How To Lose Your Shirt In Business

One of the best ways you can protect yourself personally is to conduct business through a limited liability company. However, if you do not let your customers and suppliers know that they are dealing with a limited liability company, you can personally be on the hook. Depending on the type of work you do and the value of the contracts entered into, the potential exposure can be huge.

FACTS

In North West Rubber Mats Ltd. v. John Cardillo carrying on business as Premier Fitness, North West Rubber Mats Ltd. sued John Cardillo personally when they were not paid for product supplied.

North West Rubber is based in British Columbia and entered into negotiations with Mr. Cardillo over the phone and by email to supply rubber mat flooring to a fitness facility in Ontario. At no time during the negotiations did Mr. Cardillo ever mention that he was the CEO of a limited liability company. There was nothing in his emails to suggest this either. There was also nothing on the Premier Fitness website to indicate that it was a limited liability company. A faxed copy of a cheque that was said to have been sent by mail (which never arrived) also did not indicate any company name. When Mr. Cardillo raised alleged deficiencies in the product, he requested either a $2500 credit or 50 extra tiles be delivered to his home for free.

ISSUE

Was Mr. Cardillo personally liable for the debt owed to North West Rubber?

COURT DECISION

At trial, the court found that the evidence was clear that Mr. Cardillo was acting on his own behalf and not as an agent for a limited company. The court stated:

There is an onus on a person to identify himself as solely a representative or agent of a corporation from the outset of the communications between the parties and if he doesn't, he will be personally liable.

In this particular case, the court found that there were "no clues" presented to North West Rubber to given them any indication that Mr. Cardillo was acting for anyone other than himself. On the contrary, the court found the following factors to be determinative:

  • Mr. Cardillo used the words "I" and "my" and North West Rubber used the words "you" and "your" in the email correspondence;
  • Mr. Cardillo encouraged North West Rubber to believe that he was the principal by ordering 50 tiles be delivered directly to his home for use in his pool;
  • There was no indication on Mr. Cardillo's email address or in any of his emails that he was acting on behalf of a corporation;
  • There was no company name on the cheque contrary the Business Corporations Act;
  • There was no corporate entity on the fax cover sheet or any other document sent to North West Rubber.

As a result, the court found that Mr. Cardillo was personally liable for the debt owed to North West Rubber.

Notably, in British Columbia, the Business Corporations Act specifies that a company must display its name at its place of business and on all its contracts, business letters, purchase orders, invoices, statements of account, receipts, and letters of credit. If a director or officer knowingly permits the company to contravene this requirement, they are personally liable to any purchaser or supplier who suffers loss or damage as a result of being misled. Most provinces in Canada have similar legislation.

LESSONS LEARNED

  1. Conduct business through a limited liability company.
  2. Ensure that your full business name, including the words Ltd., Co., Inc., Limited, Company or Incorporated, are clearly displayed on all business cards, websites, contract, letters, emails, purchase orders, invoices, statements of accounts, receipts, etc.

 

 

This article was written by Ian Moes, a lawyer with the law firm of Kuhn LLP. It is only intended as a guide and it is important to get legal advice for specific situations. If you have questions or comments about this case or other legal matters, please contact Ian at 604-682-8868.