Supreme Court of Canada
Goold v. Gillies, (1908) 40 S.C.R. 437
Date: 1908-06-16
Edward L. Goold (Plaintiff) Appellant;
and
J. A. Gillies (Defendant) Respondent.
1908: May 15, 18; 1908: June 16.
Present: Girouard, Davies, Idington, Maclennan and Duff JJ.
ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA.
Company—Sale of shares—Misrepresentation—Fraud—Action for deceit—Accord and satisfaction.
G. a director in an industrial company transferred 290 shares of the capital stock to the president to be sold for him. The president instructed an agent to sell said shares along with some of his own and some belonging to the company. The agent sold 25 shares of G.'s stock to J. G. representing, and believing that it was treasury stock and getting a note for the price in favour of the company. The note was indorsed over to G. Later J. G. discovered that the stock he had bought was not treasury stock and had some correspondence with the secretary of the company in which he complained of having been deceived by the agent. Eventually he gave a four months' note in renewal of that given for the price of the stock but when it fell due refused to pay it the company having in the meantime become insolvent. In an action on the renewal note he filed a counterclaim for damages based on the misrepresentation and deceit. Judgment was given against him on the note and for him on the counterclaim.
Held, that G. was responsible for the fraud, practised on the purchaser of his shares by the misrepresentations of the agent who sold them.
Held, also, Girouard and Davies JJ. dissenting, that the settlement of the claim for the price of the shares by giving the renewal note and thus obtaining further time for payment was not a release of the purchaser's right of action for deceit.
Appeal from a decision of the Supreme Court of Nova Scotia affirming the judgment at the trial in favour of the defendant on a counterclaim.
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This action proper is upon a promissory note for $2,405.62, with interest at 5 per cent., since due. The note is dated the 29th day of December, 1904, payable four months after date, at the Bank of British North America, Halifax, to the appellant (plaintiff), as payee.
The defence is, in short, that the note was obtained from the respondent (defendant) J. A. Gillies by the fraud and deceit of the appellant and the appellant's agent. Such fraud and deceit being as follows:—
(a) The false representation that the twenty-five shares of common stock of the International Mercantile Agency, for which a note—of which the note sued on herein was a renewal—was given, was treasury stock of said Mercantile Agency, whereas in fact the stock was the stock of the plaintiff, one of the company's directors.
(b) The further false representation that, at the time of the sale of said stock, the plaintiff's agent represented to the defendant J. A. Gillies that the preferred stock of the company had already paid an 8 per cent, dividend.
(c) That the International Mercantile Agency was itself a swindle. That the plaintiff Goold, a director, knew its character, and conspired with the other officers of the company whereby they unloaded their stock upon the public as treasury stock.
Besides the defence, alternatively the respondent counterclaims damages for deceit, setting up the same grounds as urged in the defence.
The respondent, at the time of purchasing the twenty-five shares of common stock of the Mercantile Agency, also purchased from the same agency twenty-five shares of preferred stock of the same company. The agent who sold was under the impression, and
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so-represented, that both the common and preferred stock were treasury stock. The respondent signed a subscription for the stock to the company. He was led to buy by the representations of the agent, whose name was Jackson. As a matter of fact, it was proved on the trial that the common stock sold to the respondent was the property of the appellant, but the preferred stock was the property of the company, that is, treasury stock.
The respondent gave notes for both the preferred and the common stock. These notes were made direct to the Mercantile Agency. It appeared that the Mercantile Agency, by its president, had an arrangement with the appellant, one of its directors, whereby the company undertook to sell for appellant $29,000.00 worth of the company's common stock, of which appellant was owner. When the agent, Jackson, sold to respondent and took notes from him, one of the notes taken was for $2,500.00 in payment for the preferred stock. Another of the notes was for $2,250.00 in payment for the common stock; that is, for what now turns out to have been appellant's stock.
