COURT OF APPEAL FOR ONTARIO

CITATION: 1196303 Inc. v. Glen Grove Suites Inc., 2015 ONCA 580

DATE: 20150826

DOCKET: C58149

Weiler, Laskin and Epstein JJ.A.

BETWEEN

1196303 Ontario Inc.

Plaintiff (Respondent)

and

Glen Grove Suites Inc., Spendthrift Developments Limited,

Firm Capital Mortgage Fund Inc., Nelly Zagdanski and Linda Darer,

Estate Trustees of Sylvia Hyde, deceased,

1297475 Ontario Inc., Montreal Trust Company of Canada

and Royal Trust Corporation of Canada

Defendants (Appellants)

Micheal Simaan, for the appellants

Fred Tayar, for the respondent

Heard: February 11, 2015

On appeal from the judgment of Justice David M. Brown of the Superior Court of Justice, dated December 2, 2013, with reasons reported at 2013 ONSC 7284.

Weiler J.A.:

A. introduction

[1] This appeal is about whether the respondent, 1196303 Ontario Ltd. (“119”), is entitled to money from the sale of a property, which has been paid into court. The basis put forward for the entitlement is a settlement agreement (the “Settlement”), entered into by 119 and 1297475 Ontario Inc. (“129”), which purported to place guarantee and security obligations on the owner of 2387 Yonge Street in Toronto, the appellant Glen Grove Suites Inc. (“Glen Grove”). If Glen Grove is bound by the Settlement, 119 is entitled to those funds.

[2] The trial judge found that Glen Grove was bound by the Settlement. Although I disagree with his analysis, I agree that Glen Grove is liable on the Settlement and that 119 is entitled to the money. On the facts as found by the trial judge, 129 not only acted on its own behalf in agreeing to pay 119 the sum of $500,000, but also acted as Glen Grove’s agent in offering the guarantee and mortgage security provided for in the Settlement. I would therefore dismiss the appeal as it relates to Glen Grove.[^1]

[3] The trial judge also found Spendthrift Development Ltd. (“Spendthrift”), a sister corporation to Glen Grove and 129, liable under the Settlement. In my view he erred in doing so. I would allow the appeal as it relates to Spendthrift.

B. Evidentiary Background

(1) Background to the Settlement

[4] Edwin Hyde, husband of Sylvia Hyde, was a lawyer and real estate developer who owned several companies. In 1990 and 1991, a group of investors loaned his companies several million dollars. The loans were secured by mortgages over various properties. In 1996, 119 also referred to in these reasons as the Receiver) was formed to represent these investors. It was appointed as Receiver, and in 1997, it petitioned Edwin into bankruptcy. The Receiver had a proof of claim for over $10.9 million.

[5] Glen Grove and Spendthrift owned rental properties and condominiums. They owned valuable long-term leases on the Yonge Street Property (the “Property”). In 1993 and 1994, Edwin transferred his beneficial interest in the Property and 100% of the Glen Grove shares to his wife, Sylvia. He claimed it was a gift. Edwin’s creditors regarded both transfers from Edwin to Sylvia as reviewable transactions during Edwin’s 1997 bankruptcy.

[6] At the time the Settlement was negotiated, Sylvia owned 100% of the shares in both Glen Grove and Spendthrift. She was the sole director and officer of these companies. She also owned 100% of the shares of 129, a shell corporation, and was a director and officer of this company, along with Edwin as officer.

[7] Notwithstanding her roles as sole shareholder and director, Sylvia had limited involvement in the affairs of her companies prior to Edwin’s death in May 2004. Edwin operated and managed the companies on her behalf. The trial judge found that Sylvia had given her husband de facto control and full authority to operate 129, Glen Grove, and Spendthrift and to enter into transactions binding these companies without obtaining transaction-specific consent from her. Sylvia would sign documents given to her by Edwin, without question.

(2) Negotiating the Settlement

[8] In 1998, Glen Grove made three offers to Edwin’s trustee in bankruptcy to purchase the assets in his estate. Included in that purchase were any causes of action the Trustee had against Sylvia to set aside the transfer to her of Glen Grove shares and the interest in the Property as a preferential transfer. The result would have been that Sylvia’s ownership of the shares, and Glen Grove’s interest in the Property, would be secure.

[9] The offers were signed by Sylvia on behalf of Glen Grove. The offers were not accepted. Glen Grove made further offers between 1999 and 2002; again, these were refused.

[10] In 2002, 129 made an offer to purchase the Receiver’s proof of claim against Edwin, as well as related debts (collectively, the “proof of claim”). Although different in form from the offers made by Glen Grove, this offer would have the same result, neutralizing any claims against Sylvia in relation to the 1994 share transfer and 1993 transfer of the interest in the Property. This offer and subsequent amendments (collectively referred to as the “Three Letters”, dated May 3, 2002, August 28, 2003, and October 3, 2003) formed the basis of the Settlement.

[11] At trial, Melvyn Solmon, 129’s lawyer, testified that the main purpose behind the offer to purchase Edwin’s debts was to shield Sylvia from any legal proceedings related to the share transfers. Solmon kept notes of conversations with Edwin, recording that “once sale through released s hyde from any claim – the chose in action has been sold” and “key no one can sue sylvia hyde once sale deal closed”. Emilio Bisceglia, a lawyer who acted for members of the Hyde family during Settlement discussions, also testified that one purpose of the Settlement was to purchase causes of action from the Trustee, including a cause of action related to the transfer to Sylvia of Glen Grove shares and the interest in the Property.

[12] The first of the three letters comprising the Settlement, dated May 3, 2002, elaborated the essential terms of the agreement. 129 would purchase the proof of claim for $527,408.50. The agreement outlined a payment plan: $27,408.50 was payable immediately upon execution of the minutes of settlement, in full satisfaction of the legal fees of Fred Tayar, 119’s lawyer; the balance of $500,000 was to be paid in accordance with a payment schedule.

[13] Paragraph 3 of the letter outlined terms for security for the payment:

As security for payment, the purchaser [129] will provide:

a) if the owner of the Glengrove property is able to do so using reasonable efforts, and acting in good faith, a mortgage, to be registered against the Glengrove property…

b) a guarantee from the owner of the Glengrove property guaranteeing the $500,000.00 balance owed; and,

c) a consent to judgment from the owner of the Glengrove property to be held in escrow providing for the full amount of $500,000.00.…

[14] During negotiations, 119 was insistent that the Settlement be backed by security. Edwin and Solmon discussed 119’s demand that some security be provided for the Settlement, at one point contemplating placing a mortgage on Edwin and Sylvia’s marital home. Finally, they determined that a mortgage might be arranged on the Glen Grove Property.

