)) Artext Electronic Publishing Inc. Plaintiff – v. –, 2017 ONSC 2387

CITATION : Artext Electronic Publishing Inc. v. Cielo Print Inc., 2017 ONSC 2387 COURT FILE NO.: 15-64458 DATE: 2017/04/24 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: )) Artext Electronic Publishing Inc. Plaintiff – and – Cielo Print Inc. and Mohamed Ali Defendants ))))))))) J. L. Lee Mullowney, for the Plaintiff Joseph W. L. Griffiths, for the Defendants ) ) ) HEARD: February 2, 3, 2017 REASONS FOR JUDGMENT Justice L.

Sheard [ 1 ] The plaintiff, Artext Electronic Publishing Inc., (“Artext”) sues Cielo Print Inc. (“Cielo”) for $45,623.75, for breach of contract relating to the lease or purchase of a used Xerox iGen digital printer (the “iGen”). On consent, at the opening of trial, Artext abandoned its claim against Mohamed Ali (“Ali”) and filed a copy of the Amended Statement of Claim that identified abandoned or withdrawn claims. [ 2 ] The trial proceded by way of a “mini-trial”. There was no trial record. The evidence in chief of each party was a combination of affidavit and oral evidence.

Artext’s witness was Yann Lemieux (“Lemieux”), whose affidavit was sworn on January 23, 2017 (the “Lemieux Affidavit”). Cielo’s witness was Ali, whose affidavit was sworn on January 30, 2017 (the “Ali Affidavit”). [ 3 ] The parties did not file an agreed statement of facts: there were no facts upon which the parties could agree.

Summary of the Evidence [ 4 ] In 2008 Artext had entered into an “Instalment Sale” agreement with Xerox to buy the iGen from Xerox for $325,000. Paragraph 3 of the Instalment Sale contract provided that title to the iGen passed to Artext when Artext received delivery of the machine. The purchase price included a $100,000 licence fee. Artext paid the purchase price by way of 60 monthly payments to Xerox of $7,105.67. The final payment was due and paid by Artext on December 9, 2013. [ 5 ] Artext claims that in October 2011 the parties orally agreed that Artext would lease the iGen to Cielo for $51,000 plus taxes.

Payment would be made in 24 equal monthly payments of $2,125 plus HST ($2,401.85). At the end of the 24-month lease period, Cielo would owe nothing more to Artext and would have the right to continue to use the iGen indefinitely. [ 6 ] In November 2011, the parties learned that if Artext transferred title of the iGen to Cielo, Cielo would have to buy its own licence from Xerox, at a cost of between $100,000 and $200,000. The parties worked with the Xerox salesman to find a way for Cielo to have the machine without paying the license fee.

An arrangement among Artext, Cielo and Xerox was reached whereby the iGen could be moved to Cielo’s premises while remaining in the name of Artext. That arrangement was contingent upon Artext entering into a monthly servicing agreement with Xerox, which it did. As a result of this arrangement, the iGen was moved to Cielo’s premises but title to it remained in the name of Artext. [ 7 ] The iGen is a huge machine described as two meters wide, 10-15 meters long, and as high as the ceiling. Cielo had to build a special room for the iGen.

The room had to be isolated from dust and humidity and required its own special wiring and electricity source. Ali stated that Cielo spent $70,000 to build this room, but did not provide any documentary evidence to support that figure. [ 8 ] Ali said that Artext was moving its offices and was anxious to sell the iGen before the move. Artect had tried to sell the iGen for $100,000 but found no buyer.

Cielo agreed to buy the iGen for $51,000 and agreed to take possession of the iGen in December 2011 on the basis that the instalment payments were not to start until the room was built and the iGen was installed and ready for use. Cielo says that that did not happen until August 2012, in which month Cielo made its first payment to Artext. [ 9 ] Artext acknowledges that it agreed to defer the start of the instalment payments but disputes that payments were to be

delayed until August 2012. Artext asserted that its first invoice to Cielo was dated March 1, 2012. [ 10 ] Cielo acknowledges that it received an envelope from Artext containing a “Past Due” Statement dated November 30, 2012, which enclosed Artext invoices for March 1, 2012 to July 1, 2012.

However, Cielo asserts that this was the first time it saw these invoices and that the first invoice it received from Artext was in August 2012. [ 11 ] Artext’s Past Due statement records a payment from Cielo on November 19, 2012 for Artext’s invoice dated June 1, 2012 and shows no payment of the invoices dated July to October 2012. According to this statement, as at November 30, 2012, Cielo was in arrears of $10,756.12, including interest of $210.90.

