Air-Care Ltd. v. Blais and Les Immeubles Pro-Can
Limit~e et al.
Douglas Pascal *
Under article 2013e C.C., it is provided that when a supplier
contracts with a builder, he must, in order to protect his privilege,
notify in writing the proprietor that he has made a contract with
the builder for the delivery of materials. In Air-Care Ltd. v. Blais
and Les Immeubles Pro-Can Limit6e et al,1 Mr. Justice Frederick
T. Collins has given a most interesting interpretation to the word
“proprietor”, unjustifiably, it is submitted with respect, “piercing
the corporate veil”.
La Banque Provinciale du Canada purchased a building and the
land upon which it was situated from the Crown, and transferred
the ownership of it to Immeubles Pro-Can Limitge, its wholly-owned
subsidiary company. Pro-Can entered into a contract with J.-L. Guay
et Fr~re Limitge, general contractors, by which that firm under-
took to do desired renovations. The Guay Company awarded a sub-
contract to Unic Heating and Air Conditioning Limited, who, in
turn, entered into a contract with plaintiff company to supply vari-
ous equipment relating to ventilating and air conditioning. In ac-
cordance with article 2013e C.C., plaintiff, before delivering any
materials, wrote a letter of notice, but instead of this letter being
written to Pro-Can, the registered owner of the property, it was
written and addressed to the Bank. Subsequently, Unic went into
bankruptcy and defendant Blais was named trustee. As plaintiff
was not paid its claim, it registered a privilege as a supplier of
materials against the immoveable property. The privilege was duly
registered and notice of such registration was given to Pro-Can.
The only issue involved was the question of whether the notice given
to the Bank was sufficient to protect the rights of the plaintiff.
Mr. Justice Collins went into a lengthy examination of the
relationship between Pro-Can and the Bank. It was discovered that
all employees, officers, and directors of Pro-Can were employees,
officers, and directors of the Bank. Pro-Can was not listed in the
1 [1964] C.S. 241.
* Of the Junior Board of Editors, McGill Law Journal; second year law student.
McGILL LAW JOURNAL
(Vol. 12
telephone book and did not prepare separate yearly financial state-
ments. The head office of both companies was situated at the same
address and the correspondence of Pro-Can was frequently sent on
Bank stationary. The subsidiary company was wholly owned, con-
trolled and operated by and for the benefit of the Bank, and the
learned judge concluded that the letter to the Bank constituted
notice to the subsidiary company.
The Court, with respect, has overlooked the fundamental princi-
ple of company law. The corporation is a legal entity. It is distinct
from its shareholders; it is distinct from its officers, its directors
and its employees. The Banque Provinciale du Canada is an entity
distinct from Immeubles Pro-Can Limit~e. In Aluminum Company
of Canada Limited v. City of Toronto,2 Rand, J. clearly explained
these notions:
“It is now settled that the business of one company can embrace the apparent
or nominal business of another company where the conditions are such that
it can be said that the second company is in fact the puppet of the first;
… The business is in fact that of the latter. This does not mean, however,
that for other purposes the subsidiary may not be the legal entity to be
dealt with.”
Pro-Can Limit6e is the legal entity which must be dealt with.
The wording of article 2013e C.C. states:
“… he must notify the proprietor of the immoveable in writing…”
This point is clear. The proprietor was not notified and it is sub-
mitted that the claim of plaintiff was thus unfounded in law. The
learned judge states:
U… so long as the proprietor knows of the claim as a result of some action
in writing on the part of a supplier, either by direct notice, by the delivery
of invoices, or in some such similar manner, the supplier’s rights are pre-
served for all materials supplied thereafter.” 3
He backs this claim with a long list of jurisprudence.4 The cases
cited, however, are, it is submitted, off point. The jurisprudence
has not permitted notice given to one individual or legal entity to
serve as notice to another distinct entity merely because of a close
2 [1944] S.C.R. 267 at 271.
3 [1964] C.S. 241 at 249.
4 Cantin et Fils Ltie v. Tremblay [1954] Q.B. 673; Ldo Perrault Ltde V. Le-
rnieux (1932) 36 R.P. 63; Desrosiers v. Liger and Champagne (1923) 29 R.L.
435; Ouellet v. Hamel and Laporte [1963] Q.B. 64; Papillon V. Bjrub6 [1946]
K.B. 310; Faille v. Lefrangois (1927) 33 R.L. 100; Morissette v. Pichette [1955]
S.C. 231; Belisle v. Riendeau [1950] S.C. 39; Mott Co. Ltd. V. Associated Textiles
of Canada Ltd. (1934) 57 K.B. 300; Darabaner v. Pruneau LtWe [1960] Q.B.
1042; Blouin v. Dame Martineau (1925) 63 S.C. 73.
No. 2]
CASE AND COMMENT
relationship between two separate legal persons. The cases referred
to deal only with the sufficiency of the writings to serve as notice
or the sufficiency of the notice when given to the authorized agent
of the proprietor. The true meaning of article 2013e C.0. becomes
clearer when compared to article 2013f C.C. Under this latter article
no writing is required: verbal notice suffices,5 since the subcon-
tracting builder need merely have “notified” the proprietor. The
former article, however, requires notice given in writting to the
proprietor. This is quite a different idea. Even if the subsidiary
be taken to have had knowledge of the notice to its parent, the know-
ledge cannot constitute notice to itself.
A parent company is not the agent of its subsidiary nor vice-
versa. In the case of Ebbw-Vale Urban District Council v. South
Wales Traffic Licensing Authority,6 Cohen, L. J. states:
“Under the ordinary rules of law, a parent company and a subsidiary com-
pany, even a hundred percent subsidiary company are distinct legal entities,
and in the absence of an agency contract between the two companies one
cannot be said to be the agent of the other.”