[15] Solmon testified that the “reasonable efforts” language in the text of the Settlement referred to the necessity of the Royal Bank, a priority mortgagee, consenting to any further encumbrances. Initially, Edwin indicated to Solmon that the Glen Grove mortgage would not be possible, as the Royal Bank was resistant to any further encumbrances. However, Edwin later sent Solmon marked up drafts of the Settlement, which included the obligation of Glen Grove to provide a mortgage. Solmon testified that, as a result, he understood that the mortgage could be placed on the Property and no problem existed with the Bank.

[16] On August 18, 2003, in his role as corporate counsel for Glen Grove, Edwin sent a letter to Solmon enclosing a suggested payment program for the Settlement. The letter is signed:

Yours very truly GLENGROVE SUITES INC.

PER: EDWIN G. HYDE, CORPORATE COUNSEL

It bears Edwin’s signature. Solmon testified that the enclosed payment program formed part of his instructions. It provided for a mortgage on the Glen Grove Property. Solmon testified that the person who provided him with instructions concerning the Settlement informed him that Glen Grove was prepared to guarantee the Settlement. The trial judge found that the person providing these instructions was Edwin.

[17] On August 28, 2003, Solmon sent Tayar the second of the Three Letters, confirming that he had received instructions regarding amendments to the Settlement and a revised payment plan. The payment program outlined in the August 18 letter from Glen Grove, per Edwin, to Solmon is substantially similar to the terms outlined in the August 28 letter from Solmon to Tayar.

[18] On September 30, 2003, Edwin sent Solmon a letter, asking him to review Tayar’s proposed Minutes of Settlement and providing further instructions regarding the Settlement. He enclosed a cheque for $27,408.50, “to be paid to Fred Tayer [sic] if the Minutes of Settlement are executed, or returned to us if they are not.” The cheque was from Glen Grove Management Inc.[^2]

[19] On October 3, 2003, Solmon wrote to Tayar confirming the Settlement in the last of the Three Letters. The October 3 letter contained amendments to the payment schedule and the interest due, to account for the lapse of time between the Three Letters.

[20] On November 7, 2003, Glen Grove Management Inc. provided two cheques for $15,000 to Solmon. Both cheques were noted as being “re 1297475 Ont. Inc.”, and one of the cheques was signed by Sylvia. In a letter to Edwin dated November 7, 2003, Solmon confirmed receipt of the cheques, writing, “From those cheques $27,408.50 is being forwarded to Fred Tayar. We are returning to you the cheque which I have marked “cancelled” from Glengrove Management Inc. dated September 30, 2003”. In his evidence at trial Solmon was asked, “And you do recall as well that there was part performance in the sense that there was a payment of $27,000 towards costs. That was one of the requirements in terms of the settlement, sir?” Solmon answered, “Yes.” The trial judge found that the November 7 cheques were for the legal fees referred to in the Settlement. In addition, Solmon acknowledged that Glen Grove Suites paid some of his legal fees such as his August 1, 2003 account.

[21] Also on November 7, 2003, Solmon sent a memorandum to one of his associates instructing him “to arrange for the preparation of the necessary security documentation for the closing of the transaction involving Glengrove”. On February 12, 2004, this associate sent Solmon a memorandum enclosing draft settlement documentation, including a charge on the Property from Glen Grove to 1196306 and a guarantee from Glen Grove for the debt incurred by 129. One of the recitals states, “The guarantor, Glen Grove, wishes to guarantee the debt owed by 129 with respect to the purchase of all debts, etc. set out in the Minutes of Settlement.”

[22] A fair inference can be drawn that 119 knew that Solmon was preparing the security from Glen Grove in accordance with the Settlement. As part of the security under the Settlement Glen Grove agreed to a consent to judgment against itself in the event 129 did not make the $500,000 payment. In his testimony, Solmon acknowledged that on February 12, 2004, he and Tayar had some technical discussion about the style of cause for the consent to judgment. The trial judge noted that the security documents were revised later in February.

[23] Solmon testified that he never represented Glen Grove and only ever acted for 129 in relation to the Settlement.

(3) Events leading up to approval of the Settlement

[24] The motion to approve the Settlement was brought before Farley J. in February, 2004. Solmon testified that he attended the motion and that, by that date, the full terms of the Settlement were in place and his office had prepared the necessary settlement documents. Because Farley J. wanted the investors represented by 119 to be given notice of the Settlement, he adjourned the motion to October 4, 2004.

[25] Edwin Hyde died an undischarged bankrupt on May 27, 2004.

[26] Following Edwin’s death, Sylvia dealt with two lawyers – Solmon, who was counsel to 129 and Emilio Bisceglia, who had also acted for Edwin in his bankruptcy. Both lawyers gave evidence on rule 39.03 examinations and testified at trial.

[27] Bisceglia advised Sylvia in relation to the Settlement, and corresponded with Solmon on her behalf. Sylvia also discussed the Settlement with Solmon. In August 2004, Solmon sent Bisceglia the motion record for the approval motion and informed him that the motion was scheduled for October 4. He suggested they meet to discuss strategies.

[28] On August 30, Sylvia and Solmon spoke. Although he could not recall details, Solmon’s file notes included the statement “Sylvia will let the glengrove go”. Also on August 30, Sylvia sent Solmon documents, including 2003 financial statements for Glen Grove. She authorized him to contact an employee of a mortgagee of the Property, Eli Dadouch, who indicated there was equity in the Property – that “standalone glengrove suites is fine” – and that Sylvia had been taking out $20,000 per month for several years. On September 2, Solmon’s notes record a conversation with Sylvia in which she said “they will not go to court” on October 4, the date of the Settlement approval motion. Solmon also learned that Dadouch had been instructed not to discuss Glen Grove further with him.

[29] On September 16, Bisceglia sent a letter to Sylvia outlining four options available to her “with respect to the proposed settlement involving the Glen Grove Suites”. These options were:

1. Honour the Settlement (the letter indicated since Sylvia did not have sufficient funds “this is not an option”);

2. Seek to amend the Settlement so that the full amount would be secured by a mortgage on the Property, but would not be payable until the Property was sold (“you indicated you would consider this option”);

3. Renegotiate the amount of the Settlement and still secure it by a mortgage payable when the Property was sold; or

4. Do nothing “and see whether or not they will litigate the matter further”.

Bisceglia did not receive any instructions from Sylvia in response to this letter.

[30] On September 20, Solmon wrote to Sylvia, after speaking with her brother Ernie Singer:

Mr. Ernie Singer advised me that he advised you that you should not use any lawyers whatsoever and, basically, see what happens. If they sue you or any company then you will get counsel....

As you know, there is presently a motion scheduled for October 4, 2004 in Commercial Court where approval is being sought of the agreement reached on behalf of the numbered company. Glengrove Suites is involved and is to give a guarantee and mortgage.