The note for $2,250.00, payable to the Mercantile Agency, was sent in by Jackson to the agency, and the company indorsed the note over to appellant in part settlement with him for the $29,000.00 of common stock belonging to appellant that the company had taken to sell. The respondent, knowing nothing of appellant in the transaction, but finding himself, at a later date, called upon to pay the note for $2,250 to appellant when the same was about falling due, supposed that appellant was the indorsee of the note and a bonà fide holder for value. Accordingly, being pressed for payment, he, although protesting at the time that the representations that had been made to
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him at the time he purchased stock were untrue, and as to some of them had not materialized, nevertheless renewed the note by giving a new note for principal and interest to appellant through appellant's solicitors. Upon this note, given direct to the appellant, and under the above mentioned conditions, this action was brought to trial. The action was tried by Mr. Justice Russell, who found that the shares were the property of the. appellant and were sold for the benefit of the appellant by an agent who, whether the agent was guilty in the transaction or not, had made untruthful representations while acting within the scope of his authority. But the trial judge found that, although the respondent, at the time that he gave the renewal note to the appellant, did not in fact know that the representations made to him were untrue, yet, because of certain letters which had been written to him, even though (as he found), the full significance of. these letters and the real state of the facts had not been borne in upon his mind, he must nevertheless be held to have known at the time when he gave such renewal, that the representations made to him were untrue, and so he must be held to have adopted the transaction; that consequently the plaintiff must recover upon the note. But the learned judge found as a fact that there had been false representations inducing the purchase; that there was "a rogue somewhere in the transaction, and that he did not think the plaintiff could be allowed to reap the profits of his rascality." Accordingly, he gave judgment for the respondent, upon the counterclaim for damages to be assessed.
The appellant appealed to the Supreme Court, in banc, of Nova Scotia, from so much of the decision of the trial judge as gave judgment to the respondent
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upon the counterclaim. The respondent appealed to the same court from so much of the decision of the trial judge as gave judgment for the appellant upon the claim.
The appeal came on before Graham E.J. and Meagher and Longley JJ. The majority, Graham E.J. and Longley J., concurred in dismissing the plaintiff's appeal and the defendant's cross-appeal with costs. Meagher J. was of opinion that the plaintiff's appeal should be allowed, and the defendant's cross-appeal dismissed.
The plaintiff appealed to the Supreme Court of Canada; the defendant did not give notice of cross-appeal because the defence and counterclaim raise the same issues, and because he submitted that if the court should see fit to dismiss the action it had power to do so under the rules without any cross-appeal.
Matthew Wilson K.C. and W. B. A. Ritchie K.C. for the appellant.
W. F. O'Connor for the respondent.
Matthew Wilson K.C. and W. B. A. Ritchie K.C. for the appellant. The renewal note and extension of time given by it to the respondent discharged appellant from liability for damages caused by the alleged fraud. See Doherty v. Bell; Beatty v. Neelon.
The respondent did not allege the facts necessary to support a claim for damages. Squier v. Plunkett, and he has not proved them. Webb v. Roberts.
The appellant was not himself guilty of any fraud and cannot be held liable. Weir v. Bell; Pollock on Torts (7 ed.), pp. 106-7.
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W. F. O'Connor for the respondent. The respondent purchased because he thought his money would be used to develop the company's business and help to make his investment profitable. The representation to this effect being untrue, entitles him to damages for deceit. Edgington v. Fitzmaurice.
The appellant is liable for the fraud committed, even unintentionally, by his agent. Mackay v. Commercial Bank of New Brunswick. See also Gordon v. Street.
Girouard J.—I dissent for the reasons given by Mr. Justice Davies.
Davies J. (dissenting).—The ground upon which I would allow this appeal and dismiss the respondent's counterclaim is that such claim was compromised, settled and satisfied by the giving of the note sued on.
Judgment was allowed against the respondent for this note and against that judgment no appeal has been taken.
