COURT OF APPEAL FOR ONTARIO

DATE: 20001208

DOCKET: C33998

WEILER, ROSENBERG AND MACPHERSON JJ.A.

BETWEEN:

MARKETING PRODUCTS INC.
carrying on business as
GREAT LAKES AUDIO AND VIDEO
Plaintiff (Respondent)

and

1254719 ONTARIO LTD.,
carrying on business as
TECH ELECTRONIC SERVICES
Defendant (Appellant)

Charles Wagman
for the appellant

Terry McEwan
for the respondent

Heard: November 15, 2000

On appeal from the judgment of Justice Kenneth Binks dated March 7, 2000 .

MACPHERSON J.A.:

INTRODUCTION

[1] The defendant 1254719 Ontario Ltd., carrying on business as Tech Electronic Services (“Tech”), appeals the order of Binks J. dated March 7, 2000 granting judgment in favour of the plaintiff Marketing Products Inc. (“MPI”) in the amount of U.S. $50,264.80 on a motion for summary judgment. The principal issue raised by the appeal is whether the motions judge correctly applied this court’s decision in Iraco Ltd. v. Staiman Steel Ltd. (1987), 1987 4072 (ON CA), 62 O.R. (2d) 129, holding that the law of equitable set-off does not apply to bills of exchange, including cheques.

A. FACTS

(1) The parties and the events

[2] MPI is a Michigan based company which distributes satellite equipment for television reception. It buys from manufactuers and resells to lower level distributors.

[3] Tech is a company operating in Lindsay, Ontario. It purchases satellite equipment from distributors and resells it to retail dealers which in turn sell it to the public.

[4] MPI and Tech had a business relationship from November 1997 to August 1999. There were two components to this relationship: first, MPI sold satellite equipment to Tech; and second, MPI paid commissions to Tech for certain equipment and sales of related television programming.

[5] In July 1999, the parties negotiated a contract under the first component of their relationship. On July 26, Tech submitted a purchase order for 200 units of RCA satellite systems. Tech stated the price at $249.95 per unit, for a total price of $49,990.

[6] MPI accepted the offer and informed Tech that the freight charge would be $274.80 so that the total due on delivery would be $50,264.80.

[7] On August 9, Tech took delivery of the RCA goods at MPI’s office in Ferrysburg, Michigan. Tech tendered a cheque dated August 9 for $50,264.80.

[8] On August 25, MPI was notified by its bank that the cheque had been dishonoured by reason of a stop payment command by Tech. Tech retained the RCA goods and resold them.

[9] MPI terminated its business dealings with Tech and commenced an action in Ontario for breach of contract.

[10] Tech defended the action and brought a counterclaim for commissions it claimed MPI owed it in relation to sales, activations and renewals of satellite equipment and for costs associated with replacing or repairing defective equipment provided by MPI.

[11] MPI brought a motion for summary judgment with respect to its claim relating to the dishonoured cheque. Tech resisted the motion on the basis that there were material facts in dispute, that it had properly pleaded defences of legal and equitable set-off and that misrepresentations by the president of MPI defeated MPI’s right to judgment for breach of contract. All of these, contended Tech, established that there were genuine issues for trial.

(2) The judgment

[12] The motions judge granted the motion for summary judgment and ordered that Tech pay MPI $50,264.80 plus pre-judgment interest of $1,351.78 and costs of $3,500 plus G.S.T. He rejected Tech’s claim grounded in legal set-off because “Tech has not pleaded any liquidated sum or any amount which can be ascertained with certainty”. He did not accept Tech’s equitable set-off argument because “[e]quitable set-off has no application to a claim on a bill of exchange”.

[13] Tech appeals the motions judge’s decision. It contends that the motions judge erred by concluding that there were no material facts in dispute, by holding that the asserted defences of legal and equitable set-off did not raise genuine issues for trial, and by not considering Tech’s evidence that it tendered the cheque on the basis of MPI’s misrepresentation that it would pay outstanding commissions, rebates and warranty credits then owing.