I believe it is important for your understand [sic] exactly what your legal position is and potential responsibilities in the circumstances.

[31] On October 4, Farley J. approved the Settlement contained in the Three Letters. No representative of 129 attended the hearing. Solmon testified that between February and October 2004, the instructions he had received from 129 to consent to the Settlement never changed. He was, however, instructed not to attend court on the return date of October 4, 2004.

(4) Events post-approval

[32] 129 took no steps to fulfil its obligations under the Settlement. Consequently, on April 12, 2005, 119 commenced this action seeking judgment in accordance with the Settlement. In addition to pursuing 129, 119 named Sylvia, Glen Grove, and Spendthrift as defendants. Sylvia, Glen Grove, and Spendthrift defended the action; 129 did not. Accordingly, on May 30, 2005, default judgment was granted against 129 requiring it to pay $619,383.56; to cause Spendthrift and Glen Grove to deliver a mortgage for $500,000 and a guarantee of 129’s indebtedness; and to execute a consent to default judgment. 129 did not perform these obligations.

[33] In April 2005, 119 brought a motion for a certificate of pending litigation. The motion was adjourned, but in granting the adjournment Campbell J. noted “the respondents Glen Grove & Sylvia Hyde & Spendthrift … undertake that no further encumbrances or steps to transfer will be undertaken without further court order.”

[34] On July 14, 2008, without obtaining the prior court approval required pursuant to this undertaking and without notice to 119, Glen Grove registered a new $4.1 million mortgage against the Property, guaranteed by Sylvia and Spendthrift.

[35] On May 17, 2010, a certificate of pending litigation was granted against the Property.

[36] Sylvia died in 2011 at the age of 82.

[37] Competing motions for summary judgment were heard on April 30, 2012. Both motions were dismissed and Brown J. ordered that a trial take place.

[38] After the hearing of the summary judgment motions, 119 discovered that Glen Grove had sold its interest in the Property for $7.5 million. Some of the proceeds were paid into court to the credit of the action. After payment of the mortgage and the money paid into court, Sylvia’s estate received net proceeds of approximately $2 million that it might not have received had the Receiver not given up its ability to attack the transfer to Sylvia of the Glen Grove shares and the interest in the Property.

C. Decision at trial

[39] Although Sylvia, Glen Grove, and Spendthrift were not signing parties to the Settlement, 119 sought to attach liability to them for the obligations of 129 under the Settlement. Sylvia, Glen Grove, and Spendthrift asserted that they had no knowledge of the Settlement and no dealings with 129 or 119 in respect of it. They also asserted that, although Sylvia was the nominal owner of 129, she had nothing to do with its operations and had no specific knowledge that it even existed. They also argued that 129 had not acted as their agent, but if it had, then 119 was estopped from pursuing them because it had already obtained default judgment against 129. Additionally, they argued the corporate veil could not be pierced because none of them controlled 129 in the manner required to do so.

(1) Review of evidence and findings of fact

[40] The trial judge conducted an extensive review of the evidence. Of note are the following findings:

• Sylvia was a director and sole shareholder of 129, Glen Grove, and Spendthrift, but prior to Edwin’s death in May 2004 she played little role in the companies’ affairs. Edwin had operated and managed them. Sylvia had given Edwin de facto control and full authority to operate the three companies and enter into transactions which bound those companies without requiring transaction-specific consent from her.

• Based on documents Sylvia had signed dating back to 1998, the trial judge rejected Sylvia’s contention that she did not know about 129 prior to the lawsuit.

• Edwin possessed full authority to enter into the Settlement.

• Following Edwin’s death, control over 129, Glen Grove, and Spendthrift passed to Sylvia.

• During negotiations, Sylvia was aware that a settlement was under discussion. She learned of the precise terms of the Settlement after Edwin’s death and before it was approved by the court on October 4, 2004. By no later than August 2004, she understood that the Settlement involved Glen Grove’s providing a mortgage on the property and guaranteeing 129’s obligations under the Settlement. There was no other explanation for Sylvia’s providing Solmon with financial information concerning Glen Grove or consenting that he discuss Glen Grove’s affairs with Dadouch. Further, the letter from Solmon to Sylvia dated September 20, 2004, made the security aspects of the Settlement clear.

• Prior to the making of the approval order, Sylvia was aware that the court would be asked to approve the Settlement proposed by her company, 129, and she received independent legal advice about her options.

• Sylvia did not alter the instructions previously given by Edwin – that 129 consented to the Receiver’s placing the Settlement before the court for approval. She made no effort to inform the Receiver that 129 no longer wished to proceed with the Settlement, or that any risk existed that her corporations would not perform the steps set out in it.

• Following court approval of the Settlement, Sylvia did not intend to cause 129 to fulfill any of its obligations, even though it lay fully within her control to do so. After default judgment was obtained, despite controlling 129, Glen Grove, and Spendthrift, Sylvia decided that the latter two would not perform the acts specified in the default judgment. She made a decision to permit the Settlement to be placed before the court for approval, while knowing that the obligations outlined in the Settlement would not be fulfilled.

(2) The Trial Judge’s Analysis

[41] The trial judge held that the Settlement was binding on Glen Grove and Spendthrift, but not Sylvia personally. The core of his holding is that:

[W]here companies intimately connected in interest are used by a common controlling mind in combination to secure a court-approved benefit, they cannot subsequently be used by the common controlling mind to avoid performing the obligations which arose from their earlier combined action.

[42] In support of this holding, the trial judge relied on a decision involving privies to prior litigation, in which the doctrine of issue estoppel applied, and extended its application to this case.

[43] The trial judge found that the only reason Edwin was able to propose that security on the Glen Grove Property would form part of the Settlement was his common de facto control of 129, Glen Grove, and Spendthrift. He exercised that unity of de facto control with Sylvia’s permission, and upon his death, that control passed into Sylvia’s hands. If Edwin had not died before the court approved the order, the terms of the Settlement would have been fulfilled. Sylvia knew about the Settlement before its court approval and, armed with legal advice about her options and possessing unity of control over 129, Glen Grove, and Spendthrift, she permitted the Settlement to be placed before the court for approval. She could have instructed counsel to inform the Receiver or the court that she did not want her company to proceed with the Settlement. Instead, the Settlement received court approval, and Sylvia received that which Edwin had sought – certainty that his 1994 transfer to her of Glen Grove shares would not be set aside. Having used her companies in combination following Edwin’s death to secure a court-approved benefit, Sylvia could not subsequently erect their separate legal personalities as barriers to performing the obligations that secured the benefit.

[44] The trial judge accepted, without elaboration, Glen Grove’s argument that 129 was not acting as an agent, but noted that it did not help them.

