9911796707
TMI Blog1937 (6) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on the business of brewers and maltsters in all its various branches, and for other purposes and objects enumerated in the Letters Patent. It also possessed all the powers conferred by Sec. 32 of the Dominion Companies Act. The old Company carried on its business as brewers until June 1927. Its share-holder at all relevant times were five in number, viz., Charles Burns, Marco Leon, his wife Freda Leon, Harry Low and his wife Norah Low. All five were also the directors of the Company. The ladies each held one share. The rest of the issued capital (overdollars 726,000,00) belonged to the three men in equal shares. The old Company had banking accounts with the Bank at the latter's London (Ontario) and Windsor (Ontario) branches. By an agreement dated 14th June 1927, the old Company sold its undertaking and assets to a Company called Car ling Breweries, Limited, which may be conveniently referred to as the new Company. At that time a claim was pending against the old Company by the Dominion Government in respect of certain taxes under the Special War Revenue Act 1915. The new Company was protected against liability in respect of this claim by the old Company depositing dollars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and spirits to the United States, the beer being in large measure, if not wholly, purchased by them from the old Company while the old Company was still carrying on business, spirits being purchased elsewhere. They also embarked upon a real estate business, making large purchases of land in Windsor, Toronto and Moptreal. They each had separate personal accounts with the Bank at different branches, and also an account in their joint names, all separate and distinct from the accounts of the old Company. On 3rd July 1928, the Bank made an advance to Messrs. Burns, Leon and Low of dollars 150,000 in connexion with certain land which they had purchased in Dominion Square, Montreal, taking as security (among other securities) a hypothecation by the old Company of 59,500 shares of the capital stock of the new Company which stood in the name of the old Company. This hypothecation was the subject of a resolution of the old Company passed at a general meeting of the old Company at which all the share-holders were present in person or by proxy in the following terms: "The resolution respecting hypothecation of 59,500 shares of the stock of Carling Breweries, Limited, held by this Company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adies joining to bear their dower. On the occasion of the meeting of 12th July 1929 according to the evidence, the two mortgages were signed by the three partners, but the Bank desiring further security required that they should be given a charge on the old Company's interest in the moneys and bonds held by the Bank to answer the Government's claim against the old Company. A document was accordingly prepared by Mr. Milliken upon information given to him by Mr. MacAgy. It was signed by the three partners and was taken away by Mr. Burns for the purpose of having the seal of the old Company affixed thereto. This is the document which has given rise to the present litigation, the old the Company denying and Bank asserting that it is an effective security binding upon the old Company. In this connexion it is important to observe that the evidence establishes that the Bank made no stipulation that the execution of the document should be approved by a resolution either of the directors or of the share-holders of the old Company, and made no inquiry as to the authority for its execution by the old Company. The terms of the document must now be indicated. It recites the indebtedness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a charge upon the old Company's interest in the said bonds and cash to secure the indebtedness to the Bank of the three partners; but at some time shortly after 12th July 1929, the old Company's seal was in fact affixed to the document of charge. At that time the position of the litigation between the Dominion Government and the old Company was as follows: By a judgment of the Exchequer Court, on 29th April 1929, the Crown had obtained judgment for a sum equal to about 17 per cent. of its claim. An appeal by the Crown and a cross-appeal by the old Company to the Supreme Court of Canada were pending. These eventually resulted in a judgment, on 4th February 1930, in favour of the Crown for the full amount claimed. The rest of the story is soon told. In December 1930, the Bank sold the balance of the dollars 100,000 bonds for dollars 103,904; and after crediting the old Company with the premium, carried the cash balance dollars 100,000 to the special savings account. In February 1931, the Judicial Committee advised His Majesty that the judgment of the Exchequer Court should be restored. On 3rd June 1931, the old Company's solicitors wrote to the Bank requesting them to pay the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g beer carried on by the old Company, and the "boot-legging" business carried on by the three partners constituted one business carried on for the benefit of the three individuals. That is what their Lordships understand the learned Judge to mean when he used the following language: "It is not a reasonable inference