Izzetpanah v. 1 for 1 Pizza Ltd.

Between
Karim Izzetpanah, plaintiff, and
1 for 1 Pizza Limited, defendant

[1996] O.J. No. 3887
Court File No. 86633/94

Ontario Court of Justice (General Division)
Ottawa, Ontario
Walters J.

Heard: May 28-30, 1996.
Judgment: October 10, 1996.
(10 pp.)

Counsel:

1      WALTERS J.:— The plaintiff seeks damages against the defendant for the illegal repossession of his business. The defendant counterclaims for damages arising from the plaintiff's breach of the sublease and franchise agreement.

Background Facts

2      On March 4th, 1994, the plaintiff purchased a 1 for 1 Pizza franchise business from Fatemeh Amirhosseini.  The purchase price of $45,000.00 included all furniture, equipment and leasehold improvements.  $10,000.00 was payable on or before closing.  The plaintiff was to assume existing debts and liabilities of the business in the amount of $32,327.13 and the balance of the purchase price of $2,672.87 was to be paid in five monthly instalments commencing September 4th, 1994.  The defendant was a party to this agreement as franchisor.  As well, the defendant guaranteed that all debts and liabilities of the vendor Amirhosseini would be paid by the defendant in the event of the plaintiff's default.  The plaintiff also entered into a sublease and a franchise agreement.  The plaintiff executed a chattel mortgage in the amount of $35,000.00, in favour of the defendant as mortgagee, securing the goods and chattels of the business until the plaintiff fulfilled all his payment obligations under the agreement.  The plaintiff operated the business from March 4th, 1994 until July 14th, 1994, when the defendant entered the business premises, changed the locks and repossessed the business.  The plaintiff contends that the repossession was illegal.  The plaintiff submits that he complied with all terms of his agreements with the defendant, and the defendant had no right to reenter the premises without notice.  The defendant contends that the plaintiff failed to meet various payments pursuant to the agreement, sublease, franchise agreement and chattel mortgage and despite warning and demands for payment, refused or failed to comply.  In the circumstances the defendant terminated the franchise agreement and took possession of the premises.

Issues to be Determined

3

1.  Breaches by the Plaintiff

4      Pursuant to the agreement of purchase and sale, filed as Exhibit 1, the plaintiff, in paragraph 2(d), agreed to assume the debts and liabilities of the vendor's business, which debts were set out in Schedule B to the agreement. Paragraph 9(c) of the agreement set out the repayment schedule with respect to these debts and liabilities.  Specifically, in paragraph 9(2) "the purchaser shall pay the debt to the food supplier 'Sunrise' to the amount of $1,026.42, by making a cheque to that amount and giving it to the company three months after the closing date".

5      The first payment provision in paragraph 9(c) was to be on July 11th, 1994.  However, I accept the evidence of the plaintiff and the creditor Fatemeh Amirhosseini, that an agreement was reached, that the first payment would be deferred until July 22nd, 1994.  Therefore, at the time of termination and repossession, there was no default pursuant to this provision of the contract.  However, with respect to the payments set out in paragraph 9(2) I am satisfied that there was default.  This $1,026.42 was to be paid by June 4th, 1994. By July 14th, 1994, not only was the payment not made, but the plaintiff had provided four post dated cheques three of which were returned NSF.

6      Pursuant to paragraph 4.02 of the franchise agreement, filed as Exhibit 2 herein, the plaintiff was to pay the defendant a weekly royalty fee equal to 6% of the plaintiff's gross telephone sales.  In addition, paragraph 4.02 imposed a weekly service fee equal to 2% of gross telephone sales.  Article eight of the agreement provided for the plaintiff to secure and maintain certain licenses, permits and insurance.

7      The defendant contends that the plaintiff was in breach of payment with respect to all of these items and I concur.  I find the evidence of the plaintiff totally incredible with respect to this issue.  I accept the evidence of Mr. Naufali Mofti and Mr. Mosheh Tahir, that although the royalty fee was waived for six weeks, royalty fees and telephone service fees were charged to the plaintiff.  I find that the plaintiff was advised of these charges each week and failed to make payment despite demand.  I find that the plaintiff was in breach of the terms of the franchise agreement.