[45] Finally, the trial judge determined that the corporate veil should not be pierced to attach personal liability to Sylvia or her estate. He found the evidence did not disclose that any of 129, Glen Grove, or Spendthrift was used as a shield for a fraudulent or improper purpose, which he noted was one of the requirements to pierce the veil.[^3]

[46] The trial judge awarded judgment in the amount of $500,000 and pre-judgment interest of $618,213.06.

D. Issues

[47] On appeal, the appellant submits that the trial judge made palpable and overriding errors in finding that Sylvia was generally aware of the settlement negotiations, exercised control over 129 and that, had Edwin not died before the approval order was made, the terms of the Settlement would have been fulfilled.

[48] It also submits that the trial judge erred in law by finding that Glen Grove and Spendthrift were liable under the contract because Sylvia exercised “unity of control” over these separate corporations.

[49] Finally, the appellant submits that if Glen Grove is liable, its liability is limited to $450,000, as opposed to $500,000.

E. analysis

(1) Standard of Review

[50] The appellant alleges errors of fact and law. An appellate court must defer to a trial judge’s findings on questions of fact as well as on questions of mixed fact and law. The standard to be applied on such questions, per Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, is that of a palpable and overriding error. The appellant must show that the findings were clearly wrong, unreasonable, or not reasonably supported by the evidence: H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, at para. 110. Errors of law are assessed on a correctness standard.

(2) The impugned findings of fact

[51] The appellant takes issue with several of the trial judge’s findings of fact. In particular, the appellant submits: 1) the evidence demonstrated that Sylvia had no knowledge of the Settlement or of the existence of 129; 2) to the extent the trial judge found that Sylvia had control over 129, Glen Grove, and Spendthrift, this finding was an error; and 3) there was no evidence to support the trial judge’s finding that “had Edwin not died before the Approval Order was made, the terms of the Settlement Agreement would have been fulfilled”.

[52] I would reject the appellant’s submissions. The trial judge’s finding that Sylvia had knowledge of the existence of 129 is supported by the fact that her signature is on numerous documents relating to the company dating back to 1998. Similarly, the trial judge drew a reasonable inference that although Sylvia was not involved in developing the Settlement, she knew settlement discussions were taking place. For example, Solmon testified about Edwin’s refusal to countenance a mortgage on the family home due to Sylvia’s reluctance. As well, one of the cheques for $15,000, used to pay 119’s legal fees as required under the Settlement, was noted as being “re 1297475 Ont. Inc.” and was signed by Sylvia.

[53] As regards the appellant’s second contention, the trial judge did not find that Sylvia was exercising control over the companies prior to Edwin’s death. On the contrary, he found that she had delegated this control to her husband. This finding was reasonable on the evidence.

[54] The trial judge’s finding that Sylvia controlled 129 after Edwin’s death was also eminently reasonable. Sylvia was the sole shareholder and, after Edwin’s death, the sole officer and director of 129 (although Robert Carberry was authorized to sign for the company). And the evidence revealed that after Edwin died, Sylvia was in possession of the motion materials and corresponded extensively about the Settlement with Solmon and Bisceglia. The appellant relies on a letter sent from Solmon to Tayar on February 9, 2004, in support of its contention that Carberry, not Sylvia, controlled 129. However, Solmon later explicitly testified he had no independent knowledge of who controlled 129. The trial judge’s finding that Sylvia controlled 129 after Edwin’s death is amply supported by the evidence.

[55] Finally, the finding that Edwin would have fulfilled the terms of the Settlement had he lived was reasonable. Solmon testified that the purpose of the Settlement was to remove any risk that Edwin’s transfer to Sylvia of Glen Grove shares and an interest in the Property could be challenged, and that 119 would only agree to the Settlement if it was backed by security. Edwin could not achieve his goal without Glen Grove’s providing the security under the Settlement. Solmon also testified about the instructions Edwin gave him with respect to entering into the Settlement, and in particular, his instructions that Glen Grove was prepared to provide the security called for by the Settlement. The appellant’s argument that Sylvia might not have agreed to the obligations assigned to Glen Grove under the Settlement is irrelevant: she had given Edwin authority to act for Glen Grove and did not interfere with his decisions. It was reasonable for the trial judge to infer this dynamic would have continued had Edwin lived.

(3) Was Glen Grove bound by the Settlement?

[56] The appellant objects to the trial judge’s holding that Glen Grove and Spendthrift were liable under the Settlement due to Sylvia’s common control of her three companies. The appellant submits that the trial judge’s decision disregarded two fundamental legal principles: the doctrine of privity of contract, namely, that only the parties to a contract are bound by it; and the principle that corporations have a separate legal personality, first recognized in Salomon v. Salomon & Co.,[1897] A.C. 22 (U.K.H.L.). The appellant submits that the trial judge disregarded both these principles and erroneously imposed liability on the basis of the “privity principle”.

[57] For reasons that differ from those of the trial judge, I am of the opinion that he was correct in his conclusion that Glen Grove was bound by the Settlement.

(a) The trial judge’s application of the “privity principle”

[58] The trial judge stated, at para. 119 of his reasons:

[T]he law will only hold parties to a contract liable for its terms and obligations. As a matter of general principle, of course that is true. However, while the separate legal personality of corporate entities must be given recognition when those entities are operated as separate entities, the same respect need not be accorded to the separate legal personalities when, having been used in combination to secure a court-approved benefit, the separate legal personalities are then erected as barriers to performing the obligations which secured the benefit.

[59] The trial judge supported this proposition of law by reference to a single decision, that of Thorburn J. in Martinez de Morales v. Lafontaine-Rish Medical Group Ltd. (2009), 178 A.C.W.S. (3d) 36, aff’d 2010 ONCA 59, 184 A.C.W.S. (3d) 373. That case dealt with the principle of res judicata and the privies to prior litigation. The trial judge acknowledged that res judicata did not formally arise on the facts of the present case. However, he held at para. 121 that:

[T]he privity principle reflects a broader view that the law does not countenance a “lie-in-the-weeds” attitude by those whose interests are so intimately connected on a matter. In my view, in the present case, that attitude of the law is better expressed by stating that where companies intimately connected in interest are used by a common controlling mind in combination to secure a court-approved benefit, they cannot subsequently be used by the common controlling mind to avoid performing the obligations which arose from their earlier combined action.

[60] In Martinez, the plaintiff underwent cosmetic surgery in 2007 at the LaFontaine Clinic, located at 890 Yonge St. in Toronto. Prior to 2003, LaFontaine-Rish Medical Group Ltd. (LRMG) operated a cosmetic surgery clinic at that location. After 2003, LaFontaine Jeunesse Corporation (LJC) operated a clinic at the same location using the same key employees. Following her surgery, the plaintiff developed a serious infection and brought an action against LRMG. LRMG deliberately chose not to file a defence, and the plaintiff obtained default judgment against it. However, LRMG had no assets and had been inactive since 2003.