Defendant contested the action on the ground that the note had been obtained from him by false and fraudulent representations. At the trial of the action he was granted leave to put in a counterclaim against the plaintiff claiming damages for the same alleged false and fraudulent representations on which he sought to defraud the action on the note.
In effect the respondent now says, it is true he compromised and settled appellant's claim against him on the note sued on and that he submitted without appeal
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to the judgment on that note which went against him, but such compromise and settlement left open to him a right to sue for damages for the same deceit and fraud he unsuccessfully put forward to escape liability on the note, and did not operate as a compromise and settlement of the entire matter about which they were negotiating.
I am quite unable to accept the respondent's contention. In my opinion his claim for damages for the misrepresentation and deceit on which he sought to avoid liability on the note was included in the settlement and compromise made on the note itself. It seems perfectly clear to me that it was the intention of both parties to put an end to their then existing disputes and to all possible litigation which might arise out of them.
During the negotiations lasting from March 25th, 1904, till the giving of the note sued on, December 29th, 1904, and in which period the International Mercantile Agency, for stock in which the original note was given, became insolvent, the following facts appear:
Early in the spring of that year respondent became aware that the stock at the time of its sale to him belonged to appellant Goold and was not treasury stock as represented to him when he bought.
He also became aware that the note he had given for this stock in favour of the company had been indorsed to the plaintiff Goold. This information was conveyed to him in the clearest and most explicit language by the company's treasurer, Sterling, in his letters of April 2nd and 21st and May 12th.
Respondent was urging by correspondence with the officials of the company that he had been induced to enter into the contract for the purchase of the
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shares sold to him and to sign the note given for the purchase price by representations of the agent of the company who sold him the shares and which had not materialized. He was asking for a liberal compromise of the claim on account of these alleged misrepresentations but affirming that he did not want any litigation. He then learns that the stock he had bought was Goold stock and not treasury stock as represented to him when he bought. It was open to him then to repudiate the transaction and the note he had given on the ground of misrepresentation and deceit.
After a great deal of correspondence in which Gillies was put in possession of the material facts with reference to the stock and with respect to the payment of the notes, for which he was endeavouring to effect a compromise, he succeeded in effecting a settlement, and, on the 4th January, 1905, enclosed to the plaintiff's solicitors the notes sued upon in a letter in which he says:
This is worse than throwing it into the sea as the transaction was an unmitigated swindle.
With knowledge that the representations made to him respecting the stock and the company "had not materialized," with knowledge that the stock sold him "was not treasury stock," but belonged to the plaintiff Goold; with belief on his part that the transaction he was settling was as he expressed it "an unmitigated swindle" but threats that if they wanted litigation he did not, but, as he says, "if I must I will," and after months of negotiation he settled the transaction, got extended time for payment and gave his note for the amount now sued on.
In my judgment respondent fully intended at the time he gave this new note to suffer the entire loss of
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the amount of the claim and had no idea of asserting any claim for damages in. answer to or in reduction of appellant's claim.
The question on this branch of the case is whether under all the circumstances of the case the parties intended merely to extend the time for payment of the purchase money of the stock or to settle by compromise the matters in dispute between them, and which had for months been carried on by correspondence, the one party abandoning his rights by reason of the alleged misrepresentations, and the other conceding to him a substantial concession in the shape of a long extension of credit. A careful perusal of the evidence and correspondence leaves no room for doubt in my mind that the settlement was not merely an extension of the time for payment but a settlement also of any claims the defendant might have arising out of the alleged misrepresentations.
I would therefore allow the appeal and enter judgment for the appellant on the counterclaim with costs.
Idington J.— In 1901 the appellant was a director on the Board of the Sprague Collecting Agency of Chicago and also on the Board of Directors of the Sprague Collecting Agency of Ontario which was the offspring, so to speak, of the former.
