Supreme Court of Canada
McKnight Construction Co. v. Vansickler, (1915) 51 S.C.R. 374
Date: 1915-05-04
The J.H. McKnight Construction Company (Defendants) Appellants;
and
J.A. Vansickler and E.A. Vansickler (Plaintiffs) Respondents.
1915: March 1; 1915: May 4.
Present: Sir Charles Fitzpatrick C.J. and Davies, Idington, Duff, Anglin and Brodeur JJ.
ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF ONTARIO.
Company—Powers—Sale of business premises—Seal—Agreement signed by officer.
An industrial company, unless forbidden by its charter, has power to sell its business premises in order to secure others more suitable, and a contract for such sale may be valid though not under the company’s seal.
Where the contract is executed by an officer of the company to whom the necessary authority might be given the other party thereto is not called upon to ascertain if proper steps had been taken to clothe him with such authority; it is sufficient that he is the apparent agent of the company to transact business of the kind and that the power which he purports to exercise is such as, under the constitution of the company, he might possess.
Per Idington J. dissenting.—A person dealing with a minor officer of a company is supposed to know what powers he has by by-law, passed in the manner provided by its charter, to enter into any unusual transaction. In this case it was not proved that the officer signing the contract was empowered to do so, and as the company was not authorized to deal in real estate the transaction was not one within the apparent scope of his authority. The contract was, therefore, not binding on the company.
Judgment of the Appellate Division (31 Ont. L.R. 531) affirmed.
APPEAL from a decision of the Appellate Division of the Supreme Court of Ontario, affirming the judgment at the trial in favour of the plaintiffs.
[Page 375]
The action was for specific performance of a contract by which the appellants had agreed to sell to respondents their business premises which were not large enough for their requirements. Two main questions raised on the appeal were—Was the contract void because the seal of the company was not affixed thereto? Had Douglas, who signed the contract for the company as secretary-treasurer, authority to do so? Both questions were decided against the company in the courts below.
Hellmuth K.C. and R.S. Robertson for the appellants. As to necessity for the seal see Beer v. London and Paris Hotel Co., explaining Holmes v. Trench, relied on by the Appellate Division.
This case is not within the exception to the rule requiring the seal. Garland Mfg. Co. v. Northumberland Paper and Electric Co.; Birney v. Toronto Milk Co.
McKay K.C. for the respondents referred to Duck v. Tower Galvanizing Co.; Premier Industrial Bank v. Carlton Mfg. Co., at page 114; Trusts and Guarantee Co. v. Abbott Mitchell Iron and Steel Co.
THE CHIEF JUSTICE.—I am of opinion that this appeal should be dismissed with costs.
DAVIES J.—I concur with Anglin J.
[Page 376]
IDINGTON J. (dissenting).—This is an appeal from the Appellate Division of the Supreme Court of Ontario maintaining a judgment against appellant company for specific performance.
The appellant is a company incorporated under the “Ontario Companies’ Act” “for building sewers and so on,” and in February, 1913, owned a piece of land used as a storage yard for the purpose of carrying on that business for which the company was incorporated.
Douglas, one of the appellants, was secretary-treasurer of the company. The respondents made in writing an offer of purchase of said land, addressed to said company and signed by the respondents.
That was accepted by the following writing at foot of said offer:—
I hereby accept the above offer and its terms, and covenant, promise and agree to and with the said to duly carry out the same on the terms and conditions above mentioned.
Dated A.D. 19
J.H. MCKNIGHT CONSTRUCTION CO., LIMITED.
Witness:
................................... W.E. Douglas, Sec. Treas.
This offer apparently had been prepared by Douglas and enclosed to one of respondents in a letter to him of the 21st February and was signed apparently by Douglas, per M. J. It read as follows:—
I am enclosing herewith an offer to purchase made out on the terms we discussed. You will notice that we are not required to give up possession until April 16th.
