Mid-West Collieries, Limited (Defendant) Appellant;
and
T. M. Mcewen (Plaintiff) Respondent
1925: February 12, 13, 26.
Present:—Anglin C.J.C. and Idington, Duff, Mignault, Newcombe
and Rinfret JJ.
ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF
ALBERTA
Company—Powers of directors—Managing director—Power to give
chattel mortgage for past indebtedness—The Companies Act, R.S.A. (1922) c. 156,
art. 55 of table A.
[Page 326]
Even independently of the express provision of art. 55 of
table A. of The Companies Ordinance, the directors of a company
constitute its governing and managing body, and, except to the extent that
their powers are expressly restricted by statute or the articles of association
or the by-laws and regulations they possess authority to exercise all the
powers of the company.
[Page 327]
When a board of directors of a company appoint one of them
"managing director," they may be taken to have ipso facto delegated
to him their powers as a board of directors, subject to such direction and
control as it is their duty to exercise.
A board of directors can validly execute chattel mortgage
securing a past due indebtedness without the sanction of the shareholders and
the company cannot use as a valid ground of dismissal the fact that a managing
director, whose powers have not been restricted by the resolution appointing
him, has executed such a mortgage without the express authority of the
directors or shareholders.
Judgment of the Appellate Division (20 Alta. L.R. 472)
affirmed.
APPEAL from the decision of the Appellate Division of the
Supreme Court of Alberta,
affirming the judgment of the trial judge and maintaining the respondent's
action for wrongful dismissal.
The material facts of the case are fully stated in the
judgments now reported.
Bennett K.C. for the appellant.
McGillivray K.C. for the respondent.
The judgment of the majority of the court (Anglin C.J.C. and
Duff, Mignault, Newcombe and Rinfret JJ.) was delivered by
RINFRET J.—This action was brought to recover a balance of
salary and expenses due to the respondent by the appellant company arising out
of a contract for services, or, in the alternative, damages for wrongful
dismissal. There was added a claim of $400 and interest for money loaned by the
respondent on the 31st October, 1921.
Mr. Justice Ives, of the Supreme Court of Alberta, gave judgment
in favour of the respondent for the sum of $7,793.55. In this sum were included
the capital and interest of the money loaned, the salary earned by the
respondent and an agreed commission of 10 cents per ton for every ton of coal
sold by the appellant up to the date of dismissal, moneys paid by the
respondent as travelling expenses or freight charges and spent by him in the
course of his employment, and finally damages equivalent to the salary and
commission to which, but for his dismissal, the respondent would have been
entitled under his contract, which was held to have been wrongfully terminated
by the company.
[Page 328]
The Appellate Division unanimously confirmed this judgment.
Of the several reasons advanced by the appellant company as a
justification for dismissing the respondent, all of which were held bad by the
judgment appealed from, one only was seriously pressed before this court and
need now be considered. It was alleged that the respondent, without authority
of any of the shareholders or directors, mortgaged and charged the entire
assets of the company to the Bank of Montreal, at Drumheller.
This chattel mortgage was given to the bank with whom the company
carried on its banking business. There is no room for doubt that, at the time
when the respondent was appointed, the financial position of the company was
somewhat desperate. This appears to be manifest by the minutes of meetings of
the directors and of the shareholders held on 7th March, 1922.
The following extracts from the evidence accurately represent the
situation. O'Connor, the secretary-treasurer, is speaking and he says:
The mine could not possibly open; we were in that position
where we could not possibly open. We could not get funds unless we were put in
some position by somebody that would immediately * * *
Q. Command confidence?
A. Yes, or put us in a position where we could get money to
open the mine.
And a little further:
We could not raise five cents and we were being threatened.
The directors were on a bond with the Bank of Montreal and the Merchants Bank
and they were threatening certain action.
McEwen explains why he came to give the chattel mortgage:
The pressure by Mr. Prest (the bank manager) became so great
that when we were getting cheques from Bowman-Thayer on Saturday mornings, on
pay day, and when we would take that cheque in the morning Mr. Jones
(accountant) and I had got to the point where it was questionable whether Mr.
Prest was going to place that to our credit or apply it to a payment of the
debt. With this hanging over me, with the possibility of having to close our
mine, I felt that it was the part of wisdom and good judgment to protect the
company by giving a mortgage and particularly in view of having the information
after having conferred with the secretary of our company and he having
conferred with * * *
Q. No, no you don't know whether he did or not. But you did
have the benefit of the advice of the secretary-treasurer of the company.
A. Yes.
Q. Who incidentally is a barrister and solicitor?
A. Yes.
[Page 329]
The fact that the respondent consulted the secretary-treasurer is
confirmed by the latter, who also states that he advised him that he had the
right to give the mortgage.