[61] The plaintiff then realized that she had sued the wrong company and that she should have sued LJC. She amended her statement of claim to include LJC as a defendant, and argued that the doctrine of issue estoppel should apply to prevent LJC from raising the same issues about liability and damages that had been decided in the claim against LRMG. She submitted that LJC should be bound by the default judgment against LRMG. The two issues Thorburn J. had to determine were: (1) whether there was a sufficient nexus between LRMG and LJC to find that LJC was a privy of LRMG; and 2) if LJC was a privy, whether it should be been bound by the judgment obtained against LRMG.

[62] Thorburn J. held that LJC was a privy of LRMG. She began by observing, at para. 21 of her reasons:

Privity is established if there is a sufficient degree of identification between two parties such that it would be just to hold that the decision rendered against one should be binding on the other. The concept of privity is somewhat elastic and thus, the determination as to whether there is privity must be made on a case by case basis. [Citations omitted.]

[63] She rejected LJC’s argument that the companies could not be privies because they were separately incorporated and did not enter into contracts on behalf of one another. She held there was privity, having regard to the fact that litigation management for both was under the exclusive authority of the same principal, and that the two companies operated the same clinic one after the other, using the same key employees, in the same premises, with the same telephone number and website.

[64] Thorburn J. then considered whether issue estoppel applied. LJC was not estopped from litigating the issues of liability and damages simply because it was LRMG’s privy. Thorburn J. noted that a non-party privy will be estopped from proceeding to trial in a subsequent proceeding on the same issue only if it had knowledge of the prior proceedings, a clear interest in them, and an opportunity to intervene as a participant to protect its interest. She held that these requirements had been fulfilled and that, as a result, LJC could not relitigate the issues of liability and damages, which had already been determined in the prior proceeding. LJC was bound by the default judgment that had been obtained against LRMG.

[65] It is important to note that in Martinez, privity and issue estoppel did not form the basis of LJC’s liability: its negligent actions did. The finding of privity and the application of issue estoppel precluded LJC from disputing that the clinic which performed the plaintiff’s surgery acted negligently and caused her injuries, and the quantum of damages. The only real question was which company had performed the surgery. That company was LJC, which operated the clinic after 2003. And Thorburn J. emphasized that because the plaintiff’s claim was that LJC, not LRMG, was responsible for her injuries, she was not entitled to recover damages from both companies. Thorburn J. therefore made judgment against LJC conditional on the plaintiff consenting to stay execution of the judgment against LRMG. In other words, the finding of privity did not allow the plaintiff to hold both companies responsible, only the one which had negligently performed the surgery.

[66] Privity, in this context, simply means that if a privy passively stands by and does not intervene in a prior legal proceeding in which it has an interest, the privy is bound by that decision on the res judicata principle. As the trial judge acknowledged, res judicata does not apply here. Privity alone does not provide an independent basis for liability.

(b) Agency

(i) The trial judge’s holding

[67] The trial judge briefly dismissed the argument that 129 acted as the agent for Glen Grove and Spendthrift. The entirety of his remarks on the issue, at para. 122 of his reasons, were as follows:

The Defendants contended that there was no evidence tendered that 129 was acting as the agent for Glen Grove and Spendthrift. I accept that argument, but it does not assist the Defendants.

[68] While the question of whether an agency relationship exists is a question of fact and entitled to deference, reviewing the documents and evidence leads me to the conclusion that the trial judge ignored important relevant evidence. He ought to have concluded that, in addition to 129 acting on its own behalf, 129 also acted as an agent for Glen Grove in concluding the Settlement.

(ii) Was 129 an agent of Glen Grove?

[69] An oft-cited definition of agency comes from Gerald Fridman, in Canadian Agency Law, 2d ed. (Markham: LexisNexis, 2012), at p. 4:

Agency is the relationship that exists between two persons when one, called the agent, is considered in law to represent the other, called the principal, in such a way as to be able to affect the principal’s legal position by the making of contracts or the disposition of property.

See also Applewood Place Inc. v. Peel Condominium Corp. No. 516 (2003), 11 R.P.R. (4th) 253 (Ont. S.C.), at para. 35.

[70] In order for a consensual[^4] agency relationship to exist, both principal and agent must agree to the relationship, and the principal must give the agent the authority to affect the latter’s legal position: Fridman, at pp. 4-5; see also Applewood, at para. 35.

[71] While agency is often created by an express contract, setting out the scope of the agent’s authority, the creation of an agency relationship may be implied from the conduct or situation of the parties: see Francis v. Dingman (1983), 1983 CanLII 1985 (ON CA), 2 D.L.R. (4th) 244 (Ont. C.A.), per Lacourciere J.A., at p. 250, leave to appeal to S.C.C. refused, (1984) 23 B.L.R. 234n. Whether an agency relationship exists is ultimately a question of fact, to be determined in the light of the surrounding circumstances: Ogdensburg Bridge & Port Authority et al. v. Edwardsburg (Township) (1966), 1966 CanLII 223 (ON CA), 59 D.L.R. (2d) 537 (Ont. C.A.), at p. 542, leave to appeal to S.C.C. refused (1967), 1966 CanLII 486 (ON DR), 59 D.L.R. (2d) 546n.

[72] The cumulative effect of the evidence leads me to conclude that Glen Grove and 129 intended to create an agency relationship, and that Glen Grove authorized 129 to act as its agent in negotiating and providing security under the Settlement. That evidence includes:

• Glen Grove had previously made three offers to the Trustee to purchase the assets in Edwin’s estate. The offers made by both Glen Grove and 129 had the same purpose: to ensure Sylvia’s ownership of Glen Grove shares would not be challenged. This is a contextual factor in assessing whether 129 was carrying out a task assigned to it by Glen Grove.

• 129 was not an active company. It had no bank account. During the course of negotiations, it was understood by all parties that 129 had no assets, that there was not enough money to immediately pay money due under the Settlement, and that some security would have to be provided. The Receiver was adamant that there would be no agreement without security. That security could only come from Glen Grove. Glen Grove paid some of 129’s legal fees. These facts support an inference that 129 was not simply acting on its own behalf but as Glen Grove’s agent.

• The Settlement required that 129 pay the Receiver’s counsel his fees of $27,408.50. On September 30, 2003, Edwin sent Solmon a cheque “to be paid to Fred Tayer [sic] if the Minutes of Settlement are executed”. This cheque was later cancelled, and in November 2003, Edwin sent two new cheques of $15,000. Solmon then paid Tayar’s fees. All the cheques came from Glen Grove Management Inc., which although a separate company, operated from the same premises as Glen Grove and later amalgamated with Glen Grove. The trial judge found that these cheques were related to the Settlement. This is contextual evidence that Edwin, on behalf of Glen Grove, assumed the agreement entered into on Glen Grove’s behalf by 129.

