2019 QCCQ 1787, 2019 QCCQ 1787

Downtown Company c. Sally Creations Inc. 2019 QCCQ 1787 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL “Civil Division” No.: 500-22-241076-176 DATE: March 6, 2019 ______________________________________________________________________ PRESIDING: THE HONOURABLE JO ANN ZAOR, J.C.Q. ______________________________________________________________________ DOWNTOWN COMPANY Applicant v.

SALLY CREATIONS INC. and ELIAS ELADAS Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Downtown Company (“ Downtown ”) is claiming $27,188.50, which is the unpaid account balance for merchandise sold and delivered to Sally Creations Inc. (“ Sally ”) and Elias Eladas, its secretary-president and principal shareholder. [ 2 ] The defendants contest the claim, alleging that the goods sold and delivered were not what was ordered and were not of good quality. ISSUE [ 3 ] (

a) Has Downtown proved the outstanding indebtedness in the amount of $27,188.50 for merchandise sold and delivered to Sally? (

b) If so, can the defendant, Elias Eladas, be held personally liable for the reimbursement of the debt?

BACKGROUND [ 4 ] Downtown is an American business whose activity is to sell bedding goods and accessories. [ 5 ] On February 27, 2017, Downtown sold and delivered mattresses and bedding to Sally in the amount of USD$20,773. [1] [ 6 ] The evidence established that the goods were delivered to the warehouse located at 1704 US Route 11, Morse, New York 12958 USA, and that Sally received the goods. [ 7 ] According to the terms of the invoice, [2] purchases are payable within 30 days of the statement of account. [ 8 ] Ellen Ackerman, Downtown’s representative at the hearing, explained that she granted Sally that payment method as a privilege after performing a credit check [3] and visiting Sally’s website, and on the basis of the conscientiousness she perceived in her relationship with Chloé Carter, a Sally buyer. [ 9 ] Downtown was not paid when the 30-day term expired. [ 10 ] On March 30, 2017, a first reminder was sent to Ms.

Carter by email. [4] It was redirected to a supervisor at Sally, Tommy Taylor. [ 11 ] Ms. Ackerman testified as to the numerous emails and telephone calls exchanged between Downtown and Sally with respect to the invoice of USD$20,773. [5] [ 12 ] The evidence established, on a balance of probabilities, that Sally repeatedly promised to pay the amount due through Mr. Taylor [6] and its vice president, Nischelia Stevenson. [7] Despite the repeated promises, none was kept. [ 13 ] On May 18, 2017, Downtown sent a formal notice to Sally. [8] [ 14 ] On June 8, 2017, a second formal notice was sent to Sally and Mr.

Eladas demanding payment of the amount of $20,773 within 10 days.

[ 15 ] On August 14, 2017, Downtown instituted this proceeding against Sally and Mr. Eladas. ANALYSIS Has Downtown proved the outstanding indebtedness in the amount of $27,188.50, corresponding to the merchandise sold and delivered to Sally? [ 16 ] At the outset, the Court will analyze this matter in light of the rules in force in Quebec. [9] [ 17 ] The evidence establishes that, on or after February 28, 2017, Sally took possession of goods sold and delivered to it by Downtown. [ 18 ] The value of those goods is USD$20,773, an amount Sally admits it never paid. [10] [ 19 ] At the hearing, Mr.

Eladas argued that the goods were not of good quality, which justified Sally’s not paying the full amount claimed. [ 20 ] Under the rules applicable to civil matters: “[a] person seeking to assert a right shall prove the facts on which his claim is based”. The term “burden of proof” in this case means that Sally must prove the merits of its right, of its submissions and of the alleged facts, and convince the Court thereof. [11] [ 21 ] Let us analyze the facts presented in support of that defence. [ 22 ] Mr. Eladas stated that he did not personally inspect the property when it was delivered.

He does not know whether one of Sally’s employees performed an inspection. [ 23 ] Mr. Eladas stated that the mattresses and other accessories were sold to Mr. Jaber, a Sally customer, upon receipt. Mr. Eladas said that Mr.

Jaber was not satisfied with the quality of the goods he bought and that he discounted his invoice accordingly. [ 24 ] Relying on that information, Sally based its defence on the poor quality of the goods. [ 25 ] According to the Court, that defence is late, implausible and inadmissible. [ 26 ] First, Sally was required to notify Downtown in a timely manner of the poor condition of the goods to allow it time to react. [12] To present these grounds for exoneration for the first time in its oral defence is more than late, not to mention the fact that Sally has resold the goods. [ 27 ] Second, on the merits, Sally did not prove what it argued.

In fact, no direct witness established the poor quality of the goods. Neither Mr. Jaber nor any Sally employee was present, and everything rested on the testimony of Mr. Eladas, who had no personal knowledge of the fault he claimed. [ 28 ] With respect, the Court notes that alleging a fact is not equivalent to proving it. To be conclusive, objective written or verbal information must support or document a statement. In this case, Mr. Eladas made no more than mere assertions. The Court therefore cannot consider them probative. [ 29 ] Lastly, that defence appears completely implausible.

At no time before the institution of proceedings did Sally complain about the quality of the merchandise purchased from Downtown.

On the contrary, it repeatedly promised to pay the full invoice. [ 30 ] Ultimately, and in light of the evidence adduced by both parties, the Court finds that the non-payment of the Downtown invoice can only be explained by Sally’s very poor financial situation in 2017. [ 31 ] For these reasons, the Court finds that Downtown established, on a balance of probabilities, that it sold and delivered quality merchandise and that it is owed $27,188.50. [13] Is the co-defendant personally responsible for the reimbursement of the debt? [ 32 ] Downtown asks that the director, Mr.

