Supreme Court of Canada
Union Bank of Halifax v. Indian & General Investment Trust, (1908) 40 S.C.R. 510
Date: 1908-10-06
Union Bank of Halifax (Defendants); Appellants;
and
The Indian and General Investment Trust (Plaintiffs) Respondents.
1908: May 18, 19; 1908: October 6.
Present: Girouard, Davies, Idington, Maclennan and Duff JJ.
ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA.
Pleading — Purchase for value without notice — Onus — Evidence— Affirmative and negative evidence—Weight of evidence.
The plea of purchase for value without notice must be proved in its entirety by the party offering it; it is not incumbent on the opposite party to prove notice after the purchase for value is established.
Where a conversation over the telephone was relied on as proof of notice, the evidence of the party asserting that it took place, and giving the substance of it in detail, must prevail over that of the other party who states only that he does not recollect it.
APPEAL from a decision of the Supreme Court of Nova Scotia reversing the judgment at the trial by which the plaintiffs' action was dismissed.
The question in this case is as to the validity of a specific security created by a trading company in the ordinary course of business as against the floating security created by a previous trust deed to secure bonds issued by the company. The company in question is the Acadia Pulp & Paper Mills Company, Limited, incorporated by special Act of the Legislature of the Province of Nova Scotia, being ch. 95 of the Acts of 1897, giving the company power among other things:
[Page 511]
"2 (c). To carry on a general manufacturing business, including the manufacture of lumber, wood, pulp, paper, and all sorts of wooden goods, and in connection therewith to purchase, supply, dispose of and sell the usual commodities, goods and supplies incidental to any business undertaken by the company.
"(d) In connection with the foregoing, to have all the rights, powers, franchises and privileges that a private individual would possess and enjoy."
The company by trust deed dated the 1st day of May, 1897, conveyed to the respondent, therein called "the present trustees" as trustee for bondholders, its freehold lands, hereditaments, water, and other rights and premises respectively specified and referred to in schedule with the mills, buildings, fixed machinery, and other fixtures, boilers, engines, machines and plant affixed or appertaining thereto, to hold the same unto and to the use of the trustee, subject nevertheless as thereinafter provided. The trust deed also contains. the following clause:
"3. The company hereby charges in favour of the present trustees its other assets whatsoever and wheresoever for the time being both present and future including its uncalled capital with the payment of all monies for the time being owing on the security of these presents and such charge shall rank as a floating charge and shall accordingly in no way hinder the company from selling, alienating, leasing, paying dividends out of profits or otherwise disposing of or dealing with such assets in the ordinary course of its business and for the purpose of carrying on the same but the company shall not be entitled to mortgage or
[Page 512]
charge the same in priority to or pari passu with the security hereby constituted."
The company carried on its business until June, 1903. In September, 1901, the company arranged with the appellant for a loan of $40,000 security to be given under the Bank Act upon its pulp wood piled at various places. This loan to the extent of $33,753 was required to pay for pulp wood, and the balance for carrying on the company's business, i.e., to convert the wood into pulp and market same.
The loan was advanced in two sums, of $16,000, October 3rd, 1901, and $24,000 November 11th, 1901. For the $16,000, security under the Bank Act was given.
The company made all payments secured by the trust deed till May, 1903. $10,000.00 of the $16,000.00 was then and is still due to appellant.
The appellant, when the balance of the $40,000 loan, i.e., $24,000, was advanced November 11th, 1901, received from the company an agreement to give security on its pulp wood.
The security in accordance with this agreement was no doubt given, but it has been lost. Of this $24,000.00, the sum of $16,000.00 remains unpaid.
The bank, when the company defaulted its bonds, took possession under its securities of the pulp wood on hand. The trustee thereupon claimed to be entitled to the pulp wood under the trust deed.
Pursuant to agreement this pulp wood was manufactured and converted into money, without prejudice to the rights of either party, realizing $14,661.00, which is the fund in question in this action.