• On August 18, 2003, Edwin, as counsel for Glen Grove, proposed that the Settlement include a mortgage on the Property, which was in Glen Grove’s power to grant.

• Edwin, as counsel for Glen Grove, told Solmon that Glen Grove would guarantee the Settlement.

• Solmon said he regarded Edwin’s instructions, on Glen Grove letterhead, to prepare the security documentation as part of his instructions. Solmon’s evidence was that he only ever acted for 129 and never acted for Glen Grove. Accepting Solmon’s evidence in that regard, the only basis on which Solmon could have accepted instructions from Edwin to prepare a mortgage on the Glen Grove property was if 129 was not just acting in its own right but also acting as agent for Glen Grove.

• Following Edwin’s instructions, Solmon prepared the relevant security documentation. On February 12, 2004, one of Solmon’s associates filed an internal memo including a draft mortgage on the Yonge Street Property, from Glen Grove to 119, as well as a guarantee by Glen Grove of 129’s obligations under the Settlement. There was discussion between Solmon and Tayar respecting the style of cause for the Consent to Judgment, which was part of the security. Accepting Solmon’s evidence that he only ever acted for 129 and not for Glen Grove, preparing the draft security documentation is contextual evidence that 129 was acting as Glen Grove’s agent during the negotiations and in relation to offering 119 security and a guarantee.

[73] In the light of this evidence, the objective intention of the parties would have been that they intended 129 to act as agent for Glen Grove, and that Glen Grove authorized 129 to offer 119 security and a guarantee under the Settlement.

[74] The Settlement must be interpreted in the light of this agency relationship, and in the light of 129’s authority to offer security and a guarantee on Glen Grove’s behalf. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57, the Supreme Court recognized that in interpreting a written contract, regard must be had to the surrounding circumstances as well as to the text of the contract: “The goal of examining such evidence is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract.”

[75] The relevant clause of the Settlement, insofar as Glen Grove is concerned, is para. 3, which provides:

As security for payment, the purchaser [129] will provide:

a) if the owner of the Glengrove property is able to do so using reasonable efforts, and acting in good faith, a mortgage, to be registered against the Glengrove property…

b) a guarantee from the owner of the Glengrove property….

[76] In the circumstances, the objective intention of 119 and 129, as Glen Grove’s agent, was that this clause of the Settlement bound Glen Grove to perform these obligations. 129 had authority to bind Glen Grove, and it is a reasonable inference that 119 believed 129 to be binding Glen Grove, given its longstanding insistence in backing the Settlement through security and a guarantee. The parties’ objective, mutual intention was that Glen Grove was bound by this agreement.

[77] While Edwin controlled Glen Grove, he caused it, through 129, to enter into the Settlement. When Edwin died, Glen Grove’s position changed. It no longer considered itself bound. In my view, it was not entitled to resile from the Settlement. The fact that Sylvia was unhappy with the obligations her husband caused Glen Grove to incur is irrelevant. As the appellant itself notes, where parties have made an agreement that is subject to court approval, they do not have any power to resile from that agreement prior to the obtaining of court approval: Wu Estate v. Zurich Insurance Co. (2006), 2006 CanLII 16344 (ON CA), 211 O.A.C. 133 (C.A.), at para. 14, leave to appeal to S.C.C. refused, [2006] S.C.C.A. No. 289.

(iii) Can judgment be granted against Glen Grove, notwithstanding the default judgment entered against 129?

[78] The appellant submitted, both at trial and on appeal, that if an agency relationship did exist, judgment could not be obtained against Glen Grove because 119 had elected to obtain default judgment against 129.

[79] I disagree. In my view, neither election nor merger arise on the facts of this case. 119 is entitled to judgment against both 129 and Glen Grove.

[80] Election and merger are separate, albeit related, concepts. Election refers to a decision to pursue either the agent or the principal for a single cause of action. Once a plaintiff has definitively elected to sue either principal or agent, he or she may not later choose to pursue the other party. Whether a party has elected is a question of fact, and is often difficult to prove. Merger, by contrast, occurs once judgment has been granted against either agent or principal. Once judgment is given against one, the cause of action against the other disappears, having “merged” in the judgment. The underlying rationale is again that there is only one cause of action. See Cameron Harvey and Darcy MacPherson, Agency Law Primer, 4th ed. (Toronto: Thomson Reuters, 2009), at pp. 111-15; Peter Watts and F.M.B. Reynolds, Bowstead & Reynolds on Agency, 20th ed. (London: Sweet and Maxwell, 2014), at 8-115.

[81] However, when an agent contracts with a third party on behalf of a disclosed principal, the agent may bind itself personally as well as binding the principal. As Justice Brandon stated in Bridges & Salmon v. Owner of The Swan, [1968] 1 Lloyd's Rep. 5 (U.K.H.C. Prob. Div.), at p. 12, the question of whether both agent and principal are liable on the contract depends on the objective intention of the contracting parties:

That intention is to be gathered from (1) the nature of the contract, (2) its terms and (3) the surrounding circumstances.… The intention for which the Court looks is not the subjective intention of [agent] or of [the third party]. Their subjective intentions may differ. The intention for which the Court looks is an objective intention of both parties, based on what two reasonable businessmen making a contract of that nature, in those terms and in those surrounding circumstances, must be taken to have intended.

See also Q.N.S. Paper Co. v. Chartwell Shipping Ltd., 1989 CanLII 35 (SCC), [1989] 2 S.C.R. 683, at p. 698.

[82] The trial judge found that if an agency relationship existed, the appellant’s election argument did not apply.[^5] He stated:

Accepting the premise of that alternative argument that an agency relationship existed, I disagree that the principle of election prevents granting the judgment now sought by the plaintiff against Glen Grove and Spendthrift. The Default Judgment granted money judgment against 129. However, the provisions of the Default Judgment as they would affect the interests of Glen Grove and Spendthrift were different in nature – i.e. the delivery of a mortgage against the Yonge St. Property and the delivery of a guarantee. The principle of election would not be engaged.

[83] The fact that separate remedies were being sought against 129 and Glen Grove is an important indication that 129 was acting for itself as well as acting as agent for Glen Grove. Other evidence that 129 also acted on its own behalf is the fact that 129 was to acquire ownership of the proof of claim and there was no evidence the parties intended this be transferred to Glen Grove, and that 129 undertook to pay the $500,000 under the Settlement.

[84] In addition, 129 and Glen Grove adopted distinct obligations under the Settlement. Both companies were liable to 119 but on different bases; 129 was liable to pay $500,000 and Glen Grove was liable to provide security and a guarantee. There was not a joint cause of action capable of merging in a judgment; rather, there were distinct obligations owed by 129 and Glen Grove.

