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Rajah Lehal

When the corporation is liable for an individual's actions

October 27, 2016

Although a corporation is a separate legal entity, a corporation can be held liable for the actions of its directors/officers in some circumstances.

  1. **IMPLIED AUTHORIZATION TO BIND THE COMPANY. **A corporation will be held liable for the actions of an individual when those actions are taken by the individual on behalf of the corporation. For example, in Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd [1972] 3 O.R. 199, Newtonbrook entered into a contract with Kelner, an employee of Rockwell who signed as Rockwell’s secretary. Money paid did not go through the corporation bank account, but through Kelner’s. The court held that the company was bound by the agreement. The court stated that although Mr. Kapoor was not officially appointed managing director, he had been acting as such to the knowledge of the other three directors.)
  2. A CORPORATION WILL BE LIABLE IF THE CORPORATION RECEIVES A BENEFIT. For example, in Canadian Dredge & Dock Co. v. The Queen, 19 DLR (4th) 314, the court outlined that if the directing mind is acting solely in their personal interests and the corporation gets no benefit, then the corporation is not criminally responsible. However, if the corporation gets any benefit it will be found criminally responsible for the actions of the directing mind. In this case, four directing minds of corporations appealed their convictions of conspiracy and defraud. These convictions were based on collusive tendering bids for a government contract. The court held that the directing minds were acting in the course of their duties to the corporation and as such the company itself could be held criminally responsible.

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.