that these three persons were the sole owners of the shares of the plaintiff Company's capital stock, and carrying on business in connexion with the Company in a sort of partnership or association in a common business enterprise, no longer needed, or in any event deemed they no longer needed, to keep a share register, no one but themselves being concerned therein? This appears to me to be one of the significant indications that there was a community of interest between, and of operation in the business carried on by plaintiff and by Low, Leon and Burns the benefit resulting from each accruing to these three persons, whether carried on in the name of or by the plaintiff, or in the name of or by these three. Having arrived at this conclusion he then proceeded to consider the position as he considered it existed on 12th July 1929. He states it thus: "The benefit of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstand him to hold that by reason of fact alone, the document must be binding on the old Company; or to mean more than that the formalities required for the execution by the old Company of a document, which in other respects was a proper act of the old Company, had been duly observed. In the Court of Appeal divergent views were expressed, Riddell, J.A. would, their Lordships think, have allowed the appeal, but for the fact that he thought from the evidence "that the Company was a sham simularum or cloak and that its business must be regarded as the business of these three" meaning thereby the three partners. He thought that the true position was that the old Company, although a separate legal entity, was acting as the agent of the three partners, and was carrying on as such agent not the business of the old Company, but the business of the three partners. If this view were correct in fact or in law, the result would undoubtedly be clear; the business and its assets (including the bonds) would belong to the three partners, who could charge them to secure their indebtedness. Indeed no execution of the charge by the old Company would be required at all for the purpose of passing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was carrying it on as agent for another person who was the owner thereof. Lord Cozens-Hardy did not mean, and in the face of the Salomon case could not mean, that notwithstanding that a business is in fact and in law the property of a separate legal entity, a limited company, it could be held for taxation purposes that the business was the property of some other person and that the Company was carrying on the business as agent for that other person. That this is so is made clear in another taxation case, viz., Commissioners of Inland Revenue v. Sansom. In that case all the shares in a limited company, save one, were owned by one man Mr. Sansom, who (as the phrase goes) had turned his timber business into a company. The company never distributed any dividends, but it made loans to Mr. Sansom at different times without security and without interest. The company went into voluntary liquidation. The loans were not repaid, but were taken into account when Mr. Sansom received his share of the assets in the liquidation. It was sought to charge Mr. Sansom with super-tax on the loans. The Special Commissioners in the case which they stated, found that the company was a properly constituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany." Their Lordships find it difficult to justify the view of the facts upon which this decision is based. As already stated, there is no evidence that the old Company was concerned in the "boot-legging" business; the old Company had sold its business of manufacturing beer in 1927 (not in 1929 as the learned Judge mistakenly thought); the old Company had no kind of interest in the real estate business of the three partners; the impeached document was executed in relation to that business, and in no wise in relation to the liquor export business of the three partners. It seems impossible to support the foundation upon which the learned Judge based his opinion that the transaction was intra vires the old Company. Upon the assumption however that the transaction was intra vires the old Company, Masten, J.A., proceeded to consider the objection that the transaction could not stand as being beyond the powers of the directors to apply the old Company's assets for their personal benefit, without the sanction of the Company in general meeting duly obtained. He held that the transaction could stand because it was a transaction which was "entirely proper and warrantable in the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, is so bound without any resolution of the Company in general meeting; and (4) that the plaintiff had not shown that the old Company had not derived benefit from the transaction. He therefore held that the appeal should be dismissed. Their Lordships understand this judgment to be based upon an estoppel which reduced the number of shareholders in the old Company to the three partners, whose unanimous agreement without any resolution in general meeting operated as a ratification by the old Company of the disposal of its property for the benefit of some of its directors. Their Lordships find it unnecessary to express any view as to the correctness of the decision in Parker and Cooper Ltd. v. Reading & James or as to the view, that the unanimous agreement of all the shareholders of a Company, ascertained otherwise than in general meeting, is capable of operating in law as a ratification by the Company, because in their opinion no ground exists for the alleged estoppel. The statement as to the ownership of the stock which is contained in the document was, as has already been pointed out, not only untrue but was known by the Bank to be untrue. With the disappearance of the estoppel, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany were in no way protected; these remained in the same jeopardy. W.C. MacAgy's evidence is to the following effect: "Q. Was any promise made to anyone upon the faith of this document Ex. 2, or in consideration of its being given, was any promise or undertaking given by the Bank to any one?--A. I think the understanding was that we agreed not to unduly press for repayment of our advance at once if they gave us this security. Q. From whom?--A. From Low, Lean and Burns. Q. Have you any recollection of anything being said about it? --A. No. I have not. Q. Was there at any time any arrangement or agreement--I do not mean necessarily in writing, but an agreement binding the Bank-- Mr. Tilley: There are two things there. His Lordship: Leave out the binding of the Bank part of it. Mr. Robertson: Very well. Q. Was there any agreement or arrangement that the Bank would give any extension of time?--A. No : I do not think so. Q. Was there any enquiry made by you or anyone on behalf of the Bank as to the authority of anyone to give this document on behalf of the Company?--A. No. Q. Were any representations made as to the authority of anyone to give this document on behalf of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the old Company. Moreover, even if (contrary to their Lordships' opinion) some benefit did accrue to the old Company from the transaction, the overriding fact remains that the old Company (acting through its directors and not by its share-holders in general meeting) purported to apply its property for the benefit of those directors. In such a case it is well settled that the Court will treat the transaction as unenforceable, and refuse even to inquire whether the Company has derived any benefit from it: and that on the ground that the Company has not received the protection to which it is entitled. In Aberdeen Ry. Co. v. Blaikie, Lord Cranworth, L.C., used the following language which seems appropriate to the present case: "This, therefore, brings us to the general question whether a director of a Railway Company is or is not precluded from dealing on behalf of the company with himself, or with a firm in which he is a partner. The directors are a body to whom is delegated the duty of managing the general affairs of the company. A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connexion: "The first question is: Had Underwood actual authority to deal with the cheques as he did?... He was using the proceeds of the cheques in question to pay his own private debts. Under ordinary circumstances actual authority appears to be clearly negatived. Nevertheless it was contended that the fact that Underwood was the sole director and practically the sole share-holder gave him, in pursuance of the articles, actual authority. He was entrusted with all the powers of the company, the company can only act through its directors, and the directors, or director if only one, could do what they willed with the company's assets. If this means anything it means that a board of directors acting as such have actual authority to defraud the company by using the company's assets to pay debts due to butchers or moneylenders by the individual directors. Such an act is quite outside the class of acts--management of the company's business--authorized to be done by the board. The directors, whether collectively or singly have not actual authority to steal the company's goods." In the circumstances of this case the Bank were not entitled to rely upon the document as one sealed by the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied (1) in satisfying an indebtedness, of the old company to the Bank at the London branch amounting to dollars 8,80798 and (2) in satisfying three sums due to the Bank by the three partners, amounting in all to a total sum of dollars 323,15669. If the figures on this account are accepted by the parties, judgment should be entered for the old Company for this last mentioned sum with interest thereon at the proper commercial rate from 30th June 1931, until judgment. If the figures are not agreed it must be referred to the Master to take an account to ascertain the amount of cash standing to the credit of the "savings account" on 30th June 1931, after the said payment to the Receiver-General had been made, and the Bank must be ordered to pay the amount so found, with interest thereon at the proper commercial rate until payment. The order of the Court of appeal will be discharged, and the judgment of Kelly, J. of 4th January 1934, varied by striking out the Paras 2 and 4, by inserting therein either judgment for the old Company as above mentioned, or (as the case may be) an order, for an account and payment as above mentioned, by ordering the Bank to pay the old Company's costs o ..... 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