COURT FILE NO.: CV-17-572069
DATE: 20180628
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Davinder Dhillon, in her personal capacity and as Executor of the Estate of Doran Major, Plaintiff
AND:
David Stewart, Defendant
BEFORE: Copeland J.
COUNSEL: Daniel Rosenbluth, for the Plaintiff
Maurice Mattis, for the Defendant
HEARD: June 20, 2018
ENDORSEMENT
Introduction
[1] The plaintiff brings a motion for summary judgment in an action for breach of contract. The underlying action concerns a one page contract. The contract provides for the assignment of an interest in a corporation to the defendant. In return for the assignment, the contract provides that the defendant pay the plaintiff USD $1.5 million. According to the terms of the contract, USD $250,000 had already been paid, and the balance was to be paid in quarterly installments of USD $44,642.86, interest free (with the result that the balance was to be paid over seven years).
[2] The defendant made the quarterly payments until September 30, 2015, when he made only a partial payment. No further payments have been made. The plaintiff claims that the defendant has breached the contract, and claims the outstanding balance of USD $927,535.51.
[3] The plaintiff commenced this action in March 2017. Before delivering a defence, the defendant moved to have the action stayed on jurisdictional grounds. That motion was dismissed on consent on November 1, 2017.
[4] Both parties now agree that it is appropriate for the court to decide the case on a summary judgment motion. Further, the parties have reached an agreement to significantly narrow the issues in the case. This agreement is set out in a letter dated May 9, 2018 between counsel, which was filed on consent at the hearing of the motion. The agreement is as follows:
• The defendant concedes that the plaintiff is entitled to the relief she seeks in the action;
• The defendant does not concede that he should be personally liable for that relief, and instead asserts that his company, Sports Management Partners LLC, should be liable (the “personal liability issue”);
• The only two outstanding issues to be argued on the summary judgment motion are the personal liability issue and costs;
• The defendant concedes that both of these issues are appropriately resolved by way of summary judgment;
• Both parties will limit their submissions on summary judgment to those two issues only.
[5] The impact of this agreement to narrow the issues is that there is no issue as to the validity or enforceability of the contract. There is no issue that there has been a breach of the contract. There is no issue that the appropriate remedy is that the plaintiff is entitled to a lump sum award of the balance of the amount payable under the contract, USD $927,535.51. The sole outstanding issues are whether the defendant is personally liable under the contract, or whether there is a basis to find that the corporate entity Sports Management Partners LLC is liable, and the issue of costs of the motion.
Factual background to the contract
[6] I will only give an overview of the evidence as context. In my analysis, I will address specific aspects of the evidence as they relate to the factual and legal issues in this motion.
[7] The plaintiff is the widow of Doran Major. Major was a professional football player, for the Toronto Argonauts, among other teams. Following his retirement from football in approximately 1995, Major settled in Toronto and worked in the restaurant and nightclub business. Major died of cancer in 2012. Prior to his death, Major had a business relationship and a friendship with the defendant.
[8] Sports Management Partners LLC is a sports agency business incorporated in California. There is disagreement on the evidence as to whether the defendant founded the corporation on his own or with Major. It is not necessary to resolve that issue to decide this motion. It is not contested that Major was a partner in Sports Management Partners LLC, owning a 25% interest in the business.
[9] Towards the end of his life, Major began discussions with the defendant and the plaintiff about making arrangements to ensure for the financial security of the plaintiff and her two children. They agreed in principle that the defendant would acquire Major’s 25% interest in Sports Management Partners LLC, with the proceeds to go to the plaintiff and her two children.
[10] Shortly after Major died, the plaintiff and the defendant entered into a contract for the defendant to purchase from the plaintiff the 25% interest that her late husband had held in Sports Management Partners LLC. The contract is in writing, and signed by both the plaintiff and the defendant. I will discuss the terms of the contract in more detail below. Also in evidence before the court are a series of emails between the plaintiff and the defendant contemporaneous with the negotiation and signing of the contract.
Applicable Law
[11] As noted above, the parties are in agreement that it is appropriate for the court to decide this case on a motion for summary judgment. For this reason, I will not spend time reviewing the case law in relation to summary judgment. I am satisfied that the record before the court is sufficient for me assess whether there are no genuine issues requiring a trial, and in particular: (1) to make the necessary findings of fact, including any necessary findings of credibility; (2) to apply the law to the facts; and, (3) to assess whether summary judgment is a proportionate, more expeditious and less expensive means to achieve a just result: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87.