And, in the case of The King v. B.C. Brick and Tile Co.,7 it was
stated:
“The fact that the same persons control two companies and that the officers
are much the same and that the companies have business relations with each
other will not alone make one company the agent of the other.”
The learned judge realized that a “proprietor” is “one who has
the legal right or exclusive title to anything”,8 but refuses to ap-
ply it:
“While it cannot be said that the bank was the legal proprietor, it was for
all intents and purposes the real proprietor.”0
The Civil Code is a text whose terms are unequivocal and precise
and must be given effect. Pro-Can was the proprietor within the
meaning of the Code. This notion cannot be dismissed on the grounds
that the Bank was the “real” owner or that the Bank “practically”
controlled all its operations.
It
is now well established that a company duly incorporated
under the Companies Acts of Canada or the provinces cannot be
disregarded on the ground that it is a ‘sham’ or ‘alter ego’. It is a
5Lw Compagnie de Carrelages de Qu~bec Lt~e v. Darabaner [1959] Q.B. 861.
0 [1915] 2 K.B. 366 at 370.
7 [1936] 3 D.L.R. 23.
SH. C. Black, Black’s Law Dictionary, 4th ed. (St. PauFs, Minn., 1951), p. 1384.
9 [1964] C.S. 241 at 250.
McGILL LAW JOURNAL
[Vol. 12
distinct legal entity. This distinction between the company itself
and its shareholders is fundamental. 10
When can the corporate veil be pierced ? There are basically only
two such occasions. The first, and most frequent, is when Parlia-
ment prescribes that for certain purposes the acts of the subsidiary
company shall be deemed to be the acts of the parent company.”
The second such instance occurs when a company is formed for the
purpose of doing a wrongful act. Under these circumstances, the
courts have held the shareholders responsible, for to allow them
to go untouched when hidden behind the corporate veil would amount
to a mockery of justice.1 2 Neither of these situations is relevant in
the present case. The learned judge states that the subsidiary com-
pany was incorporated by the Bank for its own purpose, probably
from an administrative or a tax point of view. Are we to infer from
this that the Court would treat Pro-Can as a distinct entity from
an administrative or tax view-point but not from a civil law one ?
Plaintiff company registered its privilege against the immove-
able and notified Pro-Can of this registration. Thus, Air-Care did
know who the owner of the property was. It would seem that plaintiff
was careless in notifying the wrong party of their contract. The
learned judge, it seems, found for plaintiff on the supposed “equity”
alone. The Bank had withheld the amount owing from the contrac-
tor when it received the notice and thus, Pro-Can would not find
itself, out of pocket. Suppose indeed that through ignorance or
negligence, the money had not been withheld. Could Collins, J. have
insisted that the privilege was nevertheless effective because the
Bank, though not Pro-Can, had been notified ? Had he so held, he
would have denied Pro-Can, the proprietor, the protection of the
rigorous formalities which the Code prescribes for privileges, which
are stricti juris. Had he on the other hand been moved to admit
that Pro-Can, having received no notice, need suffer no privilege,
(and need not bear the loss consequent on not having withheld pay-
ment), the learned judge would have made the validity of a privilege
depend on whether payment has or has not been withheld to meet
it –
a most remarkable inversion of the provisions of the Code.
10 Clark v. Thomas J. Gaytee Studios Inc. [1930] 4 D.L.R. 1038; Salomon v.
Salomon and Co. [1897] A.C. 22, Export Brewing and Malting Co. V. Dominion
Bank [1937] 3 D.L.R. 513; Pioneer Laundry & Dry Cleaners, Ltd. V. M.N.R.
[1940] A.C. 127.
llEbbw-Vale, supra; Attorney-General of Canada v. Coleman Products Co.
12Fraser and Stewart, Company Law of Canada, 5th ed.,
(Toronto, 1962),
[1929] 1 D.L.R. 658.
pp. 18-21.
No. 2]
CASE AND COMMENT
It must be realised that plaintiff and Pro-Can are not the only
parties concerned with the outcome of this action. Guay Company,
the general contractor, is also deeply interested. If Guay has already
paid Unic the amount of their subcontract and the privilege is held
to be effective, then Guay will find itself out of pocket for the
amount of plaintiff’s claim, since Pro-Can, after paying plaintiff,
would not, of course, be forced to pay Guay as well. In talking in
terms of equity all interested parties should be taken into consider-
ation, and, therefore, it is submitted that since in either case one
party will be harmed, (Air-Care or Guay), the strict letter of the
law should be adhered to.
Notwithstanding the case at bar, certain reforms in our law
seem in order. The Civil Code only envisages a three-party situa-
tion, either proprietor-builder-subcontractor or proprietor-builder-
supplier. In a four party structure, such as the present case, there
is little protection given to the builder. It is suggested that a sup-
plier of materials, when dealing with a subcontractor, should be
required to give notice to the builder as well as to the proprietor.
This would allow the builder to protect himself in the same manner
as the owner, namely, by withholding monies owing to the subcon-
tractor until all privileged claims of the supplier are extinguished.
The fact that Pro-Can is a separate and distinct legal entity is
a fundamental rule of company law and should not be ignored. Pro-
Can, in short, was the proprietor of the immoveable. The Code is
the proprietor must be notified in writing. It is not suffi-
clear –
cient that he knew of the contract. The rules on privileges are very
special exceptions to the general law and as such must be restrictively
interpreted. Dura lex, sed lex is a principle rightly applicable here,
especially where the equities are not so obviously in favour of plain-
tiff as at first sight might be imagined.
