



COURT OF APPEAL FOR ONTARIO

CITATION: ESC Enterprises Inc. v. 1867295
    Ontario Inc., 2021 ONCA 687

DATE: 20211008

DOCKET:
C68288

Benotto, Brown and Harvison
    Young JJ.A.

BETWEEN

ESC
    Enterprises Inc. and Strongco Plastics Ltd.

Applicants
(Appellants in Appeal)

and

1867295 Ontario Inc., Marcelo
    Hernandez, Marisa Hernandez, Strongco Ltd., Dourada Investment Inc.
and
    Carlos Lopes

Respondents
(Respondents in Appeal)

DOCKET: C68289

BETWEEN

Marcelo
    Hernandez and StrongCo Ltd.

Applicants
(Respondent on Appeal)

and

ESC Enterprises Inc. and
    Strongco Plastics Ltd.

Respondents
(Appellants on Appeal)

David P. Preger, for the appellants ESC
    Enterprises Inc. & Strongco Plastics Ltd.

Maya Poliak, for the respondents Marcelo
    Hernandez, Marisa Hernandez and Strongco Ltd.

Heard: September 7, 2021 by video conference

On appeal from the order of Justice Gilmore of the Superior Court of
    Justice, dated March 18, 2020.

REASONS
    FOR DECISION

[1]

These two appeals arise out of a failed business plan which attempted
    unsuccessfully to revive a bankrupt manufacturing company.

[2]

The plan involved a secured loan to a new entity that would operate a business.
    The bankrupt manufacturing company would transfer its assets to the new company
    and a general security agreement would be provided. A Quitclaim Deed was to be
    provided regarding the assets which were referred to as the Trailered Assets.

[3]

Unfortunately, this project failed as well.

[4]

At issue is whether the Trailered Assets are subject to the security
    agreement. This depends on whether the Quitclaim is enforceable. The motion
    judge concluded that the Quitclaim was not a valid contract and hence was not
    enforceable.

[5]

Meanwhile, the former operator of the failed company sought payment for
    work that he had done in anticipation of the new business. The motion judge
    awarded him a salary on the basis of unjust enrichment.

[6]

For the reasons that follow, we dismiss the appeal involving the assets
    because the Quitclaim is unenforceable. However, we allow the appeal with
    respect to the salary to be paid to the former operator.

FACTS

[7]

The appellant ESC Enterprises Inc.
(ESC) is held by a sole shareholder, Ed Siu-Chong (Ed). Ed owns
50%
    of the shares of the appellant Strongco Plastics Ltd. (Plastics). The
    respondent Marcelo Hernandez (Marcelo) and his business partner operated a
    company BuiltRite, which manufactured windows, doors, decking systems and prefabricated
    housing components. BuiltRite was deemed bankrupt on October 31, 2017.

[8]

In November 2017, a representative from BuiltRite approached ESC
    with a business plan. The plan contemplated a convertible loan of $1 million,
    secured against BuiltRite assets worth $5.5 million. There were two types of
    assets: 1) the unencumbered Trailered Assets, which included dies worth $2
    million and were owned by a separate company, Strongco Ltd. (Strongco)
[1]
;
    and 2) the encumbered Warehoused Assets, which were owned by BuiltRite. Some
    of the Trailered Assets had been loaned from a third party and would not form
    part of the security for the proposed investment.

[9]

Ed proposed an alternative structure whereby a new company would
    operate the business. Ed would advance funds to the new company on a secured
    basis. On February 2, 2018, the new company, Plastics, was incorporated. It was
    agreed that Plastics would purchase the Warehoused Assets from the facility
    where they were stored, and Strongco would roll the Trailered Assets into
    Plastics.

[10]

In February 2018, ESC registered a security interest under the
Personal Property Security Act

(PPSA)
    for all of Plastics inventory, equipment, accounts, personal property and
    motor vehicles. On March 14, 2018, to secure advances under the loan, Plastics
    executed a Grid Promissory Note and a General Security Agreement in favour of
    ESC. Thus, ESC is the sole registered secured creditor of Plastics under the
    PPSA.

[11]

On March 14, 2018, a Unanimous Shareholders Agreement (USA) was
    signed between the principals of the corporations. At this time, ESC executed
    an undertaking in favour of Plastics, stating that ESC would advance an
    aggregate of $1 million, less all amounts advanced at any time and listed in
    the grid promissory note. The advancement would occur provided there is no
    impediment to the advancement of the business of the Corporation on a
    profitable basis, other than the failure of the undersigned to advance the
    amounts provided for herein on the terms set forth herein.