As I told you, Mr. McKnight is out of town and will not be back till late in April, so that we will not be able to get his signature until then, but that need not make any difference in the transfer as far as you are concerned, it can go ahead and he can sign the necessary papers when he returns.
If you will sign this offer and return it with a cheque for $100 I will sign a copy for you.
[Page 377]
At foot of this letter one of respondents signed his name and following that is a receipt of cheque for 100 signed “W.E.D.”
In the body of the offer appears the following:—
This offer is to be accepted by February 22nd, 1913, otherwise void; and sale to be completed on or before the 10th day of March, 1913. Possession of the said premises is to be given me, April 16th, 1913.
This letter with its footing and the offer and apparent acceptance thereof might, I think, be read together, as the signing thereof toy J.A. Vansickler could have been done for no other purpose than that they should be so read.
The above words,
sale to be completed on or before the 10th day of March, 1913,
in light of such reading and the surrounding facts and circumstances certainly never were intended by the parties to mean what is usually meant thereby, but so far as was possible of completion consistent with the absence of McKnight.
I should, therefor (but for what I am about to refer to) have no difficulty in treating the contract as ended when appellants refused to complete it so far as it could be in such absence, and I have no doubt, would have been, but for the unfortunate absence of one of respondents’ solicitors who knew the parties.
In my view of the case, however, it is needless to go through all that transpired relative to that phase of the business. I am inclined to think the appellant Douglas, if he had any authority, waived, by what happened later, the right to maintain this answer to the suit.
Nor do I think that the mere absence of the corporate seal is in itself fatal to the validity of the con-
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tract by a corporate company either to sell or buy land. It might well be that some officer of the company duly authorized to sign such a contract could bind it without affixing the corporate seal. Or, indeed, it might well be that the officer of the company duly entrusted with the power to affix the seal might, in conceivable cases, bind the company to some one else by using the seal, though exceeding his actual authority, yet using it in a way he had been held out as entitled to use it.
But there is a sense in which, as mere matter of argument illustrative of the question of authority to form a contract, the cases of the need for a seal may be serviceable. The ordinary every‑day contract in which of necessity as it were a corporate seal is dispensed with has some analogy to the law applicable to measure the authority of an agent contracting on behalf of the company he represents himself to be acting for.
Beyond that I cannot see that the mere absence of the corporate seal is of any consequence. The contract may be of such an unusual character for the company to enter into that he dealing with the company may in law by the absence of a seal be put upon his guard to inquire why the transaction has not been sanctioned by use of the seal which at common law was the usual method by which a company had to speak in order to bind itself.
It is not, however, upon such subleties that the case for appellant must needs rest or the decision thereof turn.
The issues to be determined are whether or not the contract in question was within the scope of the actual or ostensible or apparent authority of Douglas
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as the secretary-treasurer of the appellant company. It was in his capacity of secretary-treasurer he professed to act. As such he had no authority to sell the company’s land.
The Act under which the company was incorporated directs that the affairs of the company shall be managed by a board of directors; that, except as therein provided, no business of a company shall be transacted by its directors unless at a meeting of directors at which a quorum is present; that the directors may pass by-laws not contrary to law or the letters patent to regulate many specified things, and generally the conduct in all other particulars of the affairs of the company and, that such by-laws must be confirmed by the shareholders at or prior to next annual meeting or become thereafter null.
These general provisions any one dealing with a company is supposed to know and observe at his peril. If dealing with a minor officer of the company he is also supposed to know what powers that officer has by by-law passed as aforesaid to enter upon any unusual transaction.
The respondents have failed to point out anything in such by-laws enabling the secretary-treasurer to execute the contract in question, or anything duly and regularly done by the directors relative to such contract which would warrant the secretary-treasurer, as such, signing on their behalf.
In any way I can look at the matter it seems clear there was no actual authority duly conferred upon any one to make the said contract.
The by-laws provided that the directors from time to time might appoint one of their body to be managing director of the company, but I cannot find any by-law defining his duties.
[Page 380]
And when the directors made an appointment they did not observe this, but appointed McKnight “general manager of the company at a salary of $416.66 per month” and ante-dated the appointment by nearly three months.
At the same time W.E. Douglas was appointed by a motion seconded by himself, assistant general manager of the company at a salary of $208.33 per month. I cannot find any by-law or anything else indicating what his duties were to be as such. Now, do these nominations supply the authority, and how?
I repeat it was as secretary-treasurer Douglas professed to act and I fail to see how his being something else, undefined, and unauthorized to do anything specifically within the legal powers of that something else, or what might be presumed such, can help.
But it is said McKnight was president and general manager and he authorized the contract to be entered into. But what authority had he, to begin with? I cannot find he had any. And it seems quite clear he could not delegate even such powers as he possessed.
The board might have substituted some one else for him in his absence to act and the board might have acted directly in the matter. It did neither. Hence in all these suggestions I can find no actual authority in law for Douglas acting as secretary-treasurer and thereby binding the said company by signing said contract as he did.
Then did he act within the ostensible or apparent scope of his authority in making the contract? I submit he clearly did not. If this company had been formed with one of its objects to be the dealing in real estate, then the matter would have been very simple. Either his position as secretary-treasurer or assistant
[Page 381]
manager of such a corporation might well have implied authority to sell real estate, for that would be its business. Or had he entered into a contract for constructing a sewer involving ten times as much as involved herein, his company might have been held so bound if he had been, to the knowledge of the company, accustomed to have so acted in contracting on its behalf. But there is not the shadow of pretence for saying that either the president or the secretary-treasurer of the appellant company had ever sold or been expected to sell the real estate of the company. So far as we are informed this is the only piece of real estate the company ever had and that was in use by the company for the due execution of the purposes of the company as a builder of sewers, etc.
The analogous case presented in argument of a bank agent selling the business stand where his bank is carrying on business seemed to me much in point.
The proposal to do so would so shock one’s sense of propriety that any one seriously making such a proposal would be treated as a fool or a madman. Yet wherein is the difference? There is none in the law governing the bank agent any more than the manager of a sewer construction company who is apparently the agent for the purpose of executing the contracts within and necessary to transact the ordinary business of the company, just as the bank agent or manager is such, but by no means apparently authorized to sell out its business stand.
The cases cited by counsel for respondents are all distinguishable from this by applying the true test of the apparent scope of authority of the agent. When as here he goes beyond that, his express authority
[Page 382]
must be shewn and in that regard as already pointed out the respondent fails.
The appeal should be allowed with costs throughout and the action dismissed.
Nor do I think the claim against Douglas personally is maintainable. The mistake is one of law for which respondents are quite as much to blame as he.
An agent is not bound for a mistake in law as to the scope of his authority: see Beattie v. Lord Ebury. And still less if possible for mutual mistake of law. See Eaglesfield v. Marquis of Londonderry.
The cross-appeal should also be, therefore, dismissed with costs.
DUFF J.—I concur in the judgment of the Appellate Division delivered by Mr. Justice Clute. It is not necessary to add anything whatever to the very complete discussion of the points raised which is to be found in that judgment. Contentions were advanced, however, on part of the appellant which raised two questions of general importance in respect of which it is perhaps desirable to express one’s views of the principle involved.
The first point is as to the authority of the secretary-treasurer. This point, although apparently taken in the court of appeal, was not taken in the appellant’s factum and was I think advanced during the oral argument here on the invitation of the Bench. I am not surprised at this because on examining the record, there appears to be ample evidence that the secretary-treasurer was the apparent agent of the company for the transaction of the kind of business he undertook to do. That being so, the case
[Page 383]
is within the principle very satisfactorily stated in Palmer’s Company Law, 9th ed., 1911, p. 44, in the following words:—
This rule is that where a company is regulated by an Act of Parliament, general or special, or by a deed of settlement or memorandum and articles registered in some public office, persons dealing with the company are bound to read the Act and registered documents, and to see that the proposed dealing is not inconsistent therewith; but they are not bound to do more; they need not inquire into the regularity of the internal proceedings—what Lord Hatherley called “the indoor management.” They are entitled to assume that all is being-done regularly. See also Mahony v. East Holyford Mining Co.; Bargate v. Shortridge; In re Land Credit Co. of Ireland; In re County Life Assurance Co.; Premier Industrial Bank v. Carlton Manufacturing Co., is not easily reconcileable with the rule.
This rule is based on the principle of convenience, for business could not be carried on if a person dealing with the apparent agents of a company was compelled to call for evidence that all internal regulations had been duly observed.
The next point turns upon the absence of the company’s seal. This question may be disposed of by a reference to the decisions of the Court of Exchequer and the Exchequer Chamber in South of Ireland Colliery Co. v. Waddell. The following passage from the judgment of Bovill C.J., at page 469, is cited by Sir Frederick Pollock (Contracts, 8th ed., p. 156), as stating the law upon the point. And it may be observed that the judgment of Bovill C.J. had the express approval of the Exchequer Chamber in the same case (at page 618) where Cockburn C.J., said, speaking for the court (of which Willes J. was a member):—
It is unnecessary to say more than that we entirely concur in the reasoning and the authority of the cases referred to in the judgment of Bovill C.J. which seems to exhaust the subject.
[Page 384]
The passage in the judgment of Bovill C.J. which seems to me to conclude argument upon this point is as follows:—
These exceptions apply to all contracts by trading corporations entered into for the purposes for which they are incorporated. A company can only carry on business by agents, managers and others; and if the contracts made by these persons are contracts which relate to objects and purposes of the company, and are not inconsistent with the rules and regulations which govern their acts (n), they are valid and binding upon the company, though not under seal. It has been urged, that the exceptions to the general rule are still limited to matters of frequent occurrence and small importance. The authorities, however, do not sustain the argument.
I may add that the decision in Waddle’s Case is over fifty years old and it is, of course, perfectly well known that the business of trading companies has now for many years been conducted on the assumption (based upon the observations of the learned judges who decided that case) that such corporations may express their consent in a binding manner to contracts within the scope of their business in the same way as an individual may do, provided that no statutory provision or regulation affecting them is infringed or departed from.
To break in upon this rule at this date by accepting the contentions advanced on behalf of the appellant, would be as Cockburn C.J. says, to give life to a relic of barbarity and so far as I can see with no other effect than to put unnecessary obstacles in the way of the transacting of ordinary business.
The appeal should be dismissed with costs.
ANGLIN J.—With Riddell J., who tried this action,
I do not find anything * * * in the documents which necessitates the payment by the plaintiffs of the amount ($1,400) until such time as the sale was completed.
[Page 385]
I have no doubt that by the completion of the sale was meant the delivery of a conveyance and transfer of possession of the property. The evidence establishes that the defendants made default both as the conveyance and as to possession. They acknowledged their inability to give possession when the plaintiffs, shortly after the date fixed by the agreement for completion, offered to pay the $1,400 if given possession and to accept a solicitor’s undertaking for the subsequent delivery of a deed. The evidence lends some support to the view that the plaintiffs knew before they made the agreement that there would probably be delay in the execution of the conveyance, and they, therefore, may have contemplated payment of the $1,400 on the date named for completion of the sale, although the vendors might not then be able to deliver a deed of the property. But there is not a tittle of evidence to warrant a suggestion that they had agreed to pay the $1,400, although the vendors should be unable to deliver possession of the premises.