This was the outcome "of stock chiefly if not altogether acquired by him from one McCauley and as the appellant explains
with the distinct understanding that the business was to be converted into the Mercantile Agency.
I assume he means the International Mercantile Agency Company now in question.
I infer therefore he joined forces with McCauley who later on became the purchaser of the various
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Sprague companies and the remains of a bankrupt concern of the same nature.
But what he paid for any or all to justify the floating of a company with a capital of $2,000,000 of which $1,200,000 should belong to McCauley and his friends such as the appellant does not appear.
The appellant aided in the promotion by a eulogy of Mr. McCauley and some of the concerns he was planning to have amalgamated in the International Mercantile Agency now in question.
The appellant was informed by a letter of the 18th January, 1902, written from New York by Mr. McCauley of the accomplishment of the new incorporation and its organization and that all the members of the boards of the old Sprague companies had thus become directors of the new company. The appellant recognizes he thereby became a director of the new company.
The evidence shews that the executive committee of this latter company did not meet very regularly or often but that the Board of Directors met as often probably as they had necessity to do so.
The appellant was, as a director, in attendance at, I think, all these board meetings.
He had as a result of foregoing events become a shareholder of common stock in this new company to the extent of $40,000. I infer as to a small part of it he was merely trustee for some relatives.
He concluded to sell 290 shares of nominal value of $29,000 of this stock and in the office in New York of the president, McCauley, on the 18th December, 1902, arranged with him who was selling stock of the company through its agents to sell this for him. He named no price. He fixed no commission.
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He never paid any commission though the agent selling got on those sales four per cent. from the company.
He says he indorsed a transfer of this stock and handed it to McCauley. But we are not favoured with the production of these documents or any writing up to that time shewing what the transaction really was save the following receipt:
International Mercantile Agency,
346 Broadway, New York.
Office of the President.
Received of E. L. Goold twenty-nine thousand ($29,000.00) Common Stock to be sold on his account.
(Sgd.) T. N. McCauley,
President.
December 18, 1902.
The president, to whom I infer appellant trusted, though not blindly, everything, sold these shares along with others of his own and of the company by and through the agents of the company for such purposes of sale.
I do not think the appellant is done any injustice in assuming not only that he knew what was being done but that it was because he knew Mr. McCauley had adopted or was about to adopt the method he did of mixing the sales of company stock with his own for the purpose of disposing of his own shares of which these had but recently formed, a part that the appellant entrusted him, as president be it noted, on the face of the transaction with such proposed sales of 290 shares of common stock.
These shares were accordingly sold by one of the company's agents who admits not that he acted fraudulently but that he made the false representation found by the court below to have been made as the result of the method adopted of handling the business.
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The appellant received, not from the man McCauley but from the auditor of the company, a letter dated 28th February, 1903, enclosing a cheque for $1l,702, being the balance of proceeds of sale and the note of the respondent with other notes and a voucher to be signed and returned,
This letter contains the following paragraph:—
You will notice that the total of Mr. Lefurgey's notes makes more than the amount due?. but this was in payment of some preferred stock,. and finding it impossible to separate these notes, we send them to you. Also the one of R. C. Wetmore for $2,000 was made in payment for both preferred and common, and as, it was impossible to divide this note we have also sent it.
It hardly lies in the mouth of the appellant who got that letter to assume and claim he did not know and could not be held responsible for, McCauley's methods. Moreover it was his duty as a director to have seen that such things as happened should not have had a. possibility of happening.
The appellant was clearly liable for deceit, and I hold him so, without, relying on the foregoing further than to find therefrom that he clearly profited by a false statement made in the course of his (appellant's) business, and which statement had in it the necessary, qualities of falsity to make it the subject of an action for deceit, and was to the detriment of another. I think he falls within the principles upon which the Privy Council proceeded, in the case, of MacKay v. Commercial Bank of New Brunswick.
