

However, no delays are foreseen in the lease. [ 72 ] The evidence established that Plaintiff had paid its Hydro bill. As for taxes, Defendants never provided Plaintiff with any invoice during its occupancy. The only notice provided was a letter from Defendants' attorneys, dated November 23, 2005, advising Plaintiff its taxes had not been paid and, if not remedied, they will seek the resiliation of the lease.

No tax bills were provided, no delay was set for payment and Defendants never specified that Plaintiff would lose the benefit of the free rent period if taxes were not paid within a specific delay. [ 73 ] The Court considers that Defendants tacitly renounced to consider the lack of payment of taxes, in a timely manner, as a default within the meaning of articles 3.6 and 10 of the lease.

Most importantly, Defendants never put Plaintiff in default to pay the first years' rent during the time the free rental period was in effect nor did Defendants ever raise this issue. [ 74 ] The Court considers that Defendants are seeking rent, as an afterthought, when in fact Defendants never considered it payable.

The failure to put Plaintiff in default to pay the first years' rent indicates that Defendants renounced to claim the value of the free rent period. [ 75 ] In light of the foregoing, the Court concludes that Defendants cannot now retroactively claim payment for the time foreseen as a free rental period.

e) Damages for trouble and inconvenience and Extra judicial costs: [ 76 ] Defendants are seeking $5,000 for trouble and inconvenience. Defendants also seek extra judicial costs, requesting that the Court: “declare Plaintiff together with Nick Moraitis and legal counsel acting for Plaintiff, to have acted in bad faith to have used the procedures in the present lawsuit that are excessive, unreasonable and have caused Defendants a grave prejudice…” [ 77 ] Both claims will be dealt with together in this section.

[ 78 ] Defendants submit the lease provides for a waiver and an indemnification clause, precluding Plaintiff from taking any action against the Landlord. They claim the present action constitutes an abuse of process and is unfounded based upon

article 54.1 and following C.C.P.. [ 79 ] An abuse of process is defined in

article 54.1 C.C.P. as follows: 54.1 A court may, at any time, on request or even on its own initiative after having heard the parties on the point, declare an action or other pleading improper and impose a sanction on the party concerned. [ 80 ] The procedural impropriety may consist of a claim or pleading that is clearly unfounded, frivolous or dilatory or of conduct that is vexatious or quarrelsome.

It may also consist of bad faith, the use of procedure that is excessive or unreasonable or causes prejudice to another person, or of an attempt to defeat the ends of justice, in particular if it restricts freedom of expression in public debate. [ 81 ] The Court has already dealt with Defendants' arguments regarding the indemnification clause in the lease; there is no need to repeat the discussion. [ 82 ] Defendants’ argument as to the Tenant's waiver in the lease, which removes all claims for peaceful enjoyment of the premises has no relevance to this case. [ 83 ] Defendants submit Plaintiff received full compensation for all losses suffered, because of the fire, pursuant to its action against the insurer Jevco and the payments received. [ 84 ] The Court does not agree.

The original action was instituted by Plaintiff against Peter Hagiepetros [1] , seeking damages for the value of leasehold improvements, loss of profit, loss of eight months of free rent and the reimbursement of the security deposit. [ 85 ] Plaintiff also instituted a lawsuit against Jevco, claiming property damages, reimbursement for leasehold improvements and equipment and other losses.

Following judgment which was rendered against Jevco, Jevco paid Plaintiff compensation and a declaration of satisfaction of judgment was signed. [ 86 ] Plaintiff then amended the present action, limiting its claim to eight months rent and the reimbursement of the security deposit. [ 87 ] There is no evidence Jevco paid for these items. Moreover, the present action does not cover the same damages as those already received. It only concerns claims that are based on the lease and has nothing to do with the insurers.

The compensation paid by Plaintiff's insurers therefore does not preclude Plaintiff from seeking the sums claimed in this action. [ 88 ] In light of the evidence, the Court concludes that the Plaintiff's action is neither abusive or unfounded within the meaning of

article 54.1 and following C.C.P. nor is Plaintiff's behaviour improper. Consequently, Defendants' claim for the award of extra judicial costs and damages for trouble and inconvenience is dismissed. [ 89 ] Plaintiff raised a number of complaints concerning Defendant's behaviour, including the production of numerous exhibits which were not relevant while producing other documents for the first time at trial; frivolous subpoenas that were issued; Defendants’ support for an intervenor who was unrelated to them; etc..

However, since Plaintiff did not request any remedy and since the Court did not hear the parties' representations on the question of Defendants' abuse of process, no decision will be rendered on this issue. ******* [ 90 ] In light of the evidence, Plaintiff owes Defendants $5,181.95 with interest at the legal rate and the additional indemnity payable from November 2, 2005 for a total of $7,182.54. Defendants owe Plaintiff $25,000 with interest at the legal rate and the additional indemnity payable from November 29, 2005 for a total of $34,522.26.

Therefore, compensation is to be effected, with the difference of $27,339.72 which is payable to Plaintiff. FOR THESE REASONS, THE COURT: GRANTS , in part, Plaintiff's action; CONDEMNS Defendants, Peter and Emmanuel Hagiepetros, to pay Plaintiff, 4237773 Canada inc., the sum of $27,339.72 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; THE WHOLE , with costs against Defendants. __________________________________ SUZANNE HANDMAN, J.C.Q. Me Jean-Christophe Trottier Étude Jean-Christophe Trottier Attorney for Plaintiff

Me Reevin Pearl Pearl et Associés Attorney for Defendant Date of hearing: February 4 and 5, September 3, 2010