2010 ONSC 6499, 2010 ONSC 6499

CITATION : Kobes Nurseries Inc. v. Darren Convery et al, 2010 ONSC6499 COURT FILE NO.: 64119/09 DATE: 20101124 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ) ) KOBES NURSERIES INC. ) )) B. Carmichael, for the Plaintiff Plaintiff ) ) - and - ) ) ) DARREN CONVERY and 1553022 ONTARIO LIMITED ) ) U. Sapone, for the Defendant Defendant ) ) ) ) HEARD: November 18, 2010 ENDORSEMENT LAUWERS j. [ 1 ] The plaintiff operates a plant nursery business. The defendant Darren Convery operates a nursery and a garden centre. In 2003 he and his wife incorporated 1553022 Ontario Limited.

The main place of business is at 2590 Taunton Road East, a property that is owned by Mr. Convery and his spouse. Mr. Convery has been doing business with Kobes Nurseries Inc. since 1993 and has used the style “Maple Lane Landscaping & Nursery” throughout. [ 2 ] Bernard Kobes, who is the principal of the plaintiff, testified that his company had not experienced any serious collection problems on invoices sent to the defendant until July of 2008. There is a run of invoices from July 21, 2008 to December 8, 2008 which remains unpaid in the total amount of $78,798.25 as of August 31, 2009.

The defendants do not dispute the amount claimed. The Numbered Company [ 3 ] Mr. Convery testified that the numbered company was incorporated on January 31, 2003. It seems reasonably clear from the corporate records that at the time it was incorporated, the business name of “Maple Lane Landscaping & Nursery” or some similar name was “attached” to the incorporation documents as a business name. I draw this inference from the Corporation Profile Report tendered by the plaintiff dated February 10, 2010 which notes that there was an expired business name, but does not set it out. Mr.

Convery explained that the name must be renewed from time to time or it will expire, information he only learned of recently from counsel. [ 4 ] Mr. Convery testified that he had a conversation with Mr. Kobes before to incorporating the company. Mr. Convery said to Mr. Kobes that his operation was getting a lot bigger and had more equipment and that he was going to incorporate. Mr. Kobes, he testified, responded that he thought it was a good idea and suggested that with personal liability the defendant would not want a runaway trailer running into someone’s house. Mr.

Kobes came close to denying the conversation but settled on saying that he did not recall it. [ 5 ] A second conversation between them occurred in 2005 before the Converys purchased a farm in Oshawa. Mr. Convery said that he raised the subject about whether to buy it personally or in the corporate name because he knew that Mr. Kobes had acquired a number of farms and might have sorted out the corporate issues. Mr. Kobes responded that the income tax treatment might be more favourable if Mr. Convery and his wife purchased the farm personally and not through their corporation.

That is what happened. [ 6 ] The third conversation occurred after August 5, 2009. Mr. Convery and his wife separated and were in the course of some family law proceedings. Mr. Convery testified that he told Mr. Kobes that he was experiencing some business difficulties because of an employee’s embezzlement the matrimonial dispute. Mr. Convery said that he wanted to ensure that the plaintiff was paid but told Mr. Kobes that the plaintiff would have to do what it needed to do. He might have suggested that the plaintiff get a lien on the farm property.

He expressed some concern when the action started and named him personally, but he freely admitted he was not sure what would happen. [ 7 ] Mr. Kobes’ admits that they had this conversation, which occurred well after the delivery of the goods and failure of payment. [ 8 ] I found Mr. Convery’s evidence to be credible. He testified in a forthright manner. I prefer his evidence to that of Mr. Kobes where there is a conflict. I believe Mr. Convery’s evidence about the conversations that he had with Mr. Kobes.

The Documents [9] The invoices from Kobes Nurseries Inc. are all addressed to Maple Lane Landscaping & Nursery to the attention of DarrenConvery. There is one cheque payable to Kobes Nurseries by Maple Lane Landscaping & Nursery dated February 3, 2006. Thesignature line is marked simply as “Maple Lane Nurseries and Landscape” and the cheque was signed by Mr. Convery. He admits thatall of his cheques were the same and do not set out the corporate identity as “1553022 Ontario Limited”. [10] There is a facsimile transmission sheet dated April 2, 2008 from Maple Lane Nurseries and Landscape to Kobes.