But the foregoing history and inferences are, though not all necessary to fix liability, useful to have in mind as lights upon the alleged evidence, which the correspondence it is claimed furnishes, of, a defence, of accord and satisfaction.
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It is urged that by a renewal by this respondent of his promissory note given for this stock and the extension of time he got, such a defence of accord and satisfaction is made out and is a complete answer to the claim set up by way of counterclaim for the deceit referred to above.
There is no plea to the counterclaim making any such defence to it.
There never was a bargain to forego any action of deceit.
There never was put before the appellant's mind much less set up by him a cause of action for deceit from which he sought a release, when, and as part of the dealing whereby, he sought a confirmation of the sale. He never condescends to notice such charges as were made.
There never was present to the respondent's mind, when writing the letters he did, such a case as the foregoing presents. I fail to see how we can find what those concerned never supposed they were agreeing to was agreed to.
The respondent certainly used very emphatic language as to the company and the value of what he was getting by having given his note and giving the renewal secured as it was. But it was all quite consistent with his entire ignorance of the relations between the appellant and McCauley and the appellant and the company and this appellant's intimate knowledge of the dealings of both.
It is to be observed that what was presented to the respondent's mind was that he had merely got the shares of another stockholder who for aught that appears might have been victimized as he had been, or might in truth have bought but had not yet paid for
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actual treasury stock and thus was getting rid of it and. so substituting the respondent, and after all giving respondent treasury stock.
For aught he knew appellant was an indorsee for value without notice of any fraud. He had given his note to the company and it was indorsed by the company to the appellant. Such was the face of the transaction.
There is in law on the facts no release of the action of deceit that had enured to the respondent and for which he has judgment on his counterclaim though what happened may have been as held an answer to the claim for rescission.
The adroit suppression of the appellant's position as a director and representing him merely as a stockholder when explaining how he came to get the respondent's note would, I incline to think, have made it difficult to have upheld an express release of the action of deceit if such had been got under all the facts and circumstances I have referred to.
I think, if the able man of business I take him for on the evidence, that the appellant (whatever his position may have been at the outset or earlier stages) had by this time of renewal got so much light as to the probable fate of the company and the causes of its. fate as to have rendered his duty towards the respondent as a director and otherwise to think twice before pressing such a claim and involving others as sureties without disclosing the facts.
I think the appeal should be dismissed with costs.
Maclennan J. agreed with Idington J.
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Duff J.—In Cornfoot v. Fowke, it was said by Rolfe B., at page 370, that:—
If the plaintiff * * * purposely employed an agent, ignorant of the truth, in order that such agent might innocently make a false statement believing it to be true, and might so deceive the party with whom he was dealing, * * * he would be guilty of a fraud:—
by Alderson B., at page 372:—
It is said that this will open a door to fraud, by enabling parties in the situation of this principal, themselves conscious of objections to their premises, to appoint agents who, unconsciously, may make misrepresentations to the injury of third persons. This does not follow. If the fact could be shewn it would be a fraud on the part of the principal with such a motive to appoint such an agent:—
and by Parke B., at page 373:—
It must be admitted that if the plaintiff not merely knew of the nuisance, but purposely employed an ignorant agent, suspecting that a question would be asked from him, and at the same time believing or suspecting that it would, by reason of such ignorance, be answered in the negative, the plaintiff would unquestionably be guilty of a fraud * * *; for then the representation of the agent, which he intended to be made, would be the same as his own; and his own representation, coupled with his knowledge of its falsehood, would doubtless be a fraud.
These observations were quoted with approval in Ludgater v. Love, at page 696, by Brett L.J., and in substance re-stated by Lord Selborne, in the same case at page 697; and there is nothing in Berry v. Peek, which conflicts with them. The principle sanctioned by the authority of these eminent lawyers seems to me, after a careful examination of the whole evidence, to fit precisely the facts disclosed by it as touching the responsibility of McCauley for the representations of his agents; and the fraud of McCauley, for which Goold is responsible, having been a material
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inducement leading Gillies to enter into the purchase of the shares, the measure of damages is the difference between the purchase price and the value of the shares (that is to say, a fair price for them), at the time of the purchase. Davidson v. Tulloch; Arkwright v Newbold; Holmes v. Jones.