[Page 513]
The action was brought by the respondent hereinafter called The Trustee against the appellant, hereinafter called "The Bank” The Acadia Pulp and Paper Mills Company, Limited, hereinafter called "The Company," and Walter G. Jones, receiver and manager for the bondholders, plaintiff claiming a declaration that the fund in question is subject to the lien of the trust deed and that same is a first charge thereon and that the receiver is in duty bound to pay over the fund to plaintiff. The action was defended by the bank, which also counterclaimed for a declaration that the fund in question was subject to the lien of securities under section 74(2) of the Bank Act (53 Vict. ch. 31), given by the company to the bank, and that such securities have priority to lien or charge created by the trust deed, and that the receiver is in duty bound to pay over the fund to the .bank. The action was tried before the Judge in Equity (Mr. Justice Graham) at the April sittings, 1907, at Halifax, and he subsequently filed a decision in favour of the bank upon which an order for judgment was taken out on the 10th day of July, 1907, dismissing the action of the trustee and adjudging that the fund in question is subject to first lien in favour of the bank upon securities under the Bank Act for a sum exceeding the amount of the fund, and adjudging and decreeing that the receiver and manager for the bondholders do pay over the fund, with interest, to the bank. From this decision and order thereon, the trustee appealed to the Supreme Court of Nova Scotia in banco, and the appeal was heard before three judges of that court, namely: the Chief Justice, Mr. Justice Meagher, and Mr. Justice Longley, in February, 1908, and subsequently the judges who heard
[Page 514]
the appeal pronounced their decision allowing such appeal and reversing the judgment and order appealed from and ordering payment of the fund to the trustee, and on the 14th day of March, 1908, order was taken out in accordance with this decision. From such decision and order the present appeal has been taken by the bank.
W. B. A: Ritchie K.C. for the appellant.
Newcombe K.C. and J. J. Ritchie K.C. for the respondents.
W. B. A: Ritchie K.C. for the appellant. The trust deed prevents the company imposing a general charge on its property but not the giving of a special security such as that in favour of appellants. See Lindley on Companies (6 ed.), p. 321; In re Old Bushmills Distillery Co..
The advances from the bank were for the purpose of carrying on the business of the company which was not a violation of the terms of the trust deed. Wheatley v. Silkstone and Haigh Moor Coal Co.; Government Stock Investment Co., v. Manila Railway Co..
The bank was a purchaser for value and the burden of proving notice of the restriction in the trust deed was on the respondents. Robson v. Smith. The conversation over the telephone, even if proved, was too late to amount to notice. See English and Scottish Mercantile Investment Co. v. Brunton.
Newcombe K.C. and J. J. Ritchie K.C. for the respondents. The security given to the bank is clearly within the prohibition contained in the trust deed.
The only question is whether or not the bank had
[Page 515]
notice of this prohibitive clause, and if the onus of proving notice is on the respondents it has been satisfied. See Lindley on Companies (6 ed.), PP- 321-2. Cox v. Dublin City Distillery Co..
The manager of the company gave affirmative evidence of the conversation by which notice was given to the bank manager. Such evidence must prevail over that of the manager who merely swore that he had no recollection of the conversation. Lefeunteum v. Beaudoin.
Girouard, Davies and Maclennan JJ. agreed in the opinion stated by Duff J.
Idington J.—I think this appeal should be dismissed for the reasons that appear in the judgments of the Chief Justice of Nova Scotia and others in which reasons I fully concur.
I may add that I think it quite probable that at the time Mr. Jones says he read over the paragraph of the contract now in question to Mr. Thorne, the latter supposed that the remote contingency of the floating security becoming mature and enforcible before the pulp wood taken by the bank as security had been fully realized upon and the loan it secured repaid was not worth much consideration. In such case, a matter so dismissed would not likely impress his memory.
Probably that way of looking at the matter was, as things then appeared, quite reasonable.
If the security receipts had been enforced as the
[Page 516]
notes fell due, it may well be that the respondents never would have intervened.
It seems to me a ease where of two respectable men one might have no reason to be impressed and the other, from his point of view, felt so impressed, that, unless he made the explanation he says he did, he might be in the way of becoming a candidate for the penitentiary.
It was urged upon us that the following part of a paragraph of the floating security deed, that is,
but the company shall not be entitled to mortgage or charge the same in priority to or pari passu with the security hereby constituted,
did not extend to such a charge as usual security receipts; I do not see why not. The mode of reasoning that would exclude it might be applied to any number of other securities of which each covered only a part of the available assets of the company, and thus render the debenture security worthless.
