



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 Groves 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. Edwins creditors regarded both transfers from Edwin to Sylvia as
    reviewable transactions during Edwins 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 Edwins 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 Edwins 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 Sylvias ownership of the shares, and Glen Groves
    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 Receivers 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, 129s lawyer, testified that the main purpose behind the
    offer to purchase Edwins 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, 119s 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 119s demand that some security be provided for the
    Settlement, at one point contemplating placing a mortgage on Edwin and Sylvias
    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 Edwins 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 Tayars
    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
    Edwins 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, Solmons
    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, Solmons 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 129s 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, Sylvias 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 Edwins 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 Sylvias contention that she did not know about 129 prior to the
    lawsuit.

·

Edwin possessed full authority to enter into the Settlement.

·

Following Edwins 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 Edwins
    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 Groves
    providing a mortgage on the property and guaranteeing 129s obligations under
    the Settlement. There was no other explanation for Sylvias providing Solmon
    with financial information concerning Glen Grove or consenting that he discuss
    Glen Groves 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 Receivers 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 Judges 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 Sylvias permission, and upon his death, that
    control passed into Sylvias 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 Edwins 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 Groves 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 judges 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. T
he 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 judges 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 judges 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 appellants submissions. The trial judges 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 Edwins refusal to
    countenance a mortgage on the family home due to Sylvias reluctance. As well, one
    of the cheques for $15,000, used to pay 119s legal fees as required under the
    Settlement, was noted as being re 1297475 Ont. Inc. and was signed by Sylvia.

[53]

As
    regards the appellants second contention, the trial judge did not find that
    Sylvia was exercising control over the companies prior to Edwins 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 judges finding that Sylvia controlled 129 after Edwins death was also eminently
    reasonable. Sylvia was the sole shareholder and, after Edwins 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
    judges finding that Sylvia controlled 129 after Edwins 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 Edwins 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 Groves 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 appellants 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 judges holding that Glen Grove and Spendthrift
    were liable under the Settlement due to Sylvias common control of her three
    companies. The appellant submits that the trial judges 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 judges
    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, affd 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 LJCs 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 LRMGs
    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 LJCs 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 plaintiffs 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 plaintiffs
    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 judges 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 principals 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
    latters 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
    agents authority, the creation of an agency relationship may be implied from
    the conduct or situation of the parties: see
Francis v. Dingman
(1983), 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), 59 D.L.R. (2d) 537 (Ont. C.A.), at
    p. 542, leave to appeal to S.C.C. refused (1967), 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 Edwins estate. The offers made by both Glen Grove and
    129 had the same purpose: to ensure Sylvias 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 129s legal fees. These facts support
    an inference that 129 was not simply acting on its own behalf but as Glen
    Groves agent.

·

The Settlement required that 129 pay the Receivers 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 Tayars 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 Groves 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 Groves
    power to grant.

·

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

·

Solmon said he regarded Edwins instructions, on Glen Grove
    letterhead, to prepare the security documentation as part of his instructions.
    Solmons evidence was that he only ever acted for 129 and never acted for Glen
    Grove. Accepting Solmons 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 Edwins instructions, Solmon prepared the relevant
    security documentation. On February 12, 2004, one of Solmons 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 129s 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 Solmons 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 Groves 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 129s authority to offer security and a guarantee on Glen Groves
    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 Groves
    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 Groves 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), 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] 2 S.C.R. 683, at p. 698.

[82]

The
    trial judge found that if an agency relationship existed, the appellants
    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] 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 Groves
    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 judges 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 119s 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]

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

·

Initial offers to purchase Edwins 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 judges 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 appellants
    submissions respecting privity

[94]

My
    holding above is sufficient to dispose of this appeal. I do, however, wish to
    briefly comment on the appellants 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. 119s 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 appellants 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] 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), 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), 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 Seips 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
    Hunkings 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 EVMs contract with Seip, which permitted the
    sale of the project provided the new owner acknowledged in writing its
    willingness to assume Seips contract. Although EVR did not give such written
    acknowledgment, the role played by Hunking in the three corporate defendants,
    coupled with EVRs 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 EVRs 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 judges 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 colleagues 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 Groves 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 judges finding respecting Sylvias
    personal liability. Therefore, I do not propose to deal with whether, given the
    trial judges findings respecting Sylvias conduct at paras. 113-118 of his
    reasons, the trial judges 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),

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 appellants 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.