[12]

To effect a roll in of the Trailered Assets into Plastics, a
    Quitclaim Deed dated February, 2018 was prepared by counsel for ESC and
    Plastics. The Quitclaim Deed stated that Strongco quitclaimed all right, title
    and interest in and to the personal property and assets listed in Schedule A
    for the benefit of Plastics. When the Quitclaim was signed on April 13, 2018,
    Schedule A was blank. Marcelos counsel advised counsel for ESC and Plastics
    that Schedule A would need to be revised once Marcelo had inventoried the
    equipment, and then a revised Schedule A would be slip sheeted in. Marcelo
    never completed an inventory, and no Schedule A was slip sheeted in.

[13]

By
    August 1, 2018, there was insufficient remaining committed capital to resume the
    business. The parties agreed to sell the Trailered Assets and Warehoused
    Assets. On October 2, 2018, while attempting to sell the assets, Marcelo raised
    the question of their ownership.

[14]

In February 2019, Marcelo sold certain dies for $85,000,
    notwithstanding the question of their ownership.

[15]

The
    parties agreed that Marcelo was to receive an annual salary of $100,000 plus a
    yearly bonus of up to $40,000. They disagree as to when the salary was to
    commence.

DECISION BELOW

[16]

There
    were two applications in the court below giving rise to these two appeals.

[17]

In
    the first application, the appellants ESC and Plastics sought an order
    declaring that equipment had been transferred to Plastics. The motion judge
    dismissed the application on the basis that the Quitclaim agreement was not
    enforceable. ESC and Plastics appeal.

[18]

In
    the second application, the applicant Marcelo sought compensation for work he
    had performed. The motion judge granted his application. ESC and Plastics appeal.

(1)

The application by ESC and Plastics

[19]

The application judge determined that the Quitclaim was not a
    binding contract because it lacked certainty and because no consideration was
    given for the Quitclaim. The application judge held that the Quitclaim was
    unclear as to which assets formed part of Schedule A, there was no agreement on
    the timing of the purported transfer of assets from Strongco to Plastics and the
    words roll-in were never defined. Further, the application judge held that
    consideration for the Quitclaim was intended to be ESCs advance of $1 million
    to Plastics, which was never completed. The application judge also determined
    that the dies were never transferred to Plastics by way of Schedule A and
    therefore that Marcelo was within his rights to sell the dies.

(2)

Application by Marcelo for salary

[20]

The application judge ordered that ESC pay Marcelo for work
    performed for Plastics from January to August 2018. She found that ESC was
    unjustly enriched by Marcelos services from January to August 2018, as Marcelo
    was deprived of a living, ESC benefited from his services and there was no
    reason for the deprivation. She ordered ESC to pay Marcelo $66,666 for January
    to August 2018, being the prorated amount of a salary of $100,000.

ANALYSIS

(3)

The appeal by ESC and Plastics

[21]

We see no error in the application judges
    determination that the Quitclaim is unenforceable. When it
was signed in
    April 2018, Schedule A was blank, and it was unclear to the parties which
    assets would have formed part of Schedule A. The Quitclaim did not specify the
    timing for the transfer of assets. Neither party had a real understanding of
    what the Quitclaim represented. Therefore, the agreement cannot constitute an
    enforceable contract.

[22]

The appellants submit that even if Schedule A to the Quitclaim
    was not technically finalized, equity will treat it as finalized, as equity
    considers done that which ought to have been done and Marcelo should have
    conducted the inventory. However, the lack of an up-to-date Schedule A was not
    the only issue with the Quitclaim. As the application judge noted, the Schedule
    A was blank, the parties were unclear which assets would be listed in Schedule
    A, and other terms in the Quitclaim were uncertain. The Supreme Court of Canada
    recently reaffirmed the applicable test for finding that an agreement exists at
    common law in
Owners, Strata Plan LMS 3905 v. Crystal
    Square Parking Corp.
, 2020 SCC 29, 450 D.L.R. (4th) 105, at para.
    37: The test is objective, and the offer, acceptance, consideration and terms
    may be inferred from the parties conduct and the surrounding circumstances.
    Here, essential terms could not be inferred due to the parties unclear
    intentions. These standalone issues with the Quitclaim, aside from the issues
    with Schedule A, mean that even if equity treated Schedule A as finalized the
    Quitclaim would still be unenforceable. Thus, the appellants cannot rely on the
    equitable maxim to render the Quitclaim enforceable.

[23]

Although the appellants submit that there is an abundance of
    proof that the dies were intended to be rolled into Plastics, they fail to
    point to any actual proof. The only mention of the dies in any documents
    prepared by the parties was in the original promotional PowerPoint
    presentation, but there was no evidence to link the dies to the final business
    deal.
In any event, since
the Quitclaim was not
    enforceable, the dies were not transferred to Plastics.