8      Pursuant to the provisions of the sublease, filed as Exhibit 3, the plaintiff was to pay minimum rent of $1,440.00 per month, along with a proportionate share of operating costs, payable on the first day of each month.  The evidence is uncontradicted that by July 14th, no rent had yet been received for July 1st, 1994.  The plaintiff testified that the defendant had verbally agreed to extend payment of this rent to July 15th.  The plaintiff also contends he paid the June rent in cash and Visa receipts.  I do not accept this evidence.  The defendant has filed a copy of the NSF cheque dated June 24, 1994, for the June rent.  In the circumstances the plaintiff was in breach of the sublease and owed outstanding rent for two months in the amount of $3,701.95.

9      The chattel mortgage agreement filed as Exhibit 4 in these proceedings, provided that the plaintiff was to make payments, the terms of which were identical to those outlined in Schedule B to the Agreement of Purchase and Sale.  As I have already determined that the plaintiff was in breach of those terms, find that the plaintiff was in breach of the terms of the chattel mortgage.

10      Having determined that the plaintiff was in breach of each of the agreement, sublease, franchise agreement and chattel mortgage, I am satisfied that the defendant was entitled to terminate the agreements.  I will now turn to whether or not the defendant complied with the termination provisions contained in the various agreements.

2.  Did the Defendant Comply With Termination Provisions?

11      Article 11.01 of the franchise agreement stipulates that the agreement may "at the option of the franchisor, be terminated upon the occurrence of any of the following events, such termination to be effected immediately upon receipt by the franchisee of notice of termination".  One of the enumerated events or conditions is paragraph (j), which states "if the franchisee fails to pay when due, any amount owing to the franchisor and such default continues for a period of five days".  Clearly, in light of my findings of fact, the defendant was entitled to terminate the agreement immediately upon receipt by the franchisee, of a notice of termination.  The uncontradicted evidence is that the defendant provided the plaintiff with a written notice of termination on July 14th, 1994, at 9:28 A.M.  However, this notice was approximately two hours after he had arranged to have the locks on the premises changed and took possession of the property.  I do not find that anything turns on the fact that the defendant re-entered the premises shortly before the written notice was sent. Article 12.06 of the franchise agreement provides that notice shall be in writing by personal delivery or by prepaid registered mail.  The defendant did not comply with this provision of the franchise agreement. Notice, however, was sent in writing to the plaintiff's solicitor.  I find that the plaintiff suffered no loss as a result of the defendant's failure to comply with the strict notice requirements in the franchise agreement.  Further, the defendant had already forwarded two warning letters to the plaintiff.  The first letter was dated June 16th, 1994, and was filed as Exhibit 19 in these proceedings.  The second notice was dated July 7th, 1994, and was filed as Exhibit 20. I also accept the evidence of Mr. Tahir, that in a telephone conversation on July 13th, 1994, the plaintiff threatened to remove the equipment from the store and advised the defendant that any further contact should be with his solicitor.

3.  Did the Plaintiff Suffer any Damages as a Result of the Defendant's Repossession of the Property?

12      I find that the plaintiff has failed to establish any damages arising from the defendant's repossession of the property.  The plaintiff has failed to substantiate any business income or loss.  The plaintiff and his wife gave contradictory evidence regarding any profit from the business. No tax returns or business statements were filed.  In addition, the plaintiff has failed to mitigate any losses he may have had.  Firstly, the plaintiff took not steps to seek relief from forfeiture after the re-entry and termination by the defendant on July 14th, 1994.  Instead, the plaintiff did nothing and elected to proceed with this action knowing it would take months, if not years, to reach a conclusion. Secondly, I accept the evidence of the defendant that the plaintiff was offered the return of his store or the relocation of the business to a Rockland store.  The plaintiff declined both offers.  In the circumstances, the plaintiff's claim must be dismissed.

4.  Has the Defendant Suffered any Damages as a Result of the Plaintiff's Breaches?

13      I now turn to the defendant's counter-claim. Just, found the plaintiff's claim for damages unsubstantiated, I am not satisfied that the defendant has established all of the claims set out in the counter-claim.  In particular I note that although invoices had been provided for bills and payments not paid by the plaintiff, I have no satisfactory evidence before me that these amounts or accounts were ever, in effect, paid by the defendant on behalf of the plaintiff.

14      I am, however, prepared to allow the following claims:

15      From these amounts I have deducted the sum of $10,000.00, which the defendant admits he received from the sale of the oven.

16      In the circumstances, judgment to go as follows:

WALTERS J.