[12] The key legal issue in this case relates to the circumstances in which it is open to a court to find that an individual who signed a contract was acting on behalf of a corporation, such that the corporation and not the individual is liable for the obligations under the contract.
[13] In his written submissions, the defendant relied on a line of cases from New Brunswick that holds that in some circumstances a party to a contract may have an onus to inquire whether the other party they are contracting with is contracting as an individual or as a corporation: Provincial Bandog Tire Ltd. v. McCoy, [1990] N.B.J. No. 734 (Q.B.T.D.); Wellington Stove Sales Limited v. Perry, [1999] N.B.J. No. 41 (Q.B.T.D.) at para. 12; Hartland Publishers Ltd. v. McCarthy, [1991] N.B.J. No. 21 (Q.B.T.D.); Curtis v. Dupuis, [1991] N.B.J. No. 22 (Q.B.T.D.). However, after hearing the oral submissions on behalf of the plaintiff, the defendant conceded that as the party asserting that he had entered into the contract via the corporation, and not personally, he bore the burden to establish that as a fact.
[14] I agree with this concession. The Ontario Court of Appeal considered the issue of when an individual who enters into a contract can assert that they were contracting on behalf of a corporation in Truster v. Tri-Lux Fine Homes Ltd., 1998 CanLII 3497 (ON CA), [1998] O.J. No. 2001 at para. 21, and Total Crane Erectors Ltd. v. Fontana, 2007 ONCA 121 at para. 3. These decisions are clear that if a party to a contract wants to benefit from the protection of the corporate veil, they must make it clear to the other party to the contract at the time the contract is entered into that they are contracting on behalf of a corporation, and not personally. Justice Finlayson, writing for the court in Truster held as follows at para. 21:
[The trial judge] also recognized a principle arising from the case law that persons wishing to benefit from the protection of the corporate veil should not hold themselves out to the public without qualification. 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 [citations omitted]. This principle flows from the fact that incorporation provides corporate officers and shareholders the legal protection thought to be necessary for modern business relations; however, if one expects to benefit from this protection, then others must, at a 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 [citations omitted].
[15] The New Brunswick cases that the defendant relied on in his written materials are not consistent with these Ontario Court of Appeal authorities, which are binding on me. Further, even if the New Brunswick cases were an accurate statement of the law in Ontario, it is not clear to me that they would apply to the circumstances of this case. None of the New Brunswick cases cited involve written contracts that clearly define who are the parties to the contract.
[16] The principle stated in Truster makes sense as a matter of fairness. If a contract on its face appears to be entered into by an individual, the counter-party to the contract should not later be faced with an assertion that the individual was actually entering into the contract on behalf of a corporation, when that individual failed to make this clear to the counter-party at the time the contract was signed. If a party to a contract wants to enter into the contract on behalf of a corporation, they must make this clear at the time the contract is signed.
[17] Thus, I hold that the defendant bears the onus to prove that he entered into the contract on behalf of the corporation, and not personally, and that he made it clear to the plaintiff that he was entering into the contract on behalf of the corporation.
[18] The plaintiff further argues that evidence of the circumstances surrounding the formation of the contract is inadmissible. I do not accept this submission. The Supreme Court of Canada has held that evidence of surrounding circumstances can be admissible as relevant to understanding the mutual objective intentions of the parties as expressed by the words in the contract: Sattva Capital Corporation v. Creston Moly Corporation, 2014 SCC 53, [2014] 2 S.C.R. 633 at paras. 56-61. However, I am conscious that the Supreme Court cautioned in Sattva that: “while the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement.” The Court further cautioned that the evidence of surrounding circumstances that is admissible consists only of the background that was or reasonably ought to have been within the knowledge of both parties at or before the date the contract was entered into. It does not permit evidence of the subjective intentions of the parties.
[19] For these reasons, in interpreting the contract I will consider both the wording of the contract, and the circumstances surrounding the formation of the contract.
Analysis
[20] Based on the record before the court, I find that the defendant entered into the contract personally, and not on behalf of the corporation. I base this conclusion both on the wording of the contract, and on a consideration of the circumstances in which the contract was entered into. The contract itself is unambiguous, and clearly supports the inference that the defendant entered into the contract personally. Further, I do not find anything in the surrounding circumstances that leads me to a different conclusion.
(i) The terms of the contract
[21] I will first address the terms of the contract. The contract assigns (effectively sells) to the defendant the plaintiff's 25% interest in Sports Management Partners LLC, which she possessed as successor to her late husband, Doran Major. The “Assignor” is defined in the contract as “Davinder Dhillon”. The “Assignee” is defined as “David K. Stewart”. Thus, the Assignee is defined as the defendant personally, not the corporation, in terms of the language used in the contract.
