Hav-A-Kar Leasing: Accelerated Payments - Close But Not Quite Right

One of the longest standing principles at law is that if there is a breach of contract a party can sue for damages such that they should be placed in the same position as if the contract had been completed.

Lease agreements commonly include termination clauses where upon default by the lessee all remaining payments automatically become due, discounted to take into account the time value of money. Properly drafted acceleration clauses can be considered a genuine pre-estimate of damages as the lessor is in the same position they would have been in had the contract been completed. If the lessor were to collect full payments (i.e., not discounted) the lessor would be in a better position than he or she would have been had the default not occurred. A recent Ontario Court of Appeal case takes this principle one step further. In Hav-A-Kar Leasing Ltd. v. Vekselshtein 2012 ONCA 826 ("Hav-A-Kar"), the Court awarded the lessor all remaining lease payments in full without discounting. What is interesting is that the Court relied on Keneric Tractor Sales Ltd. v. Langille, [1987] 2 S.C.R. 440, as precedent for the enforcement of payment acceleration clauses, however this case acknowledges the need to discount future payments to properly reflect the time value of money. This was not discussed or followed by the Court.

In Hav-A-Kar, the lease agreement was for a motor vehicle and provided for payment of all amounts unpaid upon default by the lessee. The lessee defaulted and the lessor sued for damages, including enforcement of the accelerated payment clause. The trial judge rejected the lessee's argument that the payment clause was a penalty, as opposed to a liquidated damages clause. The lessee appealed the decision on the basis that the trial judge erred in enforcing the accelerated payment...