B. ISSUES

[14] The issues on this appeal are:

(1) Did the motions judge err by concluding that there were no material facts in dispute?

(2) Did the motions judge err by holding that the application of the doctrine of legal set-off did not create a genuine issue for trial?

(3) Did the motions judge err by holding that the application of the doctrine of equitable set-off did not create a genuine issue for trial?

(4) Did the motions judge err by not considering, and not holding, that MPI’s misrepresentation concerning payments of outstanding commissions was directly related to Tech’s tendering of the cheque and, therefore, raised a genuine issue for trial?

C. ANALYSIS

(1) Material facts

[15] In a recent decision, Guarantee Co. of North America v. Gordon Capital Corp., 1999 664 (SCC), [1999] 3 S.C.R. 423, the Supreme Court of Canada considered the test for summary judgments in Ontario pursuant to rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. In their joint judgment, for a unanimous court, Iacobucci and Bastarache JJ. said, at p. 434:

The appropriate test to be applied on a motion for summary judgment is satisfied when the applicant has shown that there is no genuine issue of material fact requiring trial, and therefore summary judgment is a proper question for consideration by the court. [Emphasis added.]

[16] The motions judge properly instructed himself on this test. He then identified four material facts on which MPI’s claim was founded - the goods were sold and delivered to Tech, Tech delivered the cheque to MPI in payment of the price of the goods, Tech stopped payment on the cheque and Tech re-sold the goods.

[17] In my view, the motions judge was correct to identify these as the material facts relevant to MPI’s claim. Tech contends that there were at least two other material facts in dispute, namely the nature of the business relationship between the parties (were they governed by one or two contracts), and the question of which party was actually indebted to the other, and that these were disputed material facts. I disagree. The material facts relating to the cheque were those, and only those, set out by the motions judge. The ‘disputed’ facts relate to Tech’s arguments which are anchored in the doctrines of legal and equitable set-off.

(2) Legal set-off

[18] Legal set-off has several conditions. Both obligations must be debts and the debts must be mutual obligations. Moreover, the debts must be either liquidated sums or money demands which can be ascertained with certainty: see Telford v. Holt, 1987 18 (SCC), [1987] 2 S.C.R. 193.

[19] The motions judge determined that Tech’s claim for legal set-off did not meet these conditions. He reasoned:

Tech has not pleaded any liquidated sum or any amount which can be ascertained with certainty. Rather, it has asked for an accounting, reimbursement and damages. Such claims can only be asserted in a counterclaim and not as a set-off. The terms of the agreement between the parties, respecting payment of commissions and dealing with warranty claims are themselves in dispute, rendering it impossible at this stage to ascertain any amount with certainty.

[20] I agree with this analysis. Tech’s pleadings are fatal to its claim for legal set-off. In its counterclaim Tech seeks ‘an accounting’, ‘reimbursement’ and ‘damages’ relating to rebates or commissions. This language is far removed from the specificity mandated by the ‘fixed’ or ‘ascertainable’ language of the case law.

[21] In Telford v. Holt, Wilson J. cited with approval Halsbury’s Laws of England on this point, at p. 11:

421. Nature of the right. The right conferred by the Statutes of Set-off was a right to set off mutual debts arising from transactions of a different nature which could be ascertained with certainty at the time of pleading . . . a claim which sounded in damages [could not] be set off at law against a plaintiff’s claim. The fact that a claim was framed in damages precluded the raising of a set-off at law, notwithstanding that the claim might have been differently framed in a way which would have permitted such a set-off.

In my view, Tech’s pleadings run afoul of this clear definition of the nature of the right of legal set-off. Tech has framed its purported set-off in accounting, reimbursement and damages. It is entitled to pursue these remedies, but by way of a counterclaim, not legal set-off.

(3) Equitable set-off

[22] In Iraco Ltd. v. Staiman Steel Ltd. (1986), 1986 2739 (ON SC), 54 O.R. (2d) 488 (H.C.), R.E. Holland J. stated, at pp. 491and 492:

However, the law of equitable set-off probably does not apply to bills of exchange. In [Halsbury’s Laws of England] the following appears:

476. Proceedings by holder of bill of exchange. Actions on bills of exchange constitute an exception to the rights of abatement and equitable defence.