If it had become necessary to hold otherwise, I should have felt pressed to consider thoroughly, as I have not done, section 74 of the Bank Act on which the appellants' claim rests and the company's Act of incorporation.
I think the appeal should be dismissed with costs.
Duff J.—The respondents are the trustees under a trust deed to secure the debentures of the Acadia Pulp Company, dated 1st May, 1907. The deed contains the following clause:
The company hereby charges in favour of the present trustees its other assets whatsoever and wheresoever for the time being both present and future, including its uncalled capital and the payment of all moneys for the time being owing on the security of these presents, and such charge shall rank as a floating charge, and shall, accordingly, in no way hinder the company from selling, alienating,
[Page 517]
leasing, paying dividends out of profits or otherwise disposing of or dealing with such assets in ordinary course of its business and for the purposes of carrying out the same, but the company shall not be entitled to mortgage or charge the same in priority to or pari passu with the security hereby constituted.
The question in the action out of which the appeal arises, and the sole question in the appeal, is whether or not certain pulp wood acquired by the pulp company, after the issue of the debentures, is subject to the charge created by this clause to the exclusion of the claim of the appellant bank.
The bank's claim is based upon a security, dated 3rd October, 1901, given to it under section 74 (now section 88), of the Bank Act, which professes to charge in its favour the pulp wood in question with the re-payment of an advance of $16,000. There was a further advance in the following month, with respect to which different considerations might apply, but they need not concern us as the proceeds of the pulp wood mentioned, assuming them to be applicable in liquidation of the bank's claim, are less than $16,000, the amount of the first advance.
The grounds on which the bank bases its appeal are two:—First, it is argued that the instrument creating the security upon which its claim rests, is not one which, within the meaning of the clause I have quoted above, professes to "mortgage or charge" the subject of the security "in priority to or in pari passu with the security" constituted by the trust deed; and secondly, the bank sets up the defence of purchaser for value without notice.
As regards the first of these contentions, after a close consideration of Mr. Ritchie's ingenious argument, I do not think that one fails to do justice to it in saying that a sufficient answer appears to be that
[Page 518]
the bank's security is within the plain meaning of the words quoted, and I am quite unable to discover any adequate reason for so restricting their meaning as to exclude that security from their operation.
The point of substance arises out of the second ground. It is not disputed that before making the advance, in respect of which its security was taken, the bank had notice of the fact that the pulp company had issued debentures and had executed an instrument of some character charging its property or some of its property with the payment of the debentures. At this point, however, agreement on the facts ends and controversy begins. The general manager of the bank said he had no knowledge of what property of the company was affected by this charge. The manager of the pulp company says that, on the day on which the security was given, he had a discussion with the general manager of the bank in which he called the attention of the latter to an addendum to the printed form of the security he had executed, quoting section 75 of the Bank Act; and to the statement in the security itself to the effect that the goods comprised in it were free from any charge; and asked that, if in view of the existence of the debentures, and of the mortgage securing them, it was right that he should commit himself to that statement; and he says he was assured by the general manager that the bank understood the circumstances, and the course taken Vas quite usual. He added, that later on the same day, at the request of the general manager of the bank, he read to him over the telephone the clause referred to. The general manager denies that the first of these interviews took place; as to the second he was unable to say that the clause
[Page 519]
referred to was not read over to him; he could only say that he did not remember it.