[85] Even assuming that there was one cause of action and that Glen Grove and 129 were jointly liable to 119 for the same obligations under the Settlement, the common law rule that judgment against one person jointly liable releases the other has been abrogated in Ontario by s. 139(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43:

Where two or more persons are jointly liable in respect of the same cause of action, a judgment against or release of one of them does not preclude judgment against any other in the same or a separate proceeding.

See also CFGM Radio Broadcasting Ltd. v. Doyle (1987), 17 C.P.C. (2d) 65 (Ont. Dist. Ct.), at pp. 79-80.

[86] Thus the default judgment granted against 129 would not bar 119 from obtaining judgment against Glen Grove.

(iv) Is agency a live issue on this appeal?

[87] This case was not argued before us on the basis of agency. Nonetheless, I am satisfied that it is appropriate for the court to dismiss the appeal for the reasons set out below. The issue of whether Glen Grove is liable as the principal of 129 is not a “new issue”. The question of agency was argued at first instance and the evidentiary record is sufficient to decide the issue: see R. v. Perka, 1984 CanLII 23 (SCC), [1984] 2 S.C.R. 232, at p. 240. On appeal, it reasonably stems from the issues as framed by the parties: R. v. Mian, 2014 SCC 54, [2014] 2 S.C.R. 689, at para. 30. On the record before us, it is not unfair to the parties to deal with the issue of agency and Glen Grove’s liability as principal.

[88] Although agency was not pleaded in the statement of claim, the issue of whether 129 was an agent for Glen Grove was argued at trial. As I have said, the trial judge stated, at para. 122 of his reasons:

The Defendants contended that there was no evidence tendered that 129 was acting as the agent for Glen Grove and Spendthrift. I accept that argument but it does not assist the Defendants.

[89] And in the notice of appeal, the appellant relies on the trial judge’s holding, stating, “The learned trial judge correctly identified and found that 129 was not an agent for Glen Grove or Spendthrift.”

[90] In its factum on appeal, the appellant made the following submissions, relevant to its position that no agency existed:

• Solmon acted only for 129 and not for Glen Grove. Solmon specifically advised 119’s lawyer that he was only authorized to act for 129.

• The Plaintiff provided no evidence at trial as to why it took no steps to verify the terms of the Settlement with Sylvia (as the “owner of the Glengrove”), despite the fact that they were aware that any and all security for the Settlement would be coming from Glen Grove.

• The evidence, the terms of the Settlement, and the terms of the court order were clear that the agreement was between 119 and 129 only.

• The only connection between 129 on the one hand and Glen Grove and Spendthrift on the other hand was that Sylvia owned all of these companies.

[91] 119’s factum also makes a number of submissions relevant to the agency argument, including:

• Initial offers to purchase Edwin’s debts came from Glen Grove.

• Solmon testified that 119 was insistent that there would be no deal unless security was provided.

• In his capacity as corporate counsel to Glen Grove, Edwin wrote to Solmon confirming that Glen Grove agreed to the terms of settlement, including the mortgage and guarantee.

• The $27,408.50 paid in keeping with the terms of the Settlement came from a cheque provided by Glen Grove Management.

• Edwin gave instructions to enter into the settlement as the directing mind of Glen Grove and Spendthrift, as well as of 129.

[92] Finally, in oral argument the appellant relied on the trial judge’s holding that an agency relationship did not exist. The appellant submitted that no agency relationship could be established because Solmon made representations to 119 that the companies were separately controlled and that he only represented 129. The appellant further submitted that if an agency relationship did exist, judgment could not be granted in favour of Glen Grove because default judgment had been obtained against 129.

[93] This review of the record demonstrates that agency is neither a new issue raised on appeal, nor a new issue raised by this Court. It is therefore appropriate to dismiss the appeal on the basis that Glen Grove was liable under the Settlement, having been bound by its agent, 129.

(c) The appellant’s submissions respecting privity

[94] My holding above is sufficient to dispose of this appeal. I do, however, wish to briefly comment on the appellant’s main submission. The appellant submitted that as Glen Grove was a separate corporate entity and it was not a party to the agreement between 119 and 129, Glen Grove could not be bound by the Settlement because 119 lacked privity of contract with Glen Grove. 119’s response, a response that the trial judge accepted, was akin to an estoppel argument based on the companies’ common principal that, for the reasons already given, I have rejected. 119 did not directly address the appellant’s argument that the doctrine of privity of contract ought to apply.

[95] Privity of contract is a common law doctrine that “a contract cannot (as a general rule) confer rights or impose obligations under it on any person except the parties to it.” H.G. Beale, ed., Chitty on Contracts, 31st ed., vol. 1, (London: Sweet & Maxwell, 2012) at 18-003.

[96] The injustice of a rigid application of the doctrine was the subject of comment in Brown v. Belleville, (City), 2013 ONCA 148, 359 D.L.R. (4th) 658, at para. 79. Cronk J.A. on behalf of the court observed that the doctrine of privity of contract is subject to academic and judicial criticism, so much so that some Commonwealth jurisdictions have abrogated it while in other instances, “the reach of the doctrine has been significantly undermined by a growing list of exceptions to the rule" (citations omitted).

[97] The Supreme Court recognized and elaborated a principled exception to the doctrine of privity of contract respecting third party beneficiaries in Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., 1999 CanLII 654 (SCC), [1999] 3 S.C.R. 108, at para. 32. The Court held the rule could be relaxed with respect to a third party beneficiary where: 1) the parties to the initial agreement intended to extend a benefit to the third party; and 2) the activities of the third party were the very activities contemplated as coming within the scope of the contract or particular provision. John D. McCamus in The Law of Contracts, 2d ed. (Toronto: Irwin Law, 2012), at p. 324, observes:

The purpose of the exception is to confer upon courts, in cases where the traditional exceptions of agency and trust do not apply, a discretion to undertake the appropriate analysis, bounded by both common sense and commercial reality, in order to determine whether the doctrine of privity with respect to third-party beneficiaries should be relaxed in given circumstances. [Citations omitted.]

[98] Decisions imposing liability on a third party are fewer but they do exist. Examples are: Seip & Associates Inc. v. Emmanuel Village Management Inc., 2009 ONCA 222, 247 O.A.C. 78; Chan v. City Commercial Realty Group Ltd., 2011 ONSC 2854, 90 C.C.E.L. (3d) 235; Smith v. National Money Mart (2006), 2006 CanLII 14958 (ON CA), 80 O.R. (3d) 81 (C.A.), leave to appeal to S.C.C. refused, [2006] S.C.C.A. No. 267; Gasparini v. Gasparini (1978), 1978 CanLII 1598 (ON CA), 20 O.R. (2d) 113 (C.A.).