What is unexplained about Artext’s November 30, 2012 statement is that it does not record the payments Cielo made from August to October 2012. [ 12 ] Based on the evidence as a whole, I accept Cielo’s version of events that the Artext invoices dated March to July 2012 was not delivered to Cielo until November, 2012. That conclusion is supported by Artext’s evidence that it agreed to delay the start of Cielo’s payments and the fact that Cielo’s first payment to Artext was made in August 2012. [ 13 ] There is no dispute that Artext received five payments from Cielo as follows: (

i) on August 24, 2012, for the invoice dated August 1, 2012; (ii) on September 24, 2012, for the invoice dated September 1, 2012; (iii) on October 19, 2012, for the invoice dated October 1, 2012; (iv) on November 19, 2012, for the invoice dated November 2012; and (

v) on January 10, 2013, for the invoice dated January 1, 2013. [ 14 ] It was also undisputed that the last invoice issued by Artext was dated January 1, 2013 and that the last payment made by Cielo was January 10, 2013 and that Cielo made only five payments in all. [ 15 ] Cielo says that it stopped making payments to Artext because the iGen broke daily, ruined whole print jobs, and was not fit for the purpose.

Cielo asserted that Artext misrepresented the iGen’s working condition and failed to disclose the mandatory maintenance costs that would have to be paid to Xerox [ 16 ] According to Artext, on and after January 2013, it made efforts to collect from Cielo by sending statements, visiting, and making almost daily telephone calls to Cielo.

While Lemieux asserted that Artext did send a total of 24 invoices, the invoices referenced above were the only invoices produced by Artext in this action. [ 17 ] Lemieux stated that in August 2013 he paid a surprise visit on Cielo and at that meeting Cielo promised to pay the outstanding balance by the end of October 2013. Ali disputed that assertion.

Ali stated that between August 2012 and November 2013, he had repeated conversations with Lemieux about the problems Cielo was having with the iGen and that he told Lemieux that Cielo could not afford to continue making payments for a machine that was not able to produce.

Ali stated that the monthly Xerox service and maintenance fees exceeded the value of the copies produced by the iGen and that in December 2013 he told Lemieux to take the iGen back. [ 18 ] The evidence of Lemieux was that in March 2014 Xerox called him to say that Cielo wanted to return the iGen and that Artext had two weeks to arrange for it to be removed. [ 19 ] Lemieux acknowledged that Xerox offered Artext a credit for the iGen but he did not provide any documentary evidence that showed the amount of the Xerox credit.

At trial, Lemieux’s evidence was that he thought in 2014 the iGen was worth about $20,000 but that it was not worth his while to try to sell it. He also acknowledged that Xerox offered Artext a trade for the iGen, but according to Lemieux, to take advantage of that trade he had to buy a machine from Xerox, for which he had little or no use. Lemieux did not offer any details of the amount of that Xerox credit. [ 20 ] Cielo’s evidence was that it did not know that Artext was taking the iGen back until it received an email from Xerox on March 11, 2014. A copy of that email was in evidence.

In it, Xerox confirmed that Artext had arranged for Xerox to remove the iGen within the next 1 to 2 weeks.

Xerox did remove the iGen from Cielo’s premises in March 2014. [ 21 ] According to Ali, when Cielo arranged for Xerox to pick up the iGen, he thought that Cielo and Artext were both walking away from their earlier agreement: Cielo was absorbing the costs it had incurred in building the room to house the iGen and Artext was abandoning any claim it might have had to recover further payments from Cielo. [ 22 ] The next communication between the parties respecting the iGen was a year later, on March 31, 2015, when Artext’s lawyer sent a demand letter to Cielo.

The letter stated (incorrectly) that Cielo had made only four payments toward the price of the $51,000 on the “rent-to-own” contract and that Artext had $48,025 in unpaid invoices to Cielo “for the purchase” of the iGen. The letter demanded payment of the balance owing on the purchase price. [ 23 ] Notwithstanding the demand letter, Cielo made no further payment and the last payment made by Cielo remained the payment it had made on January 10, 2013. Artext issued its statement of claim on May 28, 2015 Issues to be decided: (

i) Was the arrangement between the parties a lease/rent to own or a sale with the purchase price to be paid by way of 24

monthly instalments? (ii) Was there a fundamental breach such as to allow the defendant to repudiate the contract on the basis that the equipment wasnot fit for the purpose for which it was purchased? (iii) By accepting the return of the equipment in 2014, is the plaintiff estopped from enforcing the sale agreement and payments? (iv) Is the plaintiff’s claim statute barred? Issue one: Was the arrangement between the parties alease/rent to own or a sale with purchase price payable over 24monthly instalments? [24] Based on all the evidence, I conclude that the parties entered into a sales contract.

The arrangement was not a lease or rent-to-own arrangement. The mutual intention was that Artext was transferring the iGen absolutely to Cielo, which was to satisfy the agreed-upon purchase price of $51,000 by way of 24 equal monthly payments. I further conclude that Artext was in a position to transfer titlebut that the parties agreed that paper title would not pass to Cielo so that Cielo could avoid paying the Xerox licence fee. Despite that,for all intents and purposes, the parties intended that Cielo was buying the iGen, and that the purchase price would be paid over time.