[24]

The appeal by ESC and Plastics is dismissed.

(4)

Marcelos Salary

[25]

The
    application judges determination with respect to Marcelos salary cannot stand
    for three interrelated reasons.

[26]

First,
    she accepted Marcelos evidence that he never agreed to forgo his salary. She
    said: Marcelo denies that he ever agreed to forgo his salary and potential
    bonus. She did not consider two emails that Marcelo sent indicating the
    starting date for his salary:

·

On April 5, 2018 Marcelo wrote:

When we first made our deal and had dinner all
    together, we expressed that evening our requirement of an advance so that we
    can keep a float for 10k each and you replied by saying that you would help us
once we start moving the equipment
.

Unfortunately, I dont believe that any of us
    were expecting things to drag this long and our situations have only [become] tighter.
    We would like to humbly request if it could be possible to receive an advance
    from the company for 10k each for tomorrow Friday April 06, 2018 which can be
    accounted
against

our payroll once we initiate

so that
    we are able to catch up with our outstanding payments. [Emphasis added.]

·

On October 6, 2018 Marcelo wrote to say that he
    has gone without pay or advances as promised.

[27]

When the application judge concluded that
    Marcelo had never intended to give up salary for the period before the
    corporation was up and running, she did not discuss these emails which appear
    to indicate that the agreement was not to pay during the preparation phase.

[28]

Second, the application judges conclusion with
    respect to unjust enrichment is set out in two short paragraphs:

[
91
] I find that ESC has
    been unjustly enriched by Marcelos services between January and August 2018.
    Marcelo has been deprived of a living for himself and his family during that
    period, and ESC has benefitted from Marcelos experience and services without
    having to compensate him for those services. There was no reason for such a
    deprivation as it defies logic that Marcelo would forgo payment for his
    services in this factual scenario.

[
92
] As such, the test for
    unjust enrichment in
Consulate Ventures Inc. v. Amico Contracting and
    Engineering (1992) Inc.,
2007 ONCA 324, 282 D.L.R. (4th) 697, at paras. 95-99
    has been made out and Marcelo should receive the sum of $66,666 being the
    prorated amount of a salary of $100,000 for January to August 2018.

Consulate Ventures
at para. 99 explains the ingredients of a juristic reason for the
    award:

Thus, where the
    claim for restitutionary relief is based on
quantum meruit
, as in this
    case, an explicit mutual agreement to compensate for services rendered is not a
    prerequisite to recovery. It suffices if the services in question were
    furnished at the request, or with the encouragement or acquiescence, of the
    opposing party in circumstances that render it unjust for the opposing party to
    retain the benefit conferred by the provision of the services. See
Fridman,
    supra,
at pp. 290-92;
Nicholson v. St. Denis
(1975),

1975 CanLII 393 (ON CA)
, 57 D.L.R. (3d) 699 (Ont. C.A.), leave to appeal to S.C.C. refused,
    [1975] 1 S.C.R. x.

[29]

The application judge did not provide an
    analysis, in light of the emails to explain the request, of ESCs encouragement
    or acquiescence to Marcelos work.

[30]

Third, Marcelos work was done for Plastics, not
    ESC. Yet ESC was ordered to pay. Even though the main shareholder of each
    corporation is the same person, we see no reason to pierce the corporate veil
    and require ESC to pay for work done for Plastics. This court in

Yaiguaje v. Chevron Corporation
, 2018 ONCA 472, 141 O.R. (3d) 1, at para. 65, citing

Transamerica Life Insurance Co. of
    Canada v. Canada Life Insurance Co.
(1996), 28 O.R.
    (3d) 423 (S.C.), explained the circumstances in which a corporate veil can be
    pierced: 1) when the court is construing a statute, contract, or other
    document; 2) when the court is satisfied that a company is a mere facade
    concealing the true facts; and 3) when it can be established that the company
    is an authorized agent of its controllers or its members, corporate or human.
    These factors are not present here. Consequently, even if unjust enrichment had
    been established, it could not attach to ESC.

DISPOSITION

[31]

For these reasons, the appeal by ESC regarding
    the assets (C68288) is dismissed. The appeal regarding the salary to Marcelo
    (C68289) is allowed.

[32]

Each party shall bear their own costs of the
    appeal and the applications at the court below.

M.L.
    Benotto J.A.

David
    Brown J.A.

A.
    Harvison Young J.A.





[1]

The record is not clear whether Strongco or BuiltRite owned
    the Trailered Assets. However, because Marcelos sister was the sole officer
    and director of Strongco, and all parties were involved in the project, the
    distinction is of no moment.