[99] In Seip, the defendant companies, Emmanuel Village Homes (EVH), Emmanuel Village Management (EVM) and Emmanuel Village Residence (EVR), were owned and operated by the same principal, Hunking. Seip entered into a contract with EVM to consult on the construction of a retirement residence complex and to manage the property for a five-year term when the first tenant moved in. The first page of the contract named EVM and EVH, but only EVM signed the agreement. EVR was not mentioned anywhere in the agreement.

[100] The defendants EVM and EVH terminated the contract and Seip sued. The trial judge found that EVM and EVH were both parties to the contract despite it being executed only by EVM. The trial judge further found that while EVR was not initially a party to the agreement, it had bound itself to the contract, through its conduct. It purchased the complex with full knowledge of the parties’ agreement. Once EVR became the owner of the retirement complex, the work continued as if nothing had changed. EVR had the same principal as the parties to the contract, and Seip was paid by EVR. EVR took the benefit of Seip’s work.

[101] On appeal, the appellant submitted that the trial judge effectively pierced the corporate veil and ignored the separate legal personality of each defendant. Gillese J.A. disagreed. She held, at para. 35:

While the trial judge noted that EVR had the same principal as the other two corporate defendants, it does not necessarily follow that the trial judge pierced the corporate veil. In my view, the trial judge treated Hunking’s role in the three corporations as one piece of evidence on which to assess whether EVR had assumed the contract through its conduct and, consequently, was bound by it.

[102] Gillese J.A. also considered article 11.2 of EVM’s contract with Seip, which permitted the sale of the project provided the new owner acknowledged in writing its willingness to assume Seip’s contract. Although EVR did not give such written acknowledgment, the role played by Hunking in the three corporate defendants, coupled with EVR’s conduct, was tantamount to such an acknowledgment. Gillese J.A. observed, at para. 38, that Hunking was the directing mind of all three corporate defendants; that Hunking was well aware that the clear intent of article 11.2 was to bind EVR, as purchaser; and that EVR by its conduct accepted the contract, and accepted the role as owner. She did not give effect to EVR’s submission that, as a third party, it had no obligation under the contract, concluding, “The conduct of all parties demonstrated a common intention that the Contract continued with EVR as an owner, in conjunction with the other corporate defendants.”

[103] To summarize, in Seip, the privity of contract rule was relaxed and liability imposed where the following three factors were present: 1) the parties to the initial agreement intended to impose an obligation on the third party; 2) the activities of the third party, upon which basis the parties sought to impose liability, were within the scope envisaged under the agreement and 3) the third party had knowledge of the provision assigning it liability and, by its conduct, the third party assumed the agreement. The first two criteria mirror the requirements of Fraser River, supra. Arguably, all three criteria are present in this case.

[104] As the argument was not made that liability could be imposed based on a principled exception to the doctrine of privity of contract, nor was the decision in Seip the subject of submissions, it would not be fair to decide the case on a point counsel did not have the opportunity to address. Consequently, the doctrinal basis for a principled exception to the doctrine of privity of contract when liability is sought to be imposed on a third party will have to await argument another day.

(4) If Glen Grove is liable, is its liability limited to $450,000 as opposed to $500,000?

[105] One of the letters incorporated into the Settlement (the letter of August 28, 2003) amended the $500,000 obligation to $450,000. This lower amount was confirmed in the final letter of October 3, 2003. The trial judge, however, found liability remained at $500,000 and the appellant submits he therefore erred.

[106] The August 28, 2003, letter did propose to reduce the mortgage amount to $450,000, but only if $50,000 was paid to the Receiver within 30 days of court approval. The $50,000 was not paid and because the property has been sold, the mortgage issue is largely moot.

[107] I also note that nowhere was it suggested that the consent to judgment or guarantee were to be reduced from the $500,000 figure.

[108] I would also dismiss this ground of appeal.

(5) The order relating to Spendthrift

[109] The trial judge found that both Glen Grove and Spendthrift were liable under the Settlement. The evidence shows that Glen Grove was liable on the basis of agency. Having rejected the trial judge’s application of the “privity principle”, there is insufficient evidence before the court to determine that Spendthrift is also liable.

F. Conclusion

[111] 129 contracted in its own right with 119 and, in addition, contracted as agent for Glen Grove. In these circumstances, the doctrines of election and merger do not apply; both 129 and Glen Grove are liable on the contract.

[112] There was insufficient evidence to find that Spendthrift was bound by the Settlement.

[113] I would dismiss the appeal as it relates to Glen Grove. I would allow the appeal as it relates to Spendthrift.

[110] There were no separate submissions respecting Spendthrift. Accordingly, I would award the costs of the appeal, agreed in the amount of $15,000 inclusive of all disbursements and GST, to 119.

“Karen M. Weiler J.A.”

“I agree John Laskin J.A.”

Epstein J.A. (Concurring):

[111] I agree with my colleague that the trial judge erred in relying on privity, as he approached it, to conclude that Glen Grove should be held responsible for 119's obligations under the Settlement. I also agree with my colleague that the result - dismissing the appeal - can be sustained, on agency.

[112] However, I do not want to be taken to agree with my colleague’s suggestion that the third party exception to the doctrine of privity of contract might have been an available basis upon which to find Glen Grove responsible under the Settlement. In addition to the fact that this exception to the doctrine of privity of contract was not advanced on appeal (as my colleague noted), or pleaded or argued at trial, I note that third party liability is a relatively uncharted doctrinal area and in all of the circumstances, I cannot say that it may apply to the circumstances here.

Released: August 26, 2015 “G. Epstein J.A.”

(JL)

[^1]: As these reasons deal primarily with Glen Grove’s liability, I refer to it as “the appellant”, in the singular.

[^2]: Glen Grove Management Inc. was a separate Hyde company that operated from the same address as Glen Grove. Corporation profile reports show that Glen Grove Management Inc. and Glen Grove amalgamated in 2006.

[^3]: 119 has not cross-appealed the trial judge’s finding respecting Sylvia’s personal liability. Therefore, I do not propose to deal with whether, given the trial judge’s findings respecting Sylvia’s conduct at paras. 113-118 of his reasons, the trial judge’s conclusion was reasonable. I will simply observe that a person who, by deceit, induces a course of conduct or state of mind in another that causes that other to part with property commits fraud. See Welham v. Director of Public Prosecutions (1960), 44 Cr. App. R. 124 (U.K.H.L.), at p. 153, per Lord Denning. See also R. v. Vallilee (1974), 1974 CanLII 687 (ON CA), 15 C.C.C. (2d) 409 (Ont. C.A.), at p. 414.

[^4]: As opposed to agency created by estoppel or ratification: see Fridman, at pp. 41-43; 53-55.

[^5]: I note that the appellant’s argument relating to the default judgment, which it framed as a question of election, is in fact an argument based on the doctrine of merger.