In this state of the evidence it is, perhaps, unfortunate that we have not any findings of the learned trial judge dealing expressly with the point whether through its general manager the bank had or had not actual notice of the material provisions of the trust deed. The language of the learned judge seems to imply that he accepts the evidence of the manager of the pulp company, but I am not entirely satisfied that it was his intention to pass upon the point. The full court, taking the view that the onus in this controversy is with the respondents, unanimously accepted that evidence and held it sufficient to determine the question of notice or no notice against the bank. In these circumstances it would, perhaps, be sufficient to say that (assuming the view of the court below on the question of onus to prevail), the credibility of neither of the witnesses referred to being seriously impugned, there is a great weight of probability in favour of the view that the witness who related in detail an occurrence which he says he recollects is not mistaken; and that, as regards the second and more important incident, there is really no ground on which a court of justice can properly refuse to accept his testimony as against a bare want of recollection on the part of the other witness; at least it may be said that there is no sufficient ground for disturbing a decision of the court of appeal based upon these considerations. There is another ground upon which the decision of the court below may be sustained. The respondents were the holders of a floating security which created a charge on their property but, subject to that charge, giving the company the right in the course of its
[Page 520]
business to dispose of its property subject again, however, to a particular qualification. The qualification was that the company was not to create any mortgage or charge ranking in priority to or in pari passu with the debentures. Such a charge is an equitable charge. It prevails by virtue of its priority in time as against subsequent equitable charges, if the equities of the two incumbrancers are otherwise equal. Re Castell & Brown Limited. It prevails also against any subsequent incumbrancer acquiring the legal estate who does not fall within the category of purchaser for value without notice; any incumbrancer, that is to say, who does not make out, to adopt the language of Sir Francis Palmer, Company Precedents (9 ed.), part 3, page 71
(a), that he was not aware of the existence of the floating charge; or (5) that though he was aware of the charge he was not aware of the qualification.
The learned judges below, as I have mentioned, have dealt with the question of notice upon the assumption that in that controversy the onus was upon the respondents; that, I think with very great respect, is a misapprehension of the law.
The plea of purchase for value without notice is (to quote Far-well J." in Re Nisbet & Potts Contract, at page 402) a single plea to be proved by the person pleading it; it is not to be regarded as a plea of purchase for value to be met by reply of notice.
That is perfectly well established by the authority to which Mr. Justice Farwell referred, namely the decision of the Court of Appeal (James, Baggallay and Thesiger L.JJ.), in Attorney-General v. Biphosphated Guano Co., at page 337; and the opinion of Far-well J. himself was expressly approved in the Court
[Page 521]
of Appeal, at page 404, per Collins M.R.; at page 409, per Romer L.J., and at page 410, per Cozens-Hardy L.J. I have not overlooked the expressions in the Irish Court of Appeal, in Cox v. Dublin City Distillery Go.; but the authorities I have mentioned do not appear to have been brought to the attention of the court, and, with great respect for the learned judges who took part in that decision, the observations there made cannot, I think, in view of these authorities, be accepted as correct statements of the law.
The onus is, then, upon the bank to shew that it acquired a legal title to the goods in question; and that the advance, which in this case constituted the consideration, was made without notice of the restriction which the trust deed placed upon the power of the pulp company to deal with its own assets. It is not necessary, I think, for the purposes of this case, to consider whether notice of the fact that there were debentures, and a trust deed affecting some sort of a charge upon the company's property, would, in itself, be sufficient to preclude the bank from setting up this defence. There is a dictum of Lord Esher, in English and Scottish Mercantile Investment Co. v. Brunton, at page 711, to the effect that that alone would not be sufficient; there is a dictum of Lord Bowen, in the same case, that it is
possible that he (the person setting up the defence) might escape, if in respect of a deed or debenture, such as is in question here, he does not know or honestly think, that the instrument was one which must affect his right.
Kay L.J. expressly abstains from accepting these views. Whether, however, Lord Esher is right in saying
[Page 522]
that what the subsequent incumbrancer has to prove is absence of actual notice of the particular restriction which is being infringed; or whether the suggestion of Bowen L.J., that, given notice of the deed or debentures, the reasonableness of abstaining from further inquiry is the true test; or whether, given such notice, the failure to inquire entails the consequences of actual notice of the contents of the instrument,—these are questions which, in this case, may be put aside and upon which I desire to reserve any expression of opinion. I ought, perhaps, to add that the decision of Swinfen Eady J., in Re Valletort Steam Laundry Co., Limited proceeds upon the view that, in the special circumstances of that case, the subsequent incumbrancers had a stronger equity than the debenture holders.
In this case, accepting the view of the law most favourable to the appellant, that expressed in the dictum of Lord Esher, that the bank has cast upon it the burden of proving only that it was not aware at the time it made the advance of the existence of the clause in question, and having regard to the evidence to which I referred, it seems quite impossible to hold that this burden has been discharged.
Therefore, I think the appeal should be dismissed with costs.
Appeal dismissed with costs.
Solicitor for the appellants: H. C. Borden.
Solicitor for the respondents: W. B. Ross.
Email this Content