Executive Summary: Key Legal and Evidentiary Issues

• Business asset sale led to a dispute over the unpaid balance of the purchase price after the buyer's company declared bankruptcy.

• Seller alleged bad faith and fraud by the buyer’s representative, claiming a critical indemnity agreement was secretly replaced.

• Trial judge held the buyer personally liable by lifting the corporate veil based on alleged fraudulent substitution of documents.

• Court of Appeal found insufficient evidence that the substitution was hidden or fraudulent, and that the indemnity did not guarantee payment of the sale price.

• The alleged indemnity agreement was limited to a short transitional period and did not qualify as a legal surety (cautionnement).

• Appeal was allowed in full, and the buyer was cleared of personal liability, with the lawsuit dismissed.

Facts and outcome of the case

In 2015, Paul Piacente, founder of Les Maçons Patrimoniaux inc. (LMP), decided to sell his masonry business due to health concerns. Through a consultant, he connected with Stéphane Bégin, who controlled a corporate group including Aliston Investissement inc. (AI) and Groupe Aliston inc. (GA). Ultimately, the sale was structured as an asset purchase by a newly incorporated company, 9321-5168 Québec inc. (9321), of which Bégin was the president and director, while AI held the shares.

The agreed price for the assets was structured in three parts: an initial payment of $125,000, a second of $225,000 tied to financial performance by June 2016, and a final $200,000 due in April 2018. The first two payments were made in full, but before the third was due, 9321 went bankrupt in March 2018, and the final $200,000 was never paid.

In 2020, LMP and Piacente sued Bégin personally, AI, GA, and others, alleging that during the closing process in 2016, a key “Convention d’indemnisation” that provided a guarantee for payment was fraudulently replaced with a weaker “Convention d’exonération.” They claimed this amounted to bad faith and fraud, justifying piercing the corporate veil and holding Bégin personally liable. The Superior Court agreed in part, awarding $150,000 against Bégin personally, finding that he had orchestrated the substitution and committed a fault under article 1457 C.c.Q., and that LMP relied on the indemnity agreement for payment protection.

On appeal, the Québec Court of Appeal reversed the decision entirely. It found the trial judge’s reasoning flawed and unsupported by the evidence. The record showed that Piacente and his team reviewed the documents on the day of closing and negotiated changes, including to the very document they later claimed was secretly substituted. Testimony confirmed the terms of the “Convention d’exonération” were actively discussed and revised by hand during the closing meeting. Furthermore, no complaint about a substitution was raised until the lawsuit four years later.

The Court also analyzed the text of the “Convention d’indemnisation” and determined it was not a cautionnement (legal surety) as defined in the Civil Code of Québec. It only covered risks and liabilities during a transitional period when LMP’s construction license was still being used. That period ended in November 2016—well before the final payment came due in April 2018. Therefore, even if the indemnity had been signed, it would not have guaranteed the final payment. The Court held that the alleged substitution could not have caused the financial loss.

Lastly, the Court ruled that lifting the corporate veil was not justified. Bégin was not the shareholder of 9321, only its administrator. The evidence did not establish sufficient grounds to pierce the veil and hold him personally liable.

The Court of Appeal allowed the appeal, set aside the lower court judgment, and dismissed the action in full with costs. Stéphane Bégin was thus fully exonerated.