[22] The signature lines at the bottom of the contract list: “ASSIGNOR:…….By:……. Davinder Dhillon” and “ASSIGNEE:……By:…...David Stewart”. Again, the defendant is listed personally, with no reference to the corporation as being the Assignee. The contract was signed by each of the plaintiff and the defendant personally.
[23] In terms of the body of the contract, I find that the wording of what is being transferred and to whom also supports that the defendant entered into the contract personally. The first paragraph of the contract refers to the 25% membership interest in the Sports Management Partners LLC being assigned and transferred “to David K. Stewart (“Assignee”), who shall hereafter become a member in such LLC with respect to such assigned interest with all the rights, powers, duties and obligations that Assignor previously had as a member.”
[24] The second paragraph of the contract addresses the Assignee’s payment for the interest in the corporation. It states:
In consideration of the Assignment set forth above, Assignee has agreed to pay the Assignor the sum of One Million Five Hundred Thousand Dollars and No Cents ($1,500,000.00) of which Two Hundred and Fifty Thousand and No Cents ($250,000.00) has been paid. The balance of One Million Two Hundred Fifty Thousand Dollars and No Cents ($1,250,000.00) shall be due and payable in quarterly installments without interest in the amount of $44,642.86 with the next payment being due on April 30th, 2013 and continuing thereafter on a quarterly basis until the purchase price is paid in full.
[25] As I have already noted, the “Assignee” is defined in the first paragraph as “David K. Stewart”. I find that the second paragraph of the contract supports the interpretation that the financial obligations undertaken in the contract were undertaken by the defendant personally.
[26] I note as well that the contract does make reference to Sports Management Partners LLC, but it only does so in describing the subject-matter of the contract (i.e., the interest in the corporation that the defendant was purchasing). Had it been intended that Sport Management Partners LLC was to be the Assignee of the contract, that could have been clearly stated in the contract. It was not.
[27] Based on a plain reading of the contract as a whole, I find that the terms of the contract strongly support that the defendant entered into the contract personally, not on behalf of the corporation. Had the defendant wanted to enter into the contract in the name of the corporation, it was open to him to seek language in the contract to make that clear. He did not do so.
(ii) Circumstances surrounding the formation of the contract
[28] The defendant argues that the circumstances surrounding the formation of the contract support that the contract was entered into by the corporation and not by him personally. In particular, he relies on three circumstances: First, that the plaintiff was aware of the existence of the corporation and that the defendant was its manager; second, that his relationship with Major and the plaintiff was one of friendship, and he asserts that his business relationship with Major was ad hoc and informal; and third, that he asserts that monies paid to the plaintiff under the contract were paid by the corporation, and this fact should have alerted the plaintiff that he was contracting on behalf of the corporation.
[29] First, I do not accept that defendant’s submission that because the plaintiff was aware of the existence of the corporation and that he was the manager, she ought to have known that he was contracting on behalf of the corporation. There is no question that the plaintiff was aware of the existence of the corporation, since the subject-matter of the contract was transferring her interest in the corporation to the defendant. I am also prepared to accept that she understood that the defendant was the manager of the corporation. But I do not accept that this is a basis to find that the defendant was acting on behalf of the corporation when he signed the contract, as this is contrary to the clear terms of the contract. Further, to find that the fact that the plaintiff knew a corporation existed and that the defendant was its manager would be sufficient to give her knowledge that he was contracting on behalf of the corporation would be contrary to the clear holding of the Court of Appeal in Truster. If the defendant had wanted to contract on behalf of the corporation, he could have made that clear in the contract. He did not do so.
[30] Second, I do not accept that the friendship relationship between the plaintiff and the defendant, and previously between the defendant and Major, supports the claim that the defendant was contracting on behalf of the corporation. Nor does the fact that the defendant did business with Major in an informal manner support that the defendant was contracting on behalf of the corporation. I do not see how either of these factors can lead to the conclusion that the contract was entered into with the corporation, when nothing on the face of the contract suggests this. And indeed, the wording of the contract clearly states that the assignee is “David K. Stewart”, and does not say that it is the corporation.
[31] Further, whatever level of informality may have existed in the defendant’s prior business dealings with Major, or with the plaintiff, the decision to enter into this written contract clearly was intended to create some level of formality to the agreement.
