Canada: "Stop And Identify" Yourself, To Avoid Personal Liability When Acting On Behalf Of A Company

Third parties must know exactly who they are entering into a contract with, especially when dealing with a limited liability company. That said, the identity of the true contracting party may not be clear when an officer, director or employee of a company is negotiating on behalf of the company. Indeed, third parties are generally entitled to believe that these individuals are dealing on their own behalf, rather than on behalf of a company to which they are outsiders.

Therefore, in order to avoid personal liability, it is imperative to identify the company you are acting for! Many jurisdictions (including British Columbia and Quebec) have created statutory obligations regarding the use of the name of a company. These are of great use in identifying the company as the actual contracting party, and they should be kept in mind to avoid the unintended consequences reflected in the recent British Columbia Court of Appeal case Pageant Media Ltd. v. Piche, 2013 BCCA 537, where the president and chairman of a company was found personally liable for the remaining balance on a contract for advertising services he argued was entered into by a corporation.

The Decision Below

The president and chairman ("Mr. Piche") argued that he was acting on behalf of a limited liability corporation (CWC Gaming S.A.) when he signed the contract, and should therefore not be personally liable for any contractual obligations, although he had designated the purchaser in the contract as "CWC Gaming" without mentioning that is was a limited liability company. He further argued that the onus was on the other party to prove that it believed it was dealing with him in a personal capacity, and that it did not know it was dealing with a limited company.

The Supreme Court of British Columbia described the issue at hand as follows:

"[11]  The law in British Columbia is clear that a party entering into a contract on behalf of a limited liability corporation has a duty to make that clear to the other contracting party.  The question in this hearing is when does that duty arise.

[...]

[13]  The dispute between the parties centres around the phrase "as soon as it was apparent to him that the plaintiff was under the impression it was dealing with an unincorporated entity."

Mr. Piche's arguments were dismissed. In dismissing an application for a summary judgment, Mr. Justice Tindale concluded that there was "a duty to advise the plaintiff that they were dealing with a limited liability company" and that this duty was not fulfilled, since all of the contractual documents refer to CWC Gaming and not to CWC Gaming S.A., which is the appropriate designation for a limited liability corporation from Costa Rica.

The Court of Appeal Dissenting Opinion

Taking into account that the question before the Supreme Court of British Columbia was "when was it apparent to the appellant that the respondent was under the impression it was dealing with an unincorporated entity", Mr. Justice Hinkson of the Court of Appeal concluded that the "chambers judge erred by failing to find the facts necessary to decide this issue". He would have set aside the summary judgment, and remitted the matter to the Supreme Court.

The Court of Appeal Majority Decision

Madam Justice Bennett, with Mr. Justice Neilson concurring, disagreed with Mr. Justice Hinkson as to the applicable burden of proof. They concluded that it was incumbent upon Mr. Piche to prove that the contract had been entered into with the company, and not himself personally.

"[38]  [...] the burden of proof to demonstrate that Pageant Media contracted with Mr. Piche's company, CWC Gaming S.A., lies with Mr. Piche. In my view, Pageant did not have to lead evidence that it did not know it was dealing with a limited liability company except in response to Mr. Piche's evidence to the contrary. [...]

[...]

[46]   With respect, I disagree with Hinkson J.A. that the duty only arises when it becomes apparent that the other party thinks it is dealing with an unincorporated entity. The obligation to disclose that one is acting on behalf of a corporate principal exists whenever one seeks to rely on that limited liability; it is only the content of that obligation that may vary with the circumstances. For instance, that obligation may be met on the face of the agreement itself. [...]" [Emphasis added.]

The majority judges concluded that the evidence that had been presented – namely the fact that Pageant Media had previously published an article referring to CWC Gaming S.A. as a company, and the fact that Mr. Piche may have signed "chair" as his position on the order form  – did not satisfy this burden.

A Quebec Perspective

In Quebec, the leading jurisprudence is in line with the majority judges' position in Pageant Media Ltd. v. Piche. As far back as 1921, the Court of King's Bench stated in Condoy v. Peden, [1921] R.D.J. 476 (K.B.) that "An agent is bound to make known to a third party the principal for whom he contracts. The onus probandi is on him to prove that he has fulfilled this obligation."

Practical and Proactive Problem Prevention: Knowing (and Applying) the Law

The situation at issue in Pageant Media Ltd. v. Piche could have been easily avoided had this principle been followed: always divulge your mandate and clearly identify the person who you are acting on behalf of, to let others know who exactly they are shaking hands with.

The leading author in Quebec on corporate law issues (Paul Martel) submits that there is a presumption that an individual is dealing on his own behalf, in a personal manner. In order to rebut this presumption, divulge the mandate, engage the corporation's liability, and avoid personal liability, Martel proposes that one adds the words "For the Company ABC Inc." to his signature, or signs "Company ABC Inc. by X".1

All things considered, respecting the following statutory obligations (depending on your company's jurisdiction) and using the full company name in your dealings with third parties is the first step to making sure that they are informed that they are dealing with a limited liability company, rather than with yourself personally.

FEDERAL COMPANIES

Canada Business Corporations Act, RSC 1985, c C-44:

Name of corporation

10. (1) The word or expression "Limited", "Limitée", "Incorporated", "Incorporée", "Corporation" or "Société par actions de régime fédéral" or the corresponding abbreviation "Ltd.", "Ltée", "Inc.", "Corp." or "S.A.R.F." shall be part, other than only in a figurative or descriptive sense, of the name of every corporation, but a corporation may use and be legally designated by either the full or the corresponding abbreviated form.

