Henri Boucher and his son, Gaetan, lived in the same city, where...

Henri Boucher and his son, Gaetan, lived in the same city, where Gaetan ran a small business, an unincor- porated restaurant. Henri had operated a small strip plaza comprising a convenience store, a gas station, and a pizzeria/arcade. Under pressure from creditors, Henri had sold the plaza for the amount of his debts, and he began anew with his son's assistance.

They formed a corporation to develop a roadside piece of land into a ten-unit commercial plaza near a residential area. Otherwise unemployed, and with Gaetan busy in his restaurant, Henri looked after contracting the majority of the work. This included considerable construction work to build the plaza. As construction progressed there were disturbing signs of discontent among the contractors who were building the plaza. On occasion, they would call the restaurant, asking Gaetan for payment. Gaetan would call his father, who would in turn pay them. Often, however, the calls persisted and Gaetan would find himself paying bills out of his own pocket and keeping a tally of the bills he had paid on behalf of the company.

Eighteen months after incorporation, and 15 months after breaking ground on the project, the plaza had acquired a bad reputation in the town, and suppliers were unwilling to deliver materials. It quickly foundered when the bank called for repayment of the $290,000 that had been borrowed (on demand) by the company. The land had been bought with bank funds for $175,000. Invoices totalling $87,000 had been paid, but the company had no more money in its account. Gaetan's tally showed that he had paid bills out of his own pocket totalling $11,000. Unfortunately, with a half-built plaza and a bad reputation, the only offers for purchase of the site were in the order of $145,000. Henri was despondent and soon left the province, leaving behind Gaetan with the restaurant.

The company lawyer showed Gaetan a letter that had been sent to him a month before, in which Henri had resigned as an officer and director of the com- pany, and had turned in his shares. This left Gaetan as sole officer, director, and shareholder. The lawyer thought Gaetan had known of his father's resignation.

Advise Gaetan with respect to the issues that the company creditors will raise. Discuss Gaetan's rights and/or liabilities and explain any steps he could have taken to protect himself.