DATE: 20050505

DOCKET: C42760

COURT OF APPEAL FOR ONTARIO

RE:

LEASE MART SYSTEMS CORP. (Plaintiff (Respondent)) – and – HASSAN TEHRANCHI, SAEED YAHYAVI AND SELECT ORIENTAL CARPETS INC. (Defendants (Appellants))

BEFORE:

CRONK, GILLESE and MacFARLAND JJ.A.

COUNSEL:

Jeffrey C. Silver

for the appellants

Steven D. Benmor

for the respondent

HEARD & RELEASED ORALLY:

May 2, 2005

On appeal from the judgment of Justice T. P. Herman of the Superior Court of Justice dated November 12, 2004.

E N D O R S E M E N T

[1] The respondent moved for summary judgment against the appellants pursuant to rule 76.07 of the Rules of Civil Procedure – the simplified proceedings rule – in respect of monies allegedly lent to and not repaid by the appellants. The respondent relied on a promissory note dated June 1, 2000 in the amount of $22,750 (U.S.), signed by the individual appellants; an unlimited guarantee of the same date, signed only by the appellant Saeed Yahyavi, concerning debts and liabilities of the corporate appellant; and, a factoring agreement dated June 1, 2000, signed by both individual appellants that pertained to a revolving line of credit limited to the maximum amount of $22,750 (Cdn.).

[2] In its statement of claim, the respondent sought recovery from all the appellants of the sum of $37,422.46 (U.S.), plus pre- and post-judgment interest based on an alleged loan from the respondent to the appellants on June 1, 2000 in the sum of $22,750 (U.S.). In their statement of defence, the appellants alleged, among other matters, that the loan of $22,750 (U.S.) was made to the corporate appellant, that it was repaid in full, and that the factoring facility did not relate to this loan.

[3] Based on her reading of the pleadings, the promissory note, the guarantee and the factoring agreement, the trial judge concluded that the loan at issue related to a revolving line of credit and “not one payment or one set of payments of $22,750.” She also stated: “There is no evidence before me to suggest that the advances paid and payments made, as set out in the statement of account [produced by the respondent], do not represent what, in fact, occurred and that the resulting balance, as claimed by the plaintiff does not accurately reflect the situation.” She granted summary judgment to the respondent against all the appellants, jointly and severally, for the full amount claimed.

[4] In our view, with respect, the trial judge erred in so doing. Based on a fair reading of the respondent’s pleading, the respondent’s claim concerned a loan in the aggregate amount of $22,750 (U.S.), allegedly made to the appellants. The promissory note appears to relate to this single loan. The factoring agreement, which is the only agreement among any of the parties that refers to a revolving line of credit, is expressly limited to the amount of $22,750 (Cdn.).

[5] The respondent does not appear to have sought to amend its pleading prior to the summary judgment motion.

[6] In their response to the summary judgment motion, the appellants produced copies of cheques that they claimed established repayment in full of the $22,750 (U.S.) loan. In our view, it was open to the appellants, given the issues as framed by the respondent’s pleading, to defend the action and to resist the motion for summary judgment in respect of only the alleged loan of $22,750 (U.S.), and not on the basis of an alleged state of indebtedness of the appellants to the respondent for any other funds advanced: see 460635 Ontario Ltd. v. 1002953 Ontario Inc., [1999] O.J. No. 4071 (Ont. C.A.). Had it been clear that the respondent was alleging a debt owing by all the appellants under a revolving line of credit in an amount considerably in excess of the $22,750 (U.S.) loan, the contents of the appellants’ statement of defence and the materials filed by them in response to the summary judgment motion may well have been different.

[7] We conclude that the test for summary judgment under rule 76.07(9) of the Rules of Civil Procedure was not met in this case.

[8] That said, we do not wish to be taken as approving the course of conduct of the appellants in relation to the summary judgment motion. This motion was brought under the simplified rules. It would have been an easy matter for the appellants to respond to the clear underlying issue between the parties and, thus, to have avoided the chain of litigation that followed, including this appeal.

[9] For the reasons given, the appeal is allowed and the judgment dated November 12, 2004 is set aside. In our view, this is not an appropriate case for an award of the costs of this appeal.

“E.A. Cronk J.A.”

“E.E. Gillese J.A.”

“J. MacFarland J.A.”