It does notcontain any reference to the numbered company. [11] There is an Ontario Retail Sales Tax Purchase Exemption Certificate dated May 11, 2006, which provided on that day to theplaintiff. It identifies “Maple Lane & Nurseries” as the business name and it does not refer to the numbered company. Mr.

Converyadmitted in evidence that the form was completed by an employee. [12] The only document apparently sent to the plaintiff by the defendant that uses the numbered company’s proper name is anOntario Retail Sales Tax Purchase Exemption Certificate dated February 8, 2003, which sets out: “Maple Lane Nurseries & LandscapeDivision 1553029 Ontario Ltd.”. Mr. Kobes admits that this form originated with the plaintiff since it bears the plaintiff’s stamp on theright-hand corner. The original, however, is a photocopy of the form that had already been stamped.

It notes at the top right hand cornera note states: “please complete and return” and provides the Kobes’ fax number. There is also a note on the top left-hand corner thatsays: “Faxed Feb. 9/03”. Mr. Convery testified that the top part of the document was filled in by Connie Salazar, who was employed byhis company and who embezzled funds from it. The bottom part of the form was completed by him in his own handwriting and signedby him. According to the form itself, it is “valid for four years if, (

a) the box beside the word “blanket” at the top of the form ischecked.” The form was not checked. [13] I am not certain what to make of the fact that the “blanket” box was not checked. It is clear that the defendant rarely paidProvincial Sales Tax on purchases from the plaintiff. The plaintiff maintained the certificates for seven years in order for them to beavailable in the event of a provincial audit. Mr.

Kobes says that the form dated February 8, 2003 was not found in the plaintiff’s file andthat the only form he found was the one he sent on May 11, 2006- three years later, which does not refer to the numbered company. Thisis some, but limited, evidence that the corporate name might have come to the plaintiff’s attention. [14] Mr. Convery produced as an exhibit a copy of Maple Lane Nurseries’ vendor permit dated October 24, 2005 which sets outthe corporation’s name and indicates that it is operating as Maple Lane Nurseries.

This was posted in the retail area of his place ofbusiness but he, in fairness, stated that he could not be certain that Mr. Kobes ever saw it on one or more of his visits to the defendant’spremises. The Law [15] The plaintiff relies on

section 10 of the Business Corporations Act, RSO 1990 c.B. 16 which provides: 10(1) The word “Limited”, “Ltee”, “Incorporated”, “Incorporee”, or “Corporation” or the corresponding abbreviations “Lltd.”, “Lltee”,“Inc.” or “Corp.” shall be part, in addition to any use and figurative or descriptive sense of the name of every corporation, but acorporation may be legally designated by either the full or the abbreviated form. …

(5) Despite sub (4), a corporation shall set out its name in legible characters in all contracts, invoices, negotiable instruments andorders for goods or services issued or made by or on behalf of the corporation and all documents sent to the Director under this Act. [16] The plaintiff also relies on the Business Names Act, RSO 1990 c.B. 17 as amended.

Section 2(6) provides: A corporation and such other persons as are prescribed carrying on business under a registered name or, in the case of a corporation,identifying itself to the public under a registered name, shall set out both the registered name and the person’s name in all contracts,invoices, negotiable instruments and order involving goods or services issued or made by the person. [17] Mr. Sapone argues that the burden is on the defendant to show that the plaintiff must be imputed with the knowledge of theexistence of the numbered company. He relies on Bridge City Electric

(1981) Ltd. v. Robertson, (SK KB), [1986]S.J. No. 396 (Sask. Q.B.) per Kindred J.: There is ample authority in law to support the principle that the onus is on the individual who contracts with the plaintiff to make itknown to the plaintiff that he is acting for a corporate principal. In Corkum v.