While I think the defendants have failed, on the admissible evidence, to prove an agreement by the plaintiffs to pay the $1,400 before receiving a deed, the evidence of Mr. Dods makes it quite clear that the real cause of the delay in the completion of the sale was not that the plaintiffs were insisting on delivery of a deed contemporaneously with their payment of the $1,400, but that the defendants were not ready to transfer possession of the property. That certainly was the situation from the 20th of March until the 20th of May, when for the first time the defendants sought to escape from their contract on the pretext of delay on the part of the plaintiffs in the payment of the $1,400, although, as Mr. Dods’s uncontradicted
[Page 386]
evidence shews, he had informed the defendants of his client’s readiness to pay this money on the 20th of March and the subsequent delay had been at the instance of the defendants’ own solicitor. Assuming a contract binding on the defendants, I have no hesitation in affirming the holding that the default in carrying it out was entirely theirs and that the plaintiffs are entitled to the relief of specific performance.
The defendants, however, maintain that there was not a contract binding upon them—(a) because the assistant general manager, Douglas, who, on their behalf, signed the acceptance of the plaintiffs’ offer to purchase, did so without authority; and (b), because the seal of the company was not affixed to the document.
(a) There can be no question of the company’s right to hold and to dispose of this real estate (2 Geo. V. ch. 31, sec. 23, and sec. 24(b)), nor is there room for doubt as to the power of the directors to make a contract such as that in question. (Ibid., sec. 82.) The property had been acquired for and used as the business premises of the company. It had become too small for their needs and it had been decided to dispose of it in order to permit of more suitable premises being purchased. The sale was, therefore, arranged for in the course of the management of the company’s affairs. By section 87 (e) of the statute directors are empowered to pass by-laws providing for the conduct of the affairs of the company, and, by section 86 to elect a president and vice-president and to appoint all officers of the company. Under these statutory provisions by-laws were passed by this company as follows:—
[Page 387]
20. The directors may from time to time appoint one of their body to be managing director of the company.
22. The directors may from time to time entrust to and confer upon the managing director such of the powers exercisable under these by-laws by the directors as they may think fit.
34. In case of the absence of any officer of the company the Board of Directors or President may delegate his powers or duties to any other officer or to any director for the time being.
The election of Mr. McKnight as president and his appointment as general manager and that of Mr. Douglas as assistant general manager are duly proven. I attach no importance to the fact that in the resolution for the appointment of Mr. McKnight he is styled general manager instead of managing director. The appointment was undoubtedly intended to be made under by-law No. 20.
On the evidence it is quite clear that the sale to the plaintiffs was arranged by them with Mr. McKnight and was discussed by him with his co-directors, who approved of it at least informally. Being obliged to leave the city Mr. McKnight, as president, delegated to Mr. Douglas authority to carry out the transaction and to prepare and execute a contract of sale with the plaintiffs. With the learned trial judge, I think,
that Douglas did draw up a document which was precisely what had been arranged by the parties and that document was one, therefore, which he had the right and the power to draw and afterwards to sign.
For any lack of formality in the steps leading to the authorization of Douglas the plaintiffs should not suffer. They were not called upon to ascertain that proper steps had been taken to clothe him with authority to execute the contract with them on behalf of the company. They acted with perfect good faith. The power which Douglas purported to exercise was
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such as, under the constitution of the company, he might possess, and
that is enough for a person dealing with him bonô fide.
Biggerstaff v. Rowatt’s Wharf; Premier Industrial Bank v. Carlton Manufacturing Co. On the evidence I incline to think that the proper inference is that Douglas was in fact clothed with authority to bind the company by an agreement such as he made: but, if not, it is clear that under the statutory powers of the directors and the by-laws of the company provision was made for vesting such authority in an officer holding his position, and, as against third parties dealing with such an officer in good faith in regard to a matter in respect of which authority could be so conferred upon him, the company cannot be heard to deny his power to bind it. Totterdell v. Fareham Blue Brick and Tile Co.
(b) Nor does the absence of its corporate seal afford a defence to the company.