The evidence has failed to show that what the respondent did was
detrimental to the company's interest, and, moreover, is clear that it was done
only under pressure of necessity.
While, however, affording a good answer to a complaint that the
respondent acted improvidently and contrary to the company's welfare, necessity
alone might not be found a sufficient excuse, if the respondent in fact
exceeded his authority. In this case, the rights of third parties are not in
issue; the question concerns a mere matter of internal management. What is to
be determined is whether the directors in fact purported to clothe the
respondent with the authority which he exercised; for the company cannot be
heard to assert as a ground for dismissal or to brand as misconduct the making
use of the very powers which its directors professed to vest in its officer;
nor can it urge here the illegality of their acts, as a ground of relief from
the damages consequent upon such dismissal.
Now there was no formal resolution defining the extent of the
powers of the respondent. It was moved at a directors' meeting
that we proceed to the election of a
general manager for the ensuing year; then "that James C. Nostrant be
manager" and, this motion being withdrawn, it was moved and carried
"that T. M. McEwen be appointed managing director."
Leaving aside for the moment the true meaning of the resolution,
which will have to be considered later, the mere appointment of a manager by
directors
will only operate as a delegation of
the ordinary commercial business of the company
(Palmer's Company Law, 12th ed., pp. 45 and 272); while the
authority of a managing director may be implied from the power to delegate
vested in the body by which he was appointed (Buckley on the Companies' Act,
10th ed. p. 656).—By the 68th article of Table A of The Companies Ordinance (18
Ord. of N.W.T., c. 20), which was embodied in the appellant's articles of
association, the directors could delegate any of their powers to
"committees consisting of such member or members of their body" as
they thought fit.
[Page 330]
It would appear that by appointing McEwen as they did, the
directors intended thereby to delegate their powers to him under this article,
subject of course to such direction and control as it was their duty to
exercise (Montreal Public Service Co. v. Champagne.
But, on this point, the record affords much more conclusive evidence of the
intention of the meeting. We may look (Lindley on Companies, 6th ed. p. 433) at
the answer given on the examination for discovery by James K. Valance,
selected by the (appellant) company,
for the purposes of making admissions to be used against the company at the
trial.
609. Q. Well it was understood by everybody at the meeting
that he was to have full authority and control of everything during his office?
A. Yes.
Now, generally speaking, unless otherwise
provided by the Act under which the company was incorporated, by the articles
of association or by the by-laws and regulations, the directors possess
authority to exercise all the powers of the company (Hovey v. Whiting;
and Art. 55 of Table A says so in explicit terms. Strong J., later Chief
Justice, delivering the judgment of this court in Bickford v. Grand Junction
Railway Co., said
at p. 730:
No enabling power is requisite to confer the authority to
mortgage, but prima facie every corporation must be taken to possess it;
and he cites abundant authority in
support of his proposition.
This power is not limited to the object of securing a loan, in
which case "the sanction of a resolution of the company must be previously
given in general meeting" (Companies' Ordinance, c. 20, Ords. of N.W.T.
1901, s. 98); but it may be exercised for other purposes, such as securing a
debt which is an outstanding valid liability of the company, and for that the
confirmatory vote of the shareholders is not required. Barthels v. Winnipeg
Cigar Company.
In the case of The Corporation of the Town of St. Jerome v.
The Commercial Rubber Company Limited, the
town had voted a bonus to the company and granted it exemption from taxation on
condition that the company establish a factory in the municipality and operate
the same for ten years without intermittence. The company
[Page 331]
gave a hypothec on its real estate as
security for the fulfilment of its obligations. The town brought action to
recover the bonus paid, alleging breach of the conditions, and prayed for the
enforcement of the hypothec. The plea was that the deed of hypothec was
illegal, null and void because the directors of the company had no power to
authorize its president or any other officer to hypothecate the immovable
properties without the formality of a by-law passed in due form and previously
submitted to the shareholders of the company and approved by them.
The Privy Council held that the directors of a joint stock
company incorporated under the Revised Statutes of Canada of 1888, c. 119, had
the power under the "general powers" clause, s. 35 of the Act, to accept
a conditional bonus and to hypothec the immovable property of the company to
the municipality, without the approval of the shareholders.
There is no substantial difference between Art. 55 of Table A of
the Companies' Ordinance and section 35 of The Companies Act of 1888, under
which the case of Town of St. Jerome v. Commercial Rubber
was decided by the Judicial Committee. And the cases are made more similar by
the circumstances that the federal Act of 1888 (s. 37), like the Companies'
Ordinance (s. 98), also contained provisions requiring the approval of the
shareholders for authority to borrow money with incidental authority to
hypothecate or pledge the real or personal property of the company as security
therefor.