Lohnes, (1981) 43 N.S.R. (2d) and (NSCA), 81 A.P.R. 477, Cooper J.A., in delivering the judgment of the Appeal Division of the Nova Scotia Supreme Court, stated at p. 486: If a person incorporates his business, as was done by the appellant in 1977 he must make it clear to those with whom he is negotiatingcontracts that he is doing so on behalf of his company and not in his personal capacity. If he fails not only to do so but also enters into acontract, as here, signing only in his personal capacity he should not thereafter when sued be allowed to hide behind the corporate veil socalled.

We should not countenance such an effort. [18] Mr. Sapone also relies on the decision in Nord Ovest Spa v. Gruppo Giorgio Ltd., [1994] O.J. No. 1657 where Stayshyn J.said at para. 19, 24 and 25:

19 In my view it was simply not enough for George Elian to contract using the name "Boutique Cerutti 1881" and have all of thedocuments use the name "Boutique Cerutti 1881". It was his duty to make it clear to Hitman and Nord Ovest that he was acting as agentfor his company 762993 Ontario Inc., and he did not discharge his duty. There was no evidence to suggest that George Elian made itknown that the contracts were with 762993 Ontario Inc.

Further, it was the evidence of Patrizia Beneventi that when she met withGeorge Elian in 1990 at the store, she, and therefore Hitman was led to believe that Elian was the owner of the store. 24 Neither George Elian nor 762993 Ontario Limited did this. As I see it this should be one factor considered by a Court in decidingthe issue of the personal liability of George Elian.

It would appear that the purpose of this legislation is to protect the public, and as aconsequence if someone expects to take advantage of the limited liability available to him by the process of incorporation, he shouldmake the public aware of such corporation. I am aware that in Short's Backhoe & Trucking Ltd. v. Noseworthy (1992) 101 Nfld. &P.E.I.R. p. 277 Newf. PCJ. this was one factor taken into consideration by the Court in imposing personal liability on the defendant. 25 I note that it was indicated in Excelco Foods Inc. v. Snider (1991) (SK KB), 95 Sask R. p. 314 Sask.

Q.B. at p.316, that if an individual defendant wishes to escape personal liability on a contract that such a person has a duty to make it clear to theperson with whom he is contracting that he is negotiating on behalf of his corporation and not in his personal capacity. The decision was overturned on appeal at [1997] O.J. No. 4030, but on another basis. [19] In Victor Canada Ltd. v. Farbetter Addressing and Mailing Ltd., [1978] O.J. No. 2687, Morand J. noted that the defendantused a style “Farbetter Business Product” which it knew to be operated by “one James Sinclair”.

Morin J. held, even where a singlecheque included the corporate name: 20 I am satisfied in this case that it would be unreasonable to expect that the plaintiff should have known that they were dealingwith a limited company. Indeed, the evidence before me, with the exception of several inconsequential matters, indicates that theplaintiff would fully expect that they were dealing with an organization known as Farbetter Business Products, of which Mr. JamesSinclair was the operator and owner. Analysis [20] I find that Mr.

Convery did not bring home to the plaintiff the fact that the status under which he was carrying on business hadchanged from that of sole proprietorship to a corporation. The first conversation indicating Mr. Convery’s intent to incorporate did notcommunicate the fact that he actually did incorporate. Similarly, the discussion about the purchase of a farm in 2005 is of noassistance. Nothing unambiguously and clearly identifies the nursery business as one that was now being operated by the numberedcompany and not by Mr.

Convery as a sole proprietor. [21] It is plain that, except for posted vendor permit, and the 2006 Retail Sales Tax Certificate which may or may not have beentransmitted to the plaintiff, none of the corporate documents comply with either the Business Corporations Act or the Business NamesAct.

The Retail Sales Tax Certificate is simply insufficient; there is no evidence that anyone in a position of authority with the plaintiffwould necessarily have seen it. [22] In the circumstances, therefore, I find that the plaintiff has proven on the balance of probabilities that its contractualrelationship was with Darren Convery personally and not with the numbered company. I therefore, grant judgment accordingly. [23] If the parties cannot agree on costs, then I will accept written submissions on a seven-day turnaround starting with theplaintiff. P.D. Lauwers J. RELEASED: November 24, 2010