Issue Two: Was there a fundamental breach such as to allowthe defendant to repudiate the contract on the basis that theequipment was not fit for the purpose for which it was purchased? [25] Cielo argues that it was justified in not paying for the iGen because of its poor performance and daily malfunction. However,Cielo did not provide any evidence to independently support those allegations. For example, although Ali asserted that the Xerox repairpeople were there almost daily, Cielo did not provide copies of any Xerox repair invoices.

Also, Ali asserted that the machine wouldmalfunction and ruin a whole print job but Cielo failed to provide any evidence to corroborate that assertion. [26] In his evidence, Lemieux stated that the iGen had worked properly and did not need more repair than one would expect forequipment of that type and age. Lemieux denied that Ali had complained to him from the outset about the iGen’s frequent breakdownsand need for repair. [27] Based on the evidence, I cannot conclude that Artext gave a warranty to Cielo or that it made any promises or inducements toCielo respecting any aspect of the iGen.

I find that Cielo knew that it was buying a well-used machine, at a low price. Therefore, there isinsufficient evidence to support a conclusion that there was a fundamental breach as would allow or justify Cielo repudiating its purchaseagreement with Artext. Issue Three: By accepting the return of the equipment in 2014,is the plaintiff estopped from enforcing the sale agreement andpayments? [28] On this question, I am guided by the decision of Keneric Tractor Sales Ltd. V. Langille, (SCC), [1987] 2S.C.R. 440.

I conclude that when Cielo refused to make the payments to Artext, Cielo breached the key term of the agreement betweenthe parties. As a result, Artext had the right to treat the contract as terminated. When Artext arranged for Xerox to take the iGen, Artext’sclaim was limited to the recovery of damages it has suffered as a result of Cielo’s breach of the agreement. Artext’s damages would bethe difference between the purchase price and what Artext received, or ought to have received, for the iGen. [29] Artext did not provide clear evidence of what it received from Xerox for the iGen.

Lemieux’s evidence that the iGen wasworth about $20,000 when it was turned over to Xerox is the only evidence as to the cash value of the iGen. Therefore, it would bereasonable to assess Artext’s damages at no more than $20,375 plus HST, being the balance owing on the sale price $40,375 ($51,000-$10,625) less $20,000, the value of the iGen. Issue Four: Is the plaintiff’s claim statute barred? [30] The defendant argued that by February 2013, Artext knew or ought to have known that Cielo was not going to make anyfurther payments to Artext.

The evidence supports that conclusion: not only did Cielo make no payments to Artext after January 10,2013, Artext did not submit any further invoices to Cielo after January 1, 2013. [31] Ali disputed Lemieux’s assertion that in August 2013 Cielo had promised to pay the amount owing to Artext by the end ofOctober. There is no independent corroboration of that promise and the evidence does not support such a conclusion: no further paymentwas made by Cielo after the August 2013 meeting and Artext’s demand letter was not sent until March 31, 2015, close to two years later.

[ 32 ] If Artext’s evidence is accepted, by January 2013, Cielo was in default from the date of the first invoice – March 1, 2012 – and was again in default on and after February 1, 2013. [ 33 ] Lemieux stated that on and after January 2013, Artext sent statements, visited, and made almost daily telephone calls to try to collect from Cielo.

Even allowing for a reasonable period of time following the non-payment on February 1, 2013 for Artext to recognize that Cielo was not going to pay, by April 2013, Artext knew or ought reasonably to have known that Cielo was not going to pay and that a legal proceeding would be the appropriate means to seek recovery from Cielo. [ 34 ] I therefore conclude that the limitation period began to run prior to May 28, 2013 and that Artext’s claim was statute-barred by May 28, 2015, the date upon which Artext issued its statement of claim. [ 35 ] Artext argued that each default in payment should be treated as a separate breach, from which the limitation period would run.

I did not accept that argument, in part because having taken back the iGen, Artext could not enforce the terms of the sales agreement. Furthermore, that argument was inconsistent with Artext’s evidence that it did not render any invoices after January 1, 2013. Had Artext’s argument been accepted, which it was not, I would have concluded that Artext would have been able to sue only on the ten missed payments that occurred within two years of May 28, 2015: those due on June 1, 2013 to March 1, 2014 totalling $21,250 plus HST.

After taking into account the value of the iGen, Artext’s loss would have been just over $4,000. Disposition [ 36 ] For the reasons set out above, Artext’s claim is dismissed. The defendant is entitled to its costs. If the parties cannot agree on costs, then the parties shall serve and file written costs submissions, not to exceed three pages, plus copies of any Offers to Settle and Bills of Costs. Artext’s costs submissions shall be delivered within 15 days of the date of the release of this decision.

Cielo’s responding costs submissions shall be delivered within 15 days after the service of upon it of Artext’s costs submissions. L. Sheard, J. Released: April 24, 2017 CITATION : Artext Electronic Publishing Inc. v. Cielo Print Inc., 2017 ONSC 2387 COURT FILE NO.: 15-64458 DATE: 2017/04/24

ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Artext Electronic Publishing Inc. Plaintiff -and- Cielo Print Inc. and Mohamed Ali Defendants REASONS FOR JUDGMENT L Sheard J. Released: April 24, 2017