It follows that the directors could have executed the chattel
mortgage here in question without the sanction of the shareholders. After the
board had vested the respondent with full authority and control, the least that
can be said is that the company cannot urge as a valid ground of dismissal the
fact that he has executed this chattel mortgage securing a past due
indebtedness to the bank.
But the appellant further says that the articles of association
contain no provision enabling the directors to appoint a managing director.
It is not quite clear, from the three successive resolutions of
the 7th of March, to which reference has already been
[Page 332]
made, whether the directors really
intended to make McEwen a managing director or whether he is so styled in the
minutes merely because he happened to be a manager chosen from amongst the
directors.
Although a director, McEwen could, under clause 53 of the
articles of association,
hold any other office of profit in
service of the company, in conjunction with the office of director, and that on
such terms as to remuneration and otherwise as the directors may arrange.
We see however no reason to disagree from the view taken by the
learned trial judge that, as the directors could, under art. 68 of Table A,
delegate any of their powers to committees consisting of such member or members
of their body as they thought fit, "a committee of one so named is
tantamount to naming one as managing director,"— especially when the
Companies Ordinance (s. 94) contemplates the existence of a managing director;
and it is common ground that there were managing directors in the company
during the previous year, with the acquiescence of the shareholders (Phosphate
of Lime Company v. Green; Ashbury
Railway Carriage and Iron Company v. Riche
).
Counsel for the appellant submitted the further contention that a
managing director is not a "servant" of the company and that the
remuneration for his services could, by virtue of clause 51 of the articles of
association, be determined only by the company in general meeting. The question
then would be whether, under the present circumstances, the respondent may yet
maintain a claim for loss of salary and commission.
It might perhaps be said that clause 51
does not contemplate special
payments of the character here in question, which are not made by way of
remuneration for services of a director as a director, but special allowances
made on some other ground.
(Fullerton v. Crawford
).
It might also be argued, and with great force, that the true
purpose and effect of the directors' resolution was to appoint the respondent
general manager at the remuneration fixed, which it was within their power to
do, and to delegate to him, qua director, their powers, which they were
also enabled to do under Art. 68 of Table A. Under
[Page 333]
the circumstances, the name
"managing director" may well have been used as a convenient and
comprehensive description of the respondent's position as general manager
exercising the powers of the directorate, qua delegated director, and
the remuneration voted may not have required the sanction prescribed by clause
51 of the articles of association.
But the appellant having failed to raise any such point either in
its statement of defence or in its notice of appeal, it should not be permitted
to urge it for the first time before this court. If such an objection had been
taken at the trial it would have been open to the respondent to show several
reasons why it was not available to the appellant company. It is significant
that neither in the special notice calling the shareholders together in
extraordinary general meeting for the purpose of removing the respondent from
office, nor in the letter notifying him of his dismissal as "manager"
(sic) was this matter mentioned. The appellant appears to have treated the respondent
throughout as if entitled to be paid; and, under all the circumstances of the
case, it was necessary that a defence of that kind be clearly raised in the
pleadings, so that the plaintiff should be squarely faced with the difficulty
and given full opportunity of meeting it.
This ground of defence is therefore not open now to the appellant
company and, as it has failed to make good its other grounds of appeal, our
conclusion is in agreement with that reached by the courts below.
IDINGTON J.—Having given all the consideration possible to
the argument of counsel as well as factum for appellant I reached the
conclusion that even if the respondent exceeded his actual powers in giving the
chattel mortgage complained of to the bank to secure its arrears due and that
under a pressing urgency, to save the appellant from possible disaster, and
being advised by a member of the bar who happened to be secretary-treasurer of
the company appellant there was no justification for the dismissal.
There may have been an error of judgment but no such misconduct
as entitled, on the facts presented herein, the summary dismissal of
respondent.
I have never forgotten the fact that it was a general manager the
directors had, by formal resolution, decided to ap
[Page 334]
point evidently meaning a manager of well
known business capacity.
After that was unanimously carried and a director nominated in
strict accordance with the term "general manager", the director so
nominated withdrew for private reasons.
Someone, instead of adhering to the terms of foregoing
resolution, quite accidentally, I imagine, in nominating the respondent, erred
out of courtesy no doubt and failing to realize the possible distinction in law
between a general manager and a managing director, it passed.
I, under all such circumstances, construe that as "a general
manager" and quite believe nothing further was intended.
I have, since coming to the foregoing conclusion, received a copy
of my brother Rinfret's judgment herein and in the main agree with his reasoning,
and would dismiss this appeal with costs.
Appeal dismissed with costs.
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