Eladas, be held personally liable because of his bad faith in raising an absurd defence at the hearing. [ 33 ] Downtown also submits that the defendants never intended to pay them for the sold and delivered merchandise. [14] [ 34 ] The following provisions will be useful to our analysis: articles 309 , 317 , 1440 , 1443 , 1457 and 1458 of the Civil Code of Québec ( C.C.Q. ): 309 . Legal persons are distinct from their members. Their acts bind none but themselves, except as provided by law. 317 .

The juridical personality of a legal person may not be invoked against a person in good faith so as to dissemble fraud, abuse of right or contravention of a rule of public order. 1440 . The contract has effect only between the contracting parties; it does not affect third persons, except where provided by law. 1443 .

No person may bind anyone but himself and his heirs by a contract made in his own name, but he may promise in his own name that a third person will undertake to perform an obligation, and in that case he is liable for injury to the other contracting party if the third person does not undertake to perform the obligation as promised.

1457 . Every person has a duty to abide by the rules of conduct which lie upon him, according to the circumstances, usage or law, so as not to cause injury to another. Where he is endowed with reason and fails in this duty, he is responsible for any injury he causes to another person by such fault and is liable to reparation for the injury, whether it be bodily, moral or material in nature. He is also liable, in certain cases, to reparation for injury caused to another by the act or fault of another person or by the act of things in his custody. 1458 .

Every person has a duty to honour his contractual undertakings. Where he fails in this duty, he is liable for any bodily, moral or material injury he causes to the other contracting party and is bound to make reparation for the injury; neither he nor the other party may in such a case avoid the rules governing contractual liability by opting for rules that would be more favourable to them. [ 35 ] The courts and authors have often considered the extent and scope of

article 317 C.C.Q. in matters involving applications to lift the corporate veil and the conditions required to find the director of a legal person personally liable. [15] [ 36 ] It is the case when the director has stood as surety for a business, when the director has committed a fault resulting in his or her extracontractual liability, when the director has actively participated in an extracontractual fault by the business, or when he or she has used the business as a screen to cover up a fraud. [ 37 ] In this case, nothing in the evidence establishes that Mr. Eladas behaved in that way. [ 38 ] Mr.

Eladas did not stand as surety for Sally’s contractual obligations. His only involvement in the exchanges with Downtown that led to the agreement to buy goods was to provide the banking information for the credit check. [16] [ 39 ] Downtown did not establish that Sally did not intend to honour its obligations from the outset. [ 40 ] Finally, Downtown’s impression that Sally’s defence was in bad faith is not a criterion for lifting the corporate veil. [ 41 ] During his testimony, the Court noted Mr. Eladas’ efforts to save Sally, a company he founded over 27 years ago. [ 42 ] Mr.

Eladas asked his suppliers to extend payment deadlines.

He personally invested over $150,000 in the business and explained that, if Sally was no longer in business today, it is only because all of the business’s bank accounts have been seized. [ 43 ] Other than Downtown’s impressions and conclusions about the financial misadventure, the evidence adduced by the applicant is not sufficient to justify the Court’s granting the claims in the originating application. [ 44 ] In any event, if the matter were analyzed in terms of the fault of failing to inform its co-contractor of its financial difficulties, the result would be the same. [ 45 ] As the Superior Court remarked in Acenzia inc. (Suntrition inc.) c.

Verville : [17] [ translation ] [28] In general, the director of an insolvent corporation is not liable for the corporation’s debts, even if the director was aware of the corporation’s insolvability when those debts were contracted.

The director may, however, be held liable for the debt if he or she committed an extracontractual fault or acted as surety for the corporation’s debts, or if the situation allows the corporate veil to be lifted. [29] The corporate veil may be lifted only if the evidence establishes that the director was using the corporation as a screen to cover up fraud or abuse of right, or to contravene a rule of public order. (Citations omitted.) [ 46 ] In Chenail Fruits et légumes inc. c.

Produce Town inc. , [18] Hamilton J. summarized the circumstances in which a director will be held liable where the corporation is financially insolvent: [ translation ] [35] Concerning a director’s extracontractual liability, the Court of Appeal instructs as follows: [ translation ] For the respondent to be extracontractually liable under

article 1457 CCQ , the appellant had to demonstrate that the respondent’s fault was not due solely to the breach of a contractual obligation owed by the company, but to the breach of a legal obligation he owed independently of the contractual relationship in question. [36] In the specific case of the cessation of the corporation’s operations or its future insolvency, the Court of Appeal instructs: [ translation ] In the absence of fault, the cessation of a business’ operations or its possible insolvency does not make the shareholders or directors personally liable for a debt that they in no way guaranteed.

(Citations omitted.) [ 47 ] It is accepted that the law does not require the directors of a corporation to disclose its financial difficulties, and even though the evidence has not established that Sally was in a state of irremediable insolvency in February 2017, the Court is of the view that Mr. Eladas’ personal liability was not engaged and that only Sally owes the amount claimed. FOR THESE REASONS, the Court: GRANTS the application against Sally Creations Inc.; CONDEMNS Sally Creations Inc. to pay Downtown Company $27,188.50, with interest at the legal rate, plus the additional indemnity set forth in

article 1619 of the Civil Code of Québec , as of March 27, 2017; THE WHOLE , with legal costs; DISMISSES the application against Elias Eladas, without legal costs. __________________________________ JO ANN ZAOR, J.C.Q. Mtre Joseph Neudorfer Sarnia Neudorfer Counsel for the applicant Mtre Yoan Forcier Forcier avocat Counsel for the defendant Date of hearing: January 17, 2019