[32] Third, I do not accept that defendant’s submission that the plaintiff had or ought to have had knowledge that she was contracting with the corporation because (he asserts) the payments to her came from the corporation. I find that this submission that monies paid to the plaintiff under the contract were paid by the corporation is not clearly established on the evidence, and even if it was, it is not sufficient in the circumstances of this case to show that the contract was entered into by the corporation.
[33] The defendant asserts in his affidavit the following with respect to payments coming from the corporation: “In or around June 2012 I on behalf of SMP transferred $250,000.00 to Doran through their lawyers with respect to payments we had agreed upon” (para. 15); and, “After signing the agreement SMP began paying Dhillon as per the agreed upon schedule.” The defendant has produced no banking or other records to support these assertions that the payments were made by the corporation.
[34] The plaintiff denied in cross-examination that she was aware that the initial $250,000 payment was paid by the corporation. She said she received it by wire transfer.
[35] A party is required to put their best foot forward on a motion for summary judgment. Under Truster, the defendant bears the burden to show that he brought to the plaintiff’s knowledge that he was entering into the contract on behalf of the corporation. In the absence of documentary proof such as banking records, I am not prepared to accept his bare assertion that the $250,000 payment made before the contract was entered into, or the later payments, were made by the corporation.
[36] Further, even if the defendant had established as a fact that the payments to the plaintiff came from the corporation, I find that this is not sufficient, in light of the clear wording of the contract in this case, to establish as a matter of law that the plaintiff ought to have known she was contracting with a corporation: 3253791 Canada Inc. v. Armstrong, [2002] O.J. No. 3424 (S.C.) at paras. 14-16; Hroncok v. Pellizzari, 2012 ONSC 6354 at paras. 82-84; de la Torre v. 1093641 Ontario Ltd., 2013 ONSC 1355 at paras. 25-31.
[37] The foregoing is sufficient to decide this motion. However, I will also address one other aspect of the surrounding circumstances, which was raised by the parties – who drafted the contract, and whether the defendant had the benefit of legal advice. For reasons I will explain, I find as a fact that counsel on behalf of the defendant prepared the contract. However, my conclusion on this motion would be the same even if I did not make that factual finding, because it is clear on the record that both parties had the benefit of legal advice during the time the contract was entered into.
[38] There is a dispute in the evidence as to who drafted the contract. The plaintiff states in her affidavit that the defendant or someone acting on his behalf drafted the contract. The defendant states in his affidavit that the plaintiff or someone acting on her behalf drafted the contract. The defendant also asserts in his affidavit that he did not receive legal advice prior to signing the contract.
[39] I have reviewed the emails between the plaintiff and the defendant around the time the contract was signed. I find that the emails support the plaintiff’s version of events. I find that the contract was drafted by a lawyer acting on behalf of the defendant. In particular, I note two emails sent by the defendant which address this issue (dated April 24, and May 6, 2013). I will refer to several other emails as context.
[40] The defendant emailed the plaintiff at 11:19 a.m. on April 24, 2013, the same date the contract was signed. It is clear from the emails that follow that this email was sent before the contract was signed. The defendant writes in the email: “Dee it is always good speaking with you. I sent the document this morning. Please review it, and let me know your thoughts” (emphasis added).
[41] The plaintiff responds: “D.S. Good for me too. I mean this looks very straight forward and nails what we are both trying to accomplish.” (I have omitted the rest of the email as it is not relevant). I note that the plaintiff’s email is time-stamped 8:45 a.m. on April 24, 2013. Given the sequence of emails, I find that this is 8:45 a.m. Eastern time, which is 11:45 Pacific time (where the defendant lives). From the sequence of the emails, it is clear that this email was sent after the defendant’s 11:19 a.m. email.
[42] The defendant then responds at 12:31 p.m. on April 24, 2013: “Dee please find executed copy of our agreement. Thanks I look forward to hearing from you soon.”
[43] Subsequent to this email, there is some back and forth by email, and it is clear that the document is executed (both from the emails, and from the fact that the contract before the court is dated April 24, 2013). The plaintiff then raises concerns about planning for contingencies if anything were to happen to the defendant, and whether it would be possible to put in place some form of insurance for him, and assign the benefits of the insurance to her, which she offers to pay for. There is some back and forth about this, and the parties seem agreeable to proceeding this way, although the insurance issue is not settled in the emails.
[44] Then on May 6, 2013, there are a series of emails between the defendant and the plaintiff where the defendant asks if he sent her a copy of the agreement with both of their signatures. The defendant writes at 2:42 p.m.: “Dee did I send you a signed copy of the agreement back with both our signatures?”
