Court of Appeal for Ontario

Date: 2004-04-26 Docket: C40628

Re: SOUTHSIDE PROPERTY MANAGEMENT (LONDON) INC. (Appellant) – and – THE ESTATE OF BORIS JULIAN SIBOLD and GARY STOCKIE CHEVROLET GEO OLDSMOBILE CADILLAC LIMITED (Respondents)

Before: McMURTRY C.J.O., ABELLA and ROSENBERG JJ.A.

Counsel: Scott Gallagher for the appellant Robert W. Staley and Evangelia Kriaris for the respondent the Estate of Boris Julian Sibold Wayne R. Bumstead for the respondent Gary Stockie Chevrolet

Heard: April 21, 2004

On appeal from the judgment of Justice Johanne N. Morissette of the Superior Court of Justice, dated August 22, 2003, made in London, Ontario.

Endorsement

[1] The narrow issue in this appeal from a judgment of Morissette J. is whether the appellant had status to bring an application for various forms of relief, including a declaration and specific performance of an agreement entered into between “Southside Group in Trust for a Company to be formed” and the respondent the Estate of Boris Julian Sibold. Morissette J. made her decision as a result of a motion brought by the appellant Southside Property Management (London) Inc. for an order directing the Registrar to issue a Certificate of Pending Litigation. She refused to grant the relief requested and, instead, dismissed the application on the basis that the appellant did not have status to bring the application. For the following reasons, we agree with her conclusion and therefore would dismiss the appeal.

[2] To understand the appellant’s argument it is necessary to briefly set out the chronology of events. This litigation concerns a piece of property in Stratford that was owned by the Estate. The offer to purchase the property was submitted on May 1, 2003. As indicated, the purchaser purported to be “Southside Group in Trust for a Company to be formed”. The offer is signed by Mr. Frijia and was to expire on May 8th. On May 7th, Mr. Frijia signed a letter stating that the offer was open for acceptance until May 12th. In the letter, Mr. Frijia states:

I have authority Southside Group in Trust for a Company to be Incorporated

[3] The offer to purchase was subject to a first right of refusal held by the lessee, the respondent Gary Stockie Chevrolet Geo Oldsmobile Cadillac Limited. On May 12th, the Estate made a counter-offer to Southside Group. Southside Group purported to accept the offer on the same day. On May 16th, Gary Stockie Chevrolet exercised its right of first refusal. In July, Mr. Frijia apparently discovered that Gary Stockie Chevrolet had not complied with certain terms and conditions required to purchase the property. This led to the Notice of Motion dated July 10, 2003 requesting a certificate of pending litigation. The motion was originally returnable July 15th. The appellant commenced its application on July 17, 2003. At that time, it had no legal interest in the property.

[4] “Southside Group” is a name used by Mr. Frijia. It is not a legal entity and Mr. Frijia has not registered that name. By using that name to carry on business, therefore, Mr. Frijia is in violation of s. 2(2) of the Business Names Act, R.S.O. 1990, c. B.17. Under s. 7(1) of that Act, a person carrying on business in contravention of, inter alia, s. 2(2) “is not capable of maintaining a proceeding in a court in Ontario in connection with that business except with leave of the court”. Mr. Frijia has never sought leave of the court nor has he attempted to comply with the Act by registering “Southside Group”.

[5] The appellant is one of Mr. Frijia’s companies. It is a legal entity, but was incorporated prior to the agreement of purchase and sale that is the subject of this litigation. It is, in other words, not “a Company to be formed” as contemplated by the agreement or as contemplated by s. 21(1) of the Business Corporations Act, R.S.O. 1990, c. B.17. Nor has the appellant purported to adopt the agreement as provided in s. 21(2) of the Business Corporations Act.

[6] The appellant attempts to avoid the effects of the Business Names Act and the Business Corporations Act and the fact that it had no interest in the property when it launched the motion and application by the following device. On August 19, 2003, a few days before the return date of the motion, Mr. Frijia purported to assign his interest in the agreement to the appellant. In an affidavit, apparently signed on August 20, 2003, Mr. Frijia states that the beneficiary of the Trust for a company to be formed is the appellant, notwithstanding that the appellant was a pre-existing company.

[7] The appellant’s case rests on the theory that Mr. Frijia had an interest in the property that he was entitled to assign to the appellant, and that it was irrelevant that at the time the application was launched the appellant had no interest in the property. The motions judge held that Mr. Frijia had no entitlement to the benefits of the Agreement of Purchase and Sale and therefore had nothing to assign. The appellant submits that the motion judge erred in failing to consider the intentions of the parties to the agreement.

[8] In our view, the motions judge correctly applied the legislation as the application was framed before her. Section 21 of the Business Corporations Act was designed to overcome the confusing state of the common law pertaining to pre-incorporation contracts and to avoid the need to determine the intention of the parties. See Szecket v. Huang (1998), 1998 4425 (ON CA), 42 O.R. (3d) 400 (C.A.) at 411. Under s. 21 a person who enters into a contract in the name of a corporation before it comes into existence “is personally bound by the contract and is entitled to the benefits thereof”. Had it been a legal entity, Southside Group could have taken the benefit of the contract and perhaps assigned its interest to another entity. But it was not a legal entity and because he was in violation of the Business Names Act and had not sought leave, it was not open to Mr. Frijia to take the benefits of the contract and bring an action in court. In our view, he cannot avoid the express effect of this legislation by the device of purporting to assign his interest, well after the application was launched.

[9] There is a further defect in the proceedings. Under rule 5.03, Mr. Frijia as the assignor should have been joined in the application.

[10] We cannot say that in these circumstances the motions judge was wrong to dismiss the application rather than give Mr. Frijia and the appellant an opportunity to regularize matters by complying with the Rules and the Business Names Act. As we read the record, she was not asked to do so and Mr. Frijia has never sought leave under s. 7 of the Act. Nothing in these reasons should be taken as foreclosing the possibility that it may be possible for Mr. Frijia or some entity with an interest in the agreement to launch a properly constituted application.

[11] Accordingly, the appeal is dismissed with costs fixed as follows. The appellant will pay $4,000 in costs inclusive of disbursements and GST to Gary Stockie Chevrolet and $5,500 in costs inclusive of disbursements and GST to the Estate.

Signed: “R. Roy McMurtry CJO” “R.S. Abella J.A.” “M. Rosenberg J.A.”