DATE: 20041126
DOCKET: C41454
COURT OF APPEAL FOR ONTARIO
LASKIN, MACPHERSON and LANG JJ.A.
B E T W E E N :
KNOBLER INTERNATIONAL INC.
Indrek Uukkivi
for the respondent
Plaintiff (Respondent)
- and -
1400631 ONTARIO INC. carrying on business as PROMISED LAND
Harvey S. Stone
for the appellant
Defendant (Appellant)
Heard: November 23, 2004
On appeal from the judgment of Justice Victor Paisley of the Superior Court of Justice dated January 23, 2004.
BY THE COURT:
[1] The respondent, Knobler International Inc., is a New Jersey corporation in the business of distributing rubber tub toys.
[2] Promised Land Inc. was an Ontario corporation, which operated a number of retail stores under the name of Promised Land. It was owned by Todd Newgren.
[3] The appellant, 1400631 Ontario Inc. carrying on business as Promised Land, was incorporated in February 2000, with its principals registered as Andrew David Crosby and Todd Newgren.
[4] From January 1999 to mid‑February 2002, there was a business relationship between the seller Knobler International and the purchaser “Promised Land”. It began in January 12, 1999 with a letter from Al Reiner, the President of Knobler International, to Ralph Fox of Promised Land at Suite 203, 37 Hanna Street, Toronto. Invoices were always sent to “Promised Land” at this address. The invoices were paid by cheque – sometimes from “Promised Land”, sometimes from “Promised Land Inc.”.
[5] Knobler International claimed that the numbered Ontario company carrying on business as “Promised Land” failed to pay the full amount owing on tub toys purchased from July 2001 to February 2002. It brought a simplified rules action against the appellant, but not against Promised Land Inc. After a two day trial, Paisley J. upheld Knobler International’s claim. He granted judgment for $31,596.58 plus pre‑judgment interest of $1,095.06 and costs of $12, 840.
[6] The appellant appeals on two bases: (1) the trial judge decided the case on a basis not pleaded; and (2) the trial judge improperly pierced the corporate veil of the appellant and imposed liability for the debts of a separate legal entity which, at its highest, was loosely affiliated with the appellant.
[7] We do not accept the appellant’s pleadings submission. The respondent made its claim for payment of the outstanding balance for goods sold and delivered “by the Plaintiff to the Defendant”. The appellant joined issue with the respondent’s contention that it had purchased the goods. In paragraph 8 of its Statement of Defence, the appellant asserted:
The defendant pleads that the plaintiff is fully aware that the defendant did not purchase any goods from the plaintiff and that the defendant only became active in business in and around the latter part of July, 2002 but claims against the defendant as opposed to the actual company that it sold the goods to because it believes that the said company is short of funds.
Accordingly, the issue of who was the proper defendant in the action was squarely before the trial judge, and he addressed it in his reasons.
[8] The more serious issue is whether the trial judge erred in imposing liability on the appellant. There is some confusion in the trial judge’s reasons, which were delivered orally shortly after the completion of a brief simplified rules trial. He first refers to the appellant as “the principal beneficiary of the goods”, but then appears to correct himself and says “Promised Land Inc. was the principal beneficiary”.
[9] In our view, there was a substantial amount of overlap between the two “Promised Land” corporate entities and, importantly, both were involved in the business relationship with the respondent at the relevant time.
[10] It is true that the cheques constituting partial payment of the relevant invoices were Promised Land Inc. cheques; and that on the appellant’s evidence, even “Promised Land” cheques sent to the respondent were drawn on Promised Land Inc.’s account.
[11] However, several factors support the trial judge’s conclusion that it was appropriate to affix liability to the appellant. First, from the start of the relationship in January 1999, the respondent corresponded with “Promised Land”; no one at “Promised Land Inc.” ever informed the respondent that there was a difference. Second, there was significant overlap in the ownership of the two corporate entities. Third, the two businesses operated out of the same premises. Fourth, throughout the entire period of the relationship, the respondent sent its invoices to “Promised Land”; no one at Promised Land Inc. ever complained about this designation. Fifth, the invoices were paid by cheques from both Promised Land and Promised Land Inc. and the respondent would not have known that all cheques were apparently drawn on Promised Land Inc.’s account. Sixth, the orders for the goods in the period relevant to the action came from Ralph Fox, a Promised Land employee, and were sent on Promised Land stationery. Seventh, even the Promised Land Inc. cheques which constituted partial payment were in response to a notice sent to Ralph Fox at Promised Land.
[12] In short, both the appellant and its related corporate entity Promised Land Inc. dealt interchangeably with the respondent in purchasing toys from it. Both were proper defendants. The respondent brought an action against only the appellant. The trial judge did not err in imposing liability on the appellant.
[13] The appeal is dismissed with costs fixed at $4000, inclusive of disbursements and GST.
RELEASED: November 26, 2004 (“JL”)
“John Laskin J.A.”
“J. C. MacPherson J.A.”
“Susan Lang J.A.”