May 2011

Business is business - Especially when dealing with creditors

By Francis Chaussé Lawyer

One of the distinct advantages of incorporation is the protection provided against eventual creditors. But there are certain basic rules of business that must be followed in order to benefit from this protection. This is precisely what the defendant had to learn the hard way in the recent case 4023986 Canada inc. (Technair) v. 3646807 Canada inc. (Maisons Laurier), 2011 QCCQ 3050.

New home builder Maisons Laurier regularly called upon the services of Technair, which sells and installs heating and water heating systems. Technair's invoices were sometimes paid by Maisons Laurier. Other times, they were personally paid by Ms. Labrecque, Maisons Laurier's administrator and shareholder. When Maisons Laurier omitted to pay an invoice for a heating system provided and installed by Technair, the installer sued Maisons Laurier and Ms. Labrecque as an individual.

As a defendant, Ms. Labrecque argued that there was no reason to lift the corporate veil. However, Justice Laflamme concluded that Technair had done business with both Maisons Laurier and Ms. Labrecque and ordered her to pay the invoice solidarily with her company. The court highlighted the importance of clearly advising co-contractors of the firms or individuals with whom business will be carried out, affirming that one could not hide behind unclear corporate designations. In fact, it is not up to the other party to determine the actual identity of its interlocutor, since this obligation rests on the good faith and trustworthiness on which all contractual relationships must be based. Evidence revealed that Technair never knew who would be paying the invoices before the cheques were received.

To be protected against creditors, it is important to keep business matters separate and never write personal cheques to pay for business expenses. A business owner who does not follow this basic rule becomes personally responsible and could be forced to cover his or her company's unpaid debts.