COURT OF APPEAL FOR ONTARIO
CITATION: 1758704 Ontario Inc. v. Priest, 2014 ONCA 202
DATE: 20140317
DOCKET: C57691
MacFarland, Rouleau and Lauwers JJ.A.
BETWEEN
1758704 Ontario Inc. and 1191305 Ontario Inc.
Applicants (Respondents)
and
Carl Priest
Respondent (Appellant)
Brad Teplitsky, for the appellant
K. William McKenzie, for the respondents
Heard: March 3, 2014
On appeal from the decision of Justice J.P.L. McDermot of the Superior Court of Justice, dated August 21, 2013, with reasons reported at 2013 ONSC 5395.
ENDORSEMENT
[1] This litigation arises in the context of the sale of the business owned by the respondents to a company of which the appellant is the sole shareholder. The purchase price was secured by a promissory note signed by the appellant and his company, and by a General Security Agreement over the purchased assets.
[2] Priest appeals from the judgment of McDermot J. wherein he granted partial summary judgment on the promissory note. He ordered the trial of an issue to determine the net amount owing under the note, because, as he noted in his reasons, "the quantum owing is presently uncertain". The uncertainty arises because a related injunction application brought by Mr. Priest’s company against the respondents has yet to be decided. That application is based, as the motion judge noted, at para. 14, on the allegation “that the seizure and any sale of the goods may have been improper or, at the very least, irregular” for a number of reasons.
[3] To ensure the consistent resolution of both matters, the motion judge made the following order:
a. The Plaintiffs will have judgment against the Defendant on the promissory note, and the Statement of Defence is struck.
b. There shall be a trial of the issue of the net amount outstanding and owing under the note, to be tried with or immediately after the resolution of the injunction application.
[4] The motion judge concluded that the appellant had defaulted on the promissory note, and there can be no dispute about that fact. He further found that the respondents had not agreed to forbear from suing the appellant as the result of the default. These findings were available to him on the evidence before him, and the appellant has not established any palpable and overriding error.
[5] The appellant wants to argue at the return of the injunction application scheduled for March 26, 2014 and at the trial of the issue ordered by the motion judge, that the seizure and sale of the assets was illegal, and that this voids the promissory note. Further, he wants to argue that any credit to be given to his company in the taking of accounts under the GSA must also be credited to his indebtedness under the note. He questions whether the motions judge’s decision permits him to assert these positions.
[6] On this issue, it is difficult to reconcile paragraph 40 of the motion judge’s reasons with paragraph 42, and the order striking out the appellant's Statement of Defence. These paragraphs provide:
It is not in the interests of justice that there be a trial in this litigation as to whether the collateral was properly dealt with, and the Defendant has failed to provide evidence of improper dealing with the collateral sufficient to make out a defence. Accordingly, this defence under the note also fails.
There are, however, substantial claims by both parties arising out of the seizure and sale of assets noted above. They are not being considered in the present litigation but I presume that they are in the injunction application. When I asked Mr. McKenzie as to how to account for the assets sold through auction, he said that I needn't concern myself with that; this was similar to where a bank sells a home under power of sale proceedings, but may claim and obtain judgment as to the full amount owing, while under an obligation to account for the sale of the security sold under power of sale.
[7] In this court, Mr. McKenzie, who is counsel to the respondents, clearly stated that if, for whatever reason, 1737161 Ontario Limited (the appellant's company) is not liable for any amount owing, then neither is the appellant under the promissory note.
[8] Viewing the motion judge’s reasons as a whole, despite para. 40, together with Mr. McKenzie’s concession, the appellant is not precluded from arguing, on the return of the injunction application and the trial of the issue, that the seizure and sale of the assets was unlawful and should prevent the respondents’ recovery of any deficiency from the appellant.
[9] Further, the Statement of Defence ought not to have been struck, since doing so was inconsistent with ordering a trial of the issue of the amount outstanding on the note. It would also force the appellant into the trial of an issue without a pleading. The interpretation and application of the Statement of Defence at the proceedings scheduled for March 26, 2014 will take account of the motion judge’s decision as varied by these reasons.
[10] As a result, we strike paragraph 1 of the order and substitute an order finding the appellant in default. In all other respects we dismiss the appeal.
[11] In light of the somewhat divided success of this appeal, in our view the appropriate costs order in the circumstances is costs to the respondents fixed in the sum of $5000.00 inclusive of disbursements and HST.
“J. MacFarland J.A.”
“Paul Rouleau J.A.”
“P. Lauwers J.A.”