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Liability for not using your Corporation’s Name

By December 4, 2013January 20th, 2022Corporate, Practice Management

So our very first dental client asked: what happens if I don’t write my dentistry professional corporation’s name on invoices and contracts? Could I be held personally liable for breaches of those contracts or invoices?

Now the typical situation is you have a dentistry professional corporation (e.g. Dr. Michael Carabash Dentistry Professional Corporation), but you want to carry on business under a different name, such as “Bright White Dental Office”. Well, assuming you can use the jazzy name without violating trademarks, then you would need to REGISTER that name as a TRADE NAME under the Business Names Act. Why bother? Well, you still want to take advantage of having limited liability as a shareholder, director, and officer of the company, don’t you? Well, then you need to register a TRADE NAME and then use both the TRADE NAME and the company’s name on invoices and contracts. You could write something like “[Company Name] carrying on business as [Trade Name]” or “[Company Name] c/o/b/ [Trade Name] “. the purpose of doing this is to signify to third parties that you are operating as a professional corporation and that they are dealing with a corporation instead of some other entity, like a sole proprietorship. It’s all about disclosure. Now, let’s get into what happens if you fail to do so.

We’ll start off with what the legislation says.

Business Names Act

Section 2(1) of the Business Names Act says that “No corporation shall carry on business or identify itself to the public under a name other than its corporate name unless the name is registered by that corporation.” OK, that’s a good start. So there’s a prohibition. And there’s a punishment if you fail to do so under section 10 of the Act, everyone who contravenes section 2 without reasonable cause is guilty of an offence and on conviction is liable to a fine of not more than $2,000 or, if the person is a corporation, to a fine of not more than $25,000. OUCH!

OK, so what else is there?

Well, section 2(6) of the Act goes on to say that “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 orders involving goods or services issued or made by the person.” OK, we’ve got a requirement! That requirement is for a corporation, and other persons carrying on business under a REGISTERED NAME must set out both the corporate and registered name. Again, violating this section could lead to you being prosecuted by the government and being fined as per section 10 above.

Caselaw

So outside of what the legislation says (and government prosecutions for failing to register), what other consequences do you face? Would you face personal liability in a private lawsuit for breaching a contract that you believed your company (and not you) had entered into? YOU BETTER BELIEVE IT! This is where the courts come into play.

In City Press Inc v. Green (cob B & G Print & Litho), [1996] OJ No 1823, the Divisional Court held that the principal of a corporation was PERSONALLY liable for over $19,000 for failing to disclose that a third party was dealing with his corporation and not him personally. In coming to that conclusion, the Court reviewed the caselaw concerning failing to identify your company in dealings (e.g. contracts and invoices) with third parties. Here’s what the Court had to say:

14 It would appear that one of the purposes of s.  .(6) of the Business Names Act is to protect the public, and as a consequence, if someone expects to take advantage of the limited liability available to him through the process of incorporation, he should make the public aware of the existence of such corporation in his dealings with other members of the public. This was one of the factors taken into consideration by the Court in imposing personal liability on the Defendant in Short’s Backhoe and Trucking Ltd v. Noseworthy (1992) 101 Nfld & PEI Reports, p 277.

15 It was noted in Excelco Foods Inc v. Snider (1991) 95 Sask R p 314 (Sask QB) p 316 that if an individual wishes to escape personal liability on a contract, such a person has a duty to make it clear to the person with whom he is contracting that he is negotiating on behalf of his corporation and not in his personal capacity. In that case, the Court imposed personal liability on the Defendant who used the name of his business Candy Connection which was known to the Plaintiff but tried to argue that his company Candy Connection Inc. should be liable. It should be noted that in that case, none of the invoices made reference to the corporation as is the case in the matter before me.

16 Similarly in the case of Interlake Packers Ltd v. Vogt and Loewen (1987) 47 Man R (2d) p 268 (Man QB) the Defendant was held to be personally liable for meat products sold and delivered by the Plaintiff instead of his company EV Wholesale Meats Limited because invoices were made out to E & V Meat Whls and other similar names without the corporate entity being referred to.

17 The same finding was made in the case of WR Benjamin Products Ltd v. Saulnier (1982) 40 NBR (2d) 537 (NB, QB), where the Court indicated at p 539:

“There is no clear evidence to satisfy me that the Plaintiff was ever made aware of the incorporation of the Defendant’s business or that it was doing business with a corporation. nd that, in my opinion, is the determining factor.”

18 Similar conclusions were arrived at in the Ontario case of Victor (Can) Ltd v. Far Better Addressing and Mailing Ltd et al (1978) 3 BLR p 312 (Ont HCJ) by Morin J who indicated that the Plaintiff would fully expect that it was dealing with an unincorporated business with “S” as owner and operator and personally liable to the Plaintiff upon the failure of “S” to indicate otherwise and in the British Columbia case of West Fraser Builder Supplies v. Vanderhorst [1990] BCWLD 436 (BCCA).

Other and more recent Ontario cases have confirmed this decision. Most notably, in Truster v. Tri-Lux Homes Ltd. [1998] OJ o. 2001, the Ontario Court of Appeal provided a two-part analysis in determining the issue of liability when the existence of a corporation is not revealed at the time of making the contract. That two-part analysis is summarized as follows:

Did the individuals hold themselves as individuals or as an agent of a corporation, and if so, did the individuals do it to a degree that attracted personal liability?

Is there sufficient evidence to indicate that, prior to closing, the other party to the transaction elected to look ONLY to the corporation to carry out the agreement once it became aware of the existence of the corporation? If not, then the individual may attract personal liability.

In Truster, the Court of Appeal said the following while talking about persons wishing to benefit from the protection of the corporate veil:

“They should identify the name of the company with which they are associated in a reasonable manner or risk being found personally liable if the circumstances warrant it: see cases such as Watfield International Enterprises Inc. v. 655293 Ontario Ltd., [1995] OJ o. 1146, (1995), 21 BLR (2d) 158 (Ont. Ct. (Gen. Div.)) and Pennelly Ltd. v. 449483 Ontario Ltd., [1986] OJ o. 2672, (1986), 20 CLR 145 (Ont. HCJ).”

The Court of Appeal noted that:

“This principle properly flows from the fact that incorporation provides corporate officers and shareholders a legal protection thought to be necessary for modern business relations; however, if one expects to benefit from this protection, then others must, at minimum, be informed in a reasonable manner, that they are dealing with a corporation and not an individual. In the last analysis, persons who set up after the fact that they contracted solely on behalf of another bear the onus of establishing that the party with whom they were dealing was aware of the capacity in which they acted: Clow Darling Ltd. v. 1013983 Ontario Inc., [1997] OJ. No. 3655 (Gen. Div.); Nord Ovest Spa v. Gruppo Giorgio Ltd., [1994] O.J. No. 1657 (Gen. Div.).”

Finally, the Court of Appeal said that, once a party becomes aware that a corporation may be involved, there must also be evidence of an intention on the part of that party to relieve the other party of its personal liability. If there is no such intention, then the individual may be personally liable for the alleged obligations of the corporation.

SO, in a nutshell, failing to properly identify your corporation in invoices and contracts could lead to prosecution under the Business Names Act or private lawsuits against YOU PERSONALLY (and not just your corporation). If the lawsuit is against you personally, then you expose your personal assets in the event that you are liable to pay! OUCH! Better keep the corporate name on everything in that case!

DMC