Supreme Court of Canada
Ottawa Dairy Co. v. Sorley, (1904) 34 S.C.R. 508
Date: 1904-04-27
The Ottawa Dairy Company (Plaintiffs) Appellants;
and
James Sorley (Defendant) Respondent.
1904: March 25, 28; 1904: April 27.
Present: Sir Elzéar Taschereau C.J. and Sedgewick, Girouard, Davies and Killam JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Joint stock company—Subscription for shares—Principal and agent—Authority of agent—Conditional agreement.
S. signed a subscription for shares in a company to be formed and a promissory note for the first payment, both of which documents he delivered to the promoter of the company to which they were transferred after incorporation. In an action for payment of calls S. swore that the stock was to be given to him in part payment for the good will of his business which the company was to take over. The promoter testified that the shares subscribed for were to be an addition to those to be received for the goodwill.
Held, that, though S. could, before incorporation, constitute the promoter his agent to procure the allotment of shares for him and give his note in payment, yet the possession by the promoter did not relieve the company from the duty of inquiring into the extent of his authority and, whichever of the two statements at the trial was true, the promoter could not bind S. by an unconditional application.
APPEAL from a decision of the Court of Appeal for Ontario reversing the judgment at the trial in favour of the plaintiffs.
The material facts are sufficiently stated in the above head-note. The action was tried at Ottawa before Judge MacTavish sitting as a local Judge of the High Court of Justice, and resulted in a judgment against the respondent Sorley which was reversed by the Court of Appeal. The company then appealed to this court.
[Page 509]
McVeity for the appellants, referred to Nasmith v. Manning; Denison v. Lesslie.
Fraser K.C. and Burbidge for the respondent, cited In re London Speaker Printing Co.; In re Bishop Engraving & Printing Co.; Ex parte Howard; In re Northumberland Avenue Hotel Co.; In re Standard Fire Ins. Co.; Turner’s Case; In re Aldborough Hotel Co.
The judgment of the court was delivered by:
KILLAM J.—This action was brought to compel the defendant, as an alleged holder of shares of the capital stock of the plaintiff company, to pay calls on such shares, and to pay a promissory note claimed to have been given by him for the first instalment required to be paid upon such shares.
The claim is that, by a memorandum in writing, dated and given to a promoter of the company before its incorporation and handed over to the company after incorporation, the defendant applied for the shares, and that, after the incorporation, they were allotted to him and calls duly made thereon. Notices of the allotment and of the calls are not disputed.
The promissory note was made in favour of the company. It was dated and delivered to the promoter before the company’s incorporation, and was payable at a specified date before which the company became incorporated.
It is clear, upon principle, that, in contemplation of the incorporation of a proposed company, a person may effectively constitute an agent to apply on his behalf for shares of the stock of the company when it
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becomes incorporated, and to give a promissory note for the amount to be subscribed or any part thereof.
If the authority is, in fact, given and, before its withdrawal, the application is made and accepted and the note given, the effect must be the same as if the principal should make the application and give the note personally. And the authority may be given by the signing of the application and of the note and their delivery to the promoter to be handed over after the incorporation.
I conceive it also to be clear that, if such an application and promissory note be signed and delivered, the authority to bind the signer need not be expressed but may be inferred from circumstances.
None of the decisions cited appear to me to be inconsistent with these views.
But the mere possession of instruments of this character, signed by another person, should not, of itself, be taken as giving or implying authority to apply for shares on his behalf and to deliver the note on account thereof. The company should still be required to inquire into the authority.
Upon the defendant’s statement of the facts, he signed the writings and gave them to Kelly as a step in a transaction by which the shares were to be acquired in part payment of the purchase money for the goodwill of the defendant’s business.
Upon Kelly’s statement, the defendant was to take the shares in addition to those to be acquired by him for the good-will, and to pay up their amount in money.
But in neither view does it appear to me that it should be inferred that Kelly was authorized to bind the defendant by an unconditional application for the shares. In the first case, clearly, he would not be. In the second, the subscription would not be intended to be made independently of the proposed transfer of the
[Page 511]
business. If the defendant did intend to contribute this amount in cash to the capital of the company, it is not reasonable to suppose that he intended to do this if his own business was not to be taken over and the company was to become his business rival. Of course, if the authority had been expressed these considerations would be without weight; but the onus being upon the company to show implied authority, they are of importance.
As was said by Sir W. Page Wood L.J., in Rogers’ Case:
The course of the decisions has determined that to obtain a binding allotment there must be an application, an allotment, and a communication of the allotment. If, as in Shackleford’s Case there is a conditional application and an unconditional allotment, there is no contract.
Here the defendant made no application personally. An unconditional application by Kelly, on his behalf, is not shown to have been authorized. The defendant’s conduct, in attending the meetings and in receiving notices of the allotment and of the calls without objection, does not appear to me sufficient either as an admission of Kelly’s authