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July 24, 2000
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If your client is a company, what about the payment of your bills?
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A Quebec Superior court judgment is to the effect that if your client is a
company and if nobody guarantees the payment of your bills, you may well end
up working at a loss if the company is insolvent.

Indeed, an attorney we will call Abe was consulted by a Quebec businessman
we will call Bob, who was the principal shareholder and president of a
company, in relation to the purchase by this company of an Ontario chain of
retail stores for approximately 4 500 000$.

Abe and Bob verbally agreed that Abe would be paid for his services on a
150$ per hour basis, but no written agreement was signed to the effect that
Bob guaranteed the payment of Abe's fees and disbursements.

Thereafter, Abe prepared and revised a series of legal documents and worked
on resolving issues concerning Quebec and Ontario laws.

However, following intensive negotiations, the purchase failed after the
bank withdrew its support in view of the chain's doubtful financial and
inventory records. The deal was dead, and Bob's company did not have any
assets.

In the course of his interventions, Abe had sent four bills to Bob's company
and the first of these had been paid by cheques drawn on Bob's personal bank
account.

Following the failed acquisition, Bob's company ceased to exist and Abe sued
him personally for his accounts, totaling some 63 000$.

In court, Abe testified to the effect that Bob had assured him on many
occasions that after the company's acquisition of the Ontario chain, the
funds that were to be advanced to it by the bank and other investors would
be used to pay Abe's accounts. Abe added that Bob had also assured him "that
the payments would be taken care of, by himself if necessary". It is on the
basis of these statements that, according to Abe, Bob had made himself
personally responsible for the payment of Abe's accounts.

In defense, Bob denied having made such a statement and alleged that he had
never personally guaranteed payment to Abe, saying that all of his dealings
with Abe were on behalf of the company. As to the payment of the first
account by him personally, he explained that the payment constituted an
advance on his part to the company, although no documentation in support of
this was produced. Bob also argued that this payment did not constitute an
admission to the effect that he was personally liable for Abe's accounts,
although he admitted that he had assured Abe that his bills would eventually
be paid, saying that when he gave such assurances he expected, in good
faith, that the chain acquisition would eventually be concluded and that the
bank loan would supply sufficient funds for the payment of all outstanding
debts.

In view of these facts, the court concluded that since Abe had billed the
company and not Bob, there was no doubt that he himself considered the
company to be the client for whom he was working.

As to Bob's personal cheques in payment of Abe's first bill, the judge
considered that this only showed that Bob was willing, for the benefit of
his company, to advance money in payment of Abe's fees, which did not
necessarily indicate that Bob was thus rendering himself personally
responsible for them. The court also concluded that the assurances given by
Bob to Abe to the effect that he would see to it that his accounts would be
paid by the company did not constitute an undertaking by him to be
personally bound to payment, and that in giving such assurances Bob was
speaking for and on behalf of the company.

And even if Bob had indeed told Abe that the accounts would "be taken care
of, by himself, if necessary", these words, according to the court, could be
interpreted as meaning that Bob intended to see to it that the company would
pay Abe's accounts, or that Bob would advance additional sums to his company
so that it would be in a position to pay the outstanding accounts, but did
not constitute a clear and unequivocal undertaking that Bob was binding
himself, directly and personally, to pay Abe's accounts himself.

The court then referred to article 2335 of the Quebec civil Code, which is
to the effect that "Suretyship [i.e. Bob's alleged personal endorsement, or
guarantee for the payments of Abe's fees] is not presumed; it is effected
only if it is express" [i.e. be it verbal or written, such a guarantee must
be clearly expressed, must be evident, may not be deduced from the
circumstances and the slightest doubt must be resolved in favor of the
alleged endorser].

Consequently, Abe's legal action against Bob was dismissed.

Upon opening a client account for a company, one may agree with the
company's directors that they personally and jointly guarantee the payment
of the bills you address to the company. It is preferable that such an
agreement be in writing and that it specifically mention that the directors
renounce to what is known in law as the "benefits of discussion and of
division", which we shall discuss in an upcoming article.

[Court file number: 500-05-017841-931.  Judgment date:13/12/99]
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The court file number and judgment referred to here truly exist. As to the
identities of parties to a litigation process, although such information is
part of the public domain, our policy is to refrain from posting them.
Consequently, if names are utilized in the preceding text, they are
fictitious.

Please understand that the preceding text is shared as general information
only and does not constitute a full analysis or a legal opinion on our part.
Although such text takes into account applying law at the moment of its
posting here and usually relies on a recent jurisprudential basis, and
although we do our utmost to post up-to-date information, the law discussed
here may be modified and the facts of the case are not necessarily the same
as those that may concern you. Be prudent and consult an attorney or a
notary before taking an important decision.

The preceding text has just been published in the "What's up?" section of
http://www.beaulieunormandeau.com, the main purpose of which is to share
legal and business information with our clients and the general public in a
practical, dynamic and user-friendly manner. Other articles, similar to the
one above, may be found in the "Binders" section of our site.

Salutations!

Pierre-Marcel Normandeau
Beaulieu Normandeau
Place Iberville III
2960, boulevard Laurier, suite 40
Sainte-Foy (QC) G1V 4S1 Canada
Tel: (418) 652-1868
Cellular: (418) 580-1428
Fax: (418) 657-6728
e-mail: attorney@beaulieunormandeau.com