[45] The plaintiff responds by email the same date at 11:47 a.m.: “I do not have one with both of us.” (again, I find that this time stamp is due to the three hour time difference between Eastern and Pacific time, as each of the plaintiff’s emails is in sequence if the three hour time conversion is done. 11:47 a.m. Eastern is 2:47 p.m. Pacific time).
[46] The defendant responds on the same date at 2:59 p.m.: “Sent! Keep for your records and files.”
[47] The plaintiff responds at 12:11 p.m. (3:11 p.m. Pacific time): “Thanks a bunch”.
[48] The defendant responds at 3:23 p.m.: “This protects you. I’m still looking into insurance for the payments. Marty Blank the guy who drew the papers up said as long as you don’t lose your copy, everything is good. Marty will also have a copy in his office for safe keeping” (emphasis added).
[49] The defendant testified in cross-examination that Marty Blank is a lawyer who acted for him from time to time. The defendant was asked about the May 6, 2013, 3:23 p.m. email in cross-examination, and the suggestion was put to him that his lawyer Marty Blank drafted the agreement. The defendant responded:
No. My recollection is that she gave me something from one of her – the guy I spoke to at Dor’s funeral, after his funeral, drew up the actual – drew up the agreement. I gave that agreement to Marty. And I think Marty formalized it, but it was drawn up by her person. It was not drawn up by Marty Blank.
[50] When pressed on the statement in the email saying “Marty Blank the guy who drew the papers up”, the defendant said that if Mr. Blank had drawn up the contract, it would have been in a more legal form. And when further pressed said he did not really remember.
[51] I am troubled by these responses, and the May 6, 2013, 3:23 p.m. by the defendant. In his affidavit at paragraphs 17 and 19, the defendant stated: “Dhillon has stated that I had the Assignment Agreement drafted, however my recollection is that her lawyer completed the agreement for us”; and “I note that I did not obtain legal advice with respect to the language of the Assignment Agreement, and I signed it to honour the wishes of my friend, and to honour our agreement we made before he died.” The May 6, 2013, 3:23 p.m. email and the defendant’s responses in cross-examination clearly contradict the bald statements in his affidavit that the plaintiff’s lawyer drafted the agreement, and that he did not obtain legal advice. The bald statements in the affidavit, clearly shown in cross-examination to be incorrect, suggest a carelessness with the truth on the part of the defendant.
[52] I believe the plaintiff’s evidence that she did not have the contract prepared. Her evidence is supported by the emails. I do not accept the defendant’s evidence that his lawyer did not draft the contract, and that he did not have the benefit of legal advice. Further, whether or not the initial draft was prepared by the defendant’s counsel, the defendant clearly conceded in cross-examination that he had the document reviewed by his counsel.
[53] I am satisfied that that both parties had legal advice in the course of the preparation and signing of the contract. I highlight this factor because, had the defendant wished to make clear in the contract that he wanted to contract on behalf of a corporate entity, he was not without resources to do so.
[54] Further, the defendant was not inexperienced in negotiating contracts. He agreed in cross-examination that after his retirement as a professional baseball player, he spent 16 years as a player agent for professional baseball players, and a further two years as the general manager of a Major League Baseball team. He agreed that part of his responsibilities in both of these roles was negotiating contracts. He agreed that he knew the importance of reviewing contractual terms carefully before finalizing them.
[55] I accept the evidence of the plaintiff that as far as she knew the defendant entered into the contract personally. The plaintiff was consistent in cross-examination that she had no information that the defendant had entered into the contract on behalf of the corporation. And her evidence is consistent with the wording of the contract.
[56] Having considered the circumstances surrounding the formation of the contract, both individually, and collectively, I find that they do not detract from the clear wording of the contract that the defendant entered into the contract personally.
[57] For these reasons, I find that the defendant entered into the contract personally.
[58] The motion for summary judgment is granted. The defendant, Mr. Stewart, is personally liable under the contract. I grant judgment to the plaintiff in the amount of the outstanding balance of the contract of USD $927,535.51.
Costs
[59] I did not hear submissions regarding costs during the hearing of the application. If the parties are unable to come to agreement regarding costs, I will receive submissions in writing on the following schedule. The plaintiff may file her cost outline and written submission within 30 days of this decision. The defendant may file his cost outline and submissions within 20 days after the plaintiff’s submission is filed. All costs submissions are limited to a costs outline, and three pages of submissions.
[60] I thank counsel for their focused submissions, and for their professionalism in narrowing the issues on this motion.
Copeland J.
Date: June 28, 2018