The only serious difficulty arises upon the contention of the appellants that Gillies has released his right of action. The contention is based upon the correspondence which passed between him and the appellant's solicitors before the execution of the note sued upon —which was given in renewal of the note of February 1903. Now it is plain that, Goold insisting on holding Gillies to his bargain, Gillies might after the discovery of the fraud affirm the bargain by renewing his note or paying it and still retain his right to sue for deceit Houldsworth v. City of Glasgow Bank, at page 323; Kerr on Fraud (3 ed.) 352; Lindley on Companies (6 ed.) 683; Arnison v. Smith at pages 372, 378. In his action for deceit the respondent can recover, as I have mentioned, only the difference between the value of the shares at the time of his purchase and the purchase price; and that right of action is not displaced merely because he has precluded himself from resisting an action for the latter. The waiver, in a word, of his right to set up the fraud in answer to this last mentioned action, does not by any rule or implication of law import a satisfaction of his substantive right of action for damages.
The appellant can, consequently, succeed in this contention only by shewing that this cause of action
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has been released. In this, I think he fails. His contention is that Gillies, in December, 1904, after the note of February, 1903, was overdue, applied for an extension of time which he granted by accepting in renewal of that note a fresh note payable some months later; and that the consideration for this extension of time, as shewn by a correspondence between Gillies and the appellant's solicitors, was the release of Goold from all liability in respect of Gillies's purchase, including the claim now in question.
I will state briefly why I am unable to accept the contention that the correspondence referred to discloses any agreement having the effect mentioned.
First of all there are the concurrent findings of the two courts below that the appellant was not, when he executed the note of December, 1904, aware of the fraud practised upon him.
These findings, it is true, seem, at first sight, inconsistent with some earlier letters (which are in evidence), between Gillies and the secretary of the company shewing that Gillies was, months before the execution of the note of December, 1904, informed that the shares allotted to him had been Goold's. But the learned trial judge and the Court of Appeal accepted Gillies's testimony that this statement made no impression upon him, partly because of his pre-occupation with other affairs and partly because he thought the writer of the letter was endeavouring to mislead him; and that, in spite of it, he remained under the belief that the shares were what they had been represented to be at the time of the purchase.
Another and I think quite sufficient ground is that Gillies was not aware at the time of the execution of the note of December, 1904, of the real character of McCauley's fraud. He did not know until months
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afterwards that McCauley and his co-directors (under the cover of the company's name, and under the pretence first of allotting to subscribers the company's unissued capital, and then of acting in behalf of the company in receiving the subscribers' payments they were acting on behalf of the company), had been getting rid of their own shares and appropriating the proceeds of the subscriptions in payment of them— and that he, Gillies, had been one of the victims of this imposition.
In these circumstances, it would not be sufficient to support this contention I am considering, that, in the letters relied upon, there should be found language sufficiently comprehensive in its broadest sense to extend to a right of action for deceit as against Goold. Once it appears that Gillies was not acquainted with the facts of the fraud in respect of which the present claim is made the appellant is bound to make out that an intention is manifested by the correspondence to include within the composition any such rights of action, whether then known or not known to exist; and the question is, whether, fairly read in the light of all the circumstances, the correspondence shews that such was the intention of the parties. I confess, with the highest respect for the views of others, that, to my thinking, that question must very plainly be answered in the negative; and, consequently, that it would be repugnant to principle to give effect to the language of the letters in the sense for which the appellant contends.
The appeal should be dismissed with costs.
Appeal dismissed with costs.
Solicitor for the appellant: Henry, C. Borden.
Solicitor for the respondent: William S. Gray.
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