Third-Party Chattel - Re: Distrainment (CTA)

Honey Grove Estates Inc. v. Diversey Lever Canada, 2000 CanLII 16939 (ON CA)

[12] Honey Grove’s submission that title is irrelevant ignores the words “from the tenant” which are an integral part of the particular exception in section 31(2) of the CTA it seeks to invoke. Title must flow from the tenant to the secured party for this particular exception to apply. The key finding of the applications judge was that “Palette never had title to the equipment”. He relied on the wording in the lease agreement, which included the following:

Customer shall have no right, title or interest in the Equipment other than, conditional upon Customer’s compliance with and fulfillment of the terms and conditions of this Agreement, the right to maintain possession and use of the Equipment for the full Term and any Renewal Period.

It is also noteworthy that Brama’s sales orders and invoices all provide that title shall not pass until the purchase price is paid in full. The applications judge did not make explicit findings concerning the significance of the double invoices addressed to both Palette and Superior. In the particular circumstances, he was not required to do so. Palette failed to pay its share of the purchase price to Brama. Superior could not therefore derive title to the goods “by mortgage or otherwise” ‘from the tenant’, whatever ownership rights may exist as between Brama and Superior. Honey Grove also submits the applications judge erred in finding Superior had title to the goods, however his finding was: “[t]itle remained with Superior and Brama, pending completion of the lease agreement....” Again, what is significant is that Palette did not have title to the goods. A landlord is prohibited from distraining on the goods of a third party found on leased premises except to the extent it can bring itself within one of the exceptions set out in section 31(2) of the CTA.

Commercial Tenancies Act, RSO 1990, c L.7, s 31(2)

31 (2) A landlord shall not distrain for rent on the goods and chattels of any person except the tenant or person who is liable for the rent, although the same are found on the premises; but this restriction does not apply in favour of a person claiming title under an execution against the tenant, or in favour of a person whose title is derived by purchase, gift, transfer, or assignment from the tenant, whether absolute or in trust, or by way of mortgage or otherwise, nor to the interest of the tenant in any goods or chattels on the premises in the possession of the tenant under a contract for purchase, or by which the tenant may or is to become the owner thereof upon performance of any condition, nor where goods or chattels have been exchanged between tenants or persons by the one borrowing or hiring from the other for the purpose of defeating the claim of or the right of distress by the landlord, nor does the restriction apply where the property is claimed by the spouse, daughter, son, daughter-in-law, or son-in-law of the tenant, or by any other relative of the tenant’s, if such other relative lives on the premises as a member of the tenant’s family, or by any person whose title is derived by purchase, gift, transfer or assignment from any relative of the tenant’s to whom the restriction does not apply. R.S.O. 1990, c. L.7, s. 31 (2); 1999, c. 6, s. 9 (2); 2005, c. 5, s. 10 (3); 2016, c. 23, s. 40.

859587 Ontario Ltd. v. Starmark Property Management Ltd., 1997 CanLII 12153 (ON SC)

In my view, however, these cases do not stand for the proposition that the lienholder always has priority, but merely that priority must be determined without reference to the P.P.S.A. Nor do they hold that the extent of the lienholder's priority, where a landlord does in fact have priority, is necessarily as complete as Starmark suggests. In Leavere, the court pointed out that in its earlier decision in Commercial Credit, it was assumed that if the P.P.S.A. did not apply, the lien had priority. That assumption was challenged, and addressed, in Leavere. The court noted that while at common law priorities were determined in accordance with the chronological order of the encumbrances, that rule can be displaced by statutory provisions. In Leavere, the court concluded the Municipal Act, R.S.O. 1990, c. M.45, gave priority to a statutory right of distress over a chattel provided for in that Act over a holder of a secured interest in the chattel. The issue of priority in this case, however, falls to be determined by a consideration of the provisions of the Landlord and Tenant Act, particularly the exception in s. 31(2).

The language of that provision is interesting. It permits a landlord to distrain the interest of a tenant in goods owned by a third party, but in the possession of a tenant under a conditional sales contract. Since the tenant's interest includes the right to possess the goods, the landlord can take possession of them, and hold them, but does so subject to the rights of the owner. Similarly, if the landlord sells such an item pursuant to s. 53, the sale is subject to the rights of the unpaid vendor. This, I believe, is what was decided by the Divisional Court, on appeal from the Chancery Division, in Carroll v. Beard (1895), 27 O.R. 349, in circumstances somewhat similar to these. The court was called upon to consider the very exception in issue here, which had been passed only shortly before, in 1894. As a consequence of this provision, MacMahon J. made an order restraining the landlord from selling certain distrained property "except subject to the rights of the plaintiffs as unpaid vendors". In upholding this decision, Boyd C. stated, at p. 358, "only the interest of Yorke [the tenant] in the goods could be sold, and not the corpus of the goods. His interest would be just what would be left after the balance of price is deducted out of the value of the goods seized".

Amexon Property Management Inc. v. Unique Benefits Group Corp., 2006 CanLII 21316 (ON SC)

[63] It may be that a landlord may distrain against the equity held by the tenant in leased goods, where the tenant has an option to purchase the goods at the end of the chattel lease: see, Honey Grove Estates Inc. v. AT&T Capital Canada Inc., [2000] O.J. No. 4147 (C.A.). This decision provides some support for Amexon’s position that it was entitled to distrain against Unique’s equity in the property.

Family Fun RV Centre Inc. v. Hardestine Holdings Ltd., 2005 CanLII 47701 (ON SC)

[12] Section 31 of the Commercial Tenancies Act was referred to by both counsel. I have considered their submissions and the case law referred to in connection with section 31. I am not content on that basis to determine this motion without further submissions. For instance, in Distress: A Commercial Landlord’s Remedy by H.M. Haber Q.C., the author speaks of limits placed by the Commercial Tenancies Act on distraint by a landlord, restricting it to only those goods owned by the tenant or person liable for the rent. Yet the Act in section 31(2) provides exceptions to the general rule requiring tenant ownership of goods subject to distraint, where the putative owner’s title is derived from purchase or transfer from the tenant. In this case, Earle, using the name in the bill of sale Tradition RV, could arguably be a “tenant” within the definition used in the cases cited, and Mr. Earle as guarantor of the lease is a person liable for the rent, in the words of the section. Yet, this provision should not mean that a landlord can distrain on goods owned by a third party who acquired them following a legitimate sale. The intent and purpose of the Act and of the section within the Act is not clear to me from the material and submissions provided to me, and a contextual interpretation is required here. Another issue not addressed in the cases cited regarding the Commercial Tenancies Act is the onus of proof under s. 31(2): should the onus properly be on Hardestine as the distraining lessor or the person claiming under an exception to the seizure power.