In order to help provide certainty in matters of international trade, it appears to me that, if possible, the law of Canada should be the same as the law of England on this point and, in the circumstances, I have come to the conclusion that the defence of equitable set-off is not available on the facts of this case.

[23] In a brief endorsement, this court agreed with R.E. Holland J.’s decision: see Iraco Ltd. v. Staiman Steel Ltd., supra. The court said, at p. 130:

We are in agreement with the reasons and the conclusion of the learned motions court judge and are of the view that this court is not in a position to now set aside a rule of the law merchant, which has been in existence and relied on by the business community for many years.

[24] The facts in Iraco were virtually identical to those in the present appeal. In Iraco, a cheque was given in payment of the price of goods, but payment was then stopped on the ground that the goods were defective. In the present appeal, a cheque was given in payment for goods received and payment was then stopped. The only factual difference in the two cases was the reason for the stop payment commands – because the goods were defective in Iraco,and because Tech claimed that MPI owed it commissions, rebates and warranty credits in this case. In my view, this factual difference is of no legal import.

[25] Tech relies on this court’s recent decision in Siemens Electric Ltd. v. Unident Ltd., [1999] O.J. No. 575 where, in a very short endorsement, this court said at paragraph 2 that it “is appropriate that both the equitable set-off defence and the counterclaim be tried rather than one decided on summary judgment motion and the other sent on to trial”.

[26] Siemens was a case dealing with invoices, interest and trust provisions in the Construction Lien Act. There is nothing in the short endorsement to suggest that this court was enunciating a general rule that all cases where the defence of equitable set-off and a counterclaim are pleaded on the same facts must go to trial. Nor is there anything to undercut this court’s decision in Iraco relating to bills of exchange, including cheques.

(4) Misrepresentation

[27] Tech submits that the motions judge erred in not considering its evidence that it tendered the cheque on the basis of MPI’s misrepresentation that it would pay outstanding commissions, rebates and warranty credits then owing, and that MPI never made the promised payments.

[28] I disagree. Tech has not pleaded a defence of misrepresentation going to the validity of the cheque. Rather, it has pleaded that MPI’s refusal to pay commissions, rebates and credits was justification for its self-help remedy of stopping payment on the cheque. Thus Tech’s misrepresentation claim is not a material fact in relation to MPI’s claim on the cheque.

[29] Moreover, Tech’s attempt to link its payment for the RCA goods to misrepresentations by MPI about money it owed to Tech is seriously undermined by the fact that in the very memorandum to MPI complaining about MPI’s policies relating to warranty credits, Dawn Brunton, Tech’s president, said: “I will send the truck with a cheque for the new product”. [My emphasis.] The new product was the RCA shipment. The motions judge’s failure to consider this issue is not surprising, as it was not a serious factual or legal issue.

DISPOSITION

[30] I would dismiss the appeal with costs.

[31] The appellant submits that the enforcement of the summary judgment should be stayed until the counterclaim is determined.

[32] I agree with this submission. In Iraco, this court stayed the enforcement of the summary judgment, in part because the plaintiffs resided out of the jurisdiction and did not appear to have a local residence or assets in the country. The court imposed a condition on the stay, namely that the appellant pay into court the amount of the judgment it owed, together with interest, all within 30 days.

[33] In my view, a similar order is appropriate in this case. MPI is a company based in Michigan. It does not appear to have a place of business or assets in Ontario. I would stay the enforcement of the summary judgment provided that, within 30 days of the release of this judgment, the appellant pay to the accountant of the Superior Court of Justice the total amount awarded in the formal order of the motions judge, plus additional interest in accordance with the Courts of Justice Act. I would also impose as a condition that the appellant proceed with its counterclaim with diligence.

RELEASED:December 8, 2000

(signed) “J.C. MacPherson J.A.”

(signed) “I agree K.M. Weiler J.A.”

(signed) “I agree M. Rosenberg J.A.”