I am, with respect, unable to accept the view which prevailed in the Appellate Division that section 139 of the “Ontario Companies’ Act” (2 Geo. V. ch. 31) applies to the execution of contracts or other instruments. It deals only with the “authentication” of documents, not with formalities of execution. The substitution in revision of the more compendious word “document” for the particular words “writ, notice, order” formerly used did not change the character of that for which the section provides, namely, authentication as distinguished from execution. The
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word “authentication” has the same meaning in the revised Act which it bore in the former “Companies’ Act”—the same meaning which it has in the corresponding section of the English “Companies’ Consolidation Act of 1908”—8 Edw. VII. ch. 69, sec. 117.
But the defendant company is a trading company.
“The general result of those cases,” says Wightman J., in Henderson v. Australian Royal Mail Steam Navigation Co.,
seems to me to be that, whenever a contract is made with reference to the purposes of the incorporation, it may, if the corporation be a trading one, be enforced, though not under seal.
As put by Bovill C.J. in South of Ireland Colliery Co. v. Waddle:—
Originally all contracts by corporations were required to be under seal. From time to time certain exceptions were introduced, but these for a long time had reference only to matters of trifling importance and frequent occurrence, such as the hiring of servants, and the like. But, in progress of time as new descriptions of corporations came into existence, the courts came to consider whether these exceptions ought not to be extended in the case of corporations created for trading and other purposes. At first, there was considerable conflict; and it is impossible to reconcile all the decisions on the subject. But it seems to me that the exceptions created by the recent cases are now too firmly established to be questioned by the earlier decisions which, if inconsistent with them, must I think be held not to be law. These exceptions apply to all contracts by trading corporations entered into for the purposes for which they are incorporated. A company can only carry on business by agents—managers and others; and if the contracts made by these persons are contracts which relate to objects and purposes of the company, and are not inconsistent with the rules and regulations which govern their acts, they are valid and binding upon the company, though not under seal. It has been urged that the exceptions to the general rule are still limited to matters of frequent occurrence and small importance. The authorities, however, do not sustain that argument.
The contract there in question was for the purchase of machinery required for the company’s under-
[Page 390]
taking. Here the contract is for the sale of unsuitable business premises in order to enable the company to acquire premises more commodious and better adapted for its purposes. Adopting the language of Erle J. in the Henderson Case,
the contract was made for a purpose directly connected with the object of the incorporation.
That able judge added:—
I think myself that it is most inexpedient that corporations should be able to hold out to persons dealing with them the semblance of a contract, and then repudiate it because not under seal.
The decision of the Court of Common Pleas in the South of Ireland Colliery Co. v. Waddle was affirmed in the Exchequer Chamber, where Cockburn C.J. said that the court had been
invited to re-introduce a relic of barbarous antiquity,
and the reasoning of Bovill C.J. was unqualifiedly approved. An observation of Chatterton V.C., in Holmes v. Trench, cited by Mr. Justice Clute:—
It is true that a corporation may contract without seal for the purchase or sale of property necessary for carrying on the business for which the corporation was created,
is directly in point, and, although merely a dictum, is in accord with the tendency of modern decisions relating to the contracts of trading corporations and within the principle on which those decisions rest.
The defences set up in this action are purely technical and devoid of merit. It is gratifying to find that the law warrants our sustaining a conclusion
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which is in accord with the demands of substantial justice.
I would dismiss the appeal with costs.
BRODEUR J.—I concur with my brother Duff.
Appeal dismissed with costs.
Solicitor for the appellants: R.F. Segsworth.
Solicitors for the respondents: Johnston, McKay, Dods & Grant.
7 ch App 777; L.R. 7 H.L. 102.
5 H.L. Cas. 297, at p. 318.
L.R. 3 C.P. 463; 4 C.P. 617.
[1896] 2 Ch. 93, at p. 102.
[1909] 1 K.B. 106, at pp. 113-14.
5 E. & B. 409, at p. 415.
[1898] 1 Ir. Rep. 319, at p. 333.
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