[...]

Publication of name

(5) A corporation shall set out its name in legible characters in all contracts, invoices, negotiable instruments and orders for goods or services issued or made by or on behalf of the corporation.

BRITISH COLUMBIA

Business Corporations Act, SBC 2002, c 57:

Form of name of a company

23.  (1) Subject to section 51.21 (1), a company must have the word "Limited", "Limitée", "Incorporated", "Incorporée" or "Corporation" or the abbreviation "Ltd.", "Ltée", "Inc." or "Corp." as part of and at the end of its name.

(2) For all purposes, each of the words "Limited", "Limitée", "Incorporated", "Incorporée" and "Corporation" is interchangeable with its abbreviation "Ltd.", "Ltée", "Inc." and "Corp.", respectively.

[...]

Restrictions on use of name

24.  (1) A person must not use in British Columbia any name of which "limited", "limitée", "incorporated", "incorporée" or "corporation", or any abbreviation of them, is a part unless

(a) the person is a corporation entitled or required to use the words, or

(b) in the case of "limited" or "limitée", the person is

(i)  a limited liability company registered under section 377 as an extraprovincial company,

(ii)  a limited partnership, within the meaning of the Partnership Act, that is entitled or required to use that word, or

(iii)  a member of a class of persons prescribed for the purposes of this section.

[...]

Name to be displayed

27.  (1) A company or extraprovincial company must display its name or, in the case of an extraprovincial company that has adopted an assumed name under this Act, its assumed name, in legible English or French characters,

(a) in a conspicuous position at each place in British Columbia at which it carries on business,

(b) in all its notices and other official publications used in British Columbia,

(c) on all its contracts, business letters and orders for goods, and on all its invoices, statements of account, receipts and letters of credit used in British Columbia, and

(d) on all bills of exchange, promissory notes, endorsements, cheques and orders for money used in British Columbia and signed by it or on its behalf.

(2) If a company has a seal, the company must have its name in legible characters on that seal.

ONTARIO

Business Corporations Act, RSO 1990, c B.16:

Restrictions on corporate name

10.  (1)  The word "Limited", "Limitée", "Incorporated", "Incorporée" or "Corporation" or the corresponding abbreviations "Ltd.", "Ltée", "Inc." or "Corp." shall be part, in addition to any use in a figurative or descriptive sense, of the name of every corporation, but a corporation may be legally designated by either the full or the abbreviated form. R.S.O. 1990, c. B.16, s. 10 (1).

[...]

Legibility

(5)  Despite subsection (4), a corporation shall set out its name in legible characters in all contracts, invoices, negotiable instruments and orders for goods or services issued or made by or on behalf of the corporation and in all documents sent to the Director under this Act. R.S.O. 1990, c. B.16, s. 10 (5).

[...]

Unauthorized use of "Limited", etc.

11.  (1)  No person, while not incorporated, shall trade or carry on a business or undertaking under a name in which "Limited", "Incorporated" or "Corporation" or any abbreviation thereof, or any version thereof in another language, is used. R.S.O. 1990, c. B.16, s. 11 (1).

ALBERTA

Business Corporations Act, RSA 2000, c B-9:

Corporate name

10(1).  Subject to section 15.4(1), the word "Limited", "Limitée", "Incorporated", "Incorporée" or "Corporation" or the abbreviation "Ltd.", "Ltée", "Inc." or "Corp." shall be the last word of the name of every corporation, and a corporation may use and may be legally designated by either the full or the abbreviated form.

[...]

(3)  Subject to section 15.4(2), no person other than a body corporate shall carry on business within Alberta under any name or title that contains the word "Limited", "Limitée", "Incorporated", "Incorporée" or "Corporation" or the abbreviation "Ltd.", "Ltée", "Inc." or "Corp." or the words "Professional Corporation".

[...]

(8)  A corporation shall set out its name in legible characters in or on all contracts, invoices, negotiable instruments, and orders for goods or services, issued or made by or on behalf of the corporation.

[...]

QUEBEC

Business Corporations Act, CQLR c. S-31.1, s. 19:

19. The name of a corporation must appear on all of its negotiable instruments, contracts, invoices and purchase orders for goods or services.

20. If a corporation's name does not include the term "société par actions" or "compagnie", it must comprise the abbreviation "s.a.", "ltée" or "inc." at the end to indicate that the corporation is a limited-liability corporation.

Civil Code of Québec, LRQ, c C-1991:

2157. Where a mandatary binds himself, within the limits of his mandate, in the name and on behalf of the mandator, he is not personally liable to the third person with whom he contracts.

The mandatary is liable to the third person if he acts in his own name, subject to any rights the third person may have against the mandator.

2159. Where the mandatary agrees with a third person to disclose the identity of his mandator within a fixed period and fails to do so, he is personally liable.

The mandatary is also personally liable if he is bound to conceal the name of the mandator or if he knows that the person whose identity he discloses is insolvent, is a minor or is under protective supervision and he fails to mention this fact.

Case Information

Pageant Media Ltd. v. Piche, 2013 BCCA 537

BCCA Docket: CA040369

Date of Decision: December 12, 2013

 Footnotes

1. Paul MARTEL, La Société par Actions au Québec, vol. 1 : "Les Aspects Juridiques", September 1, 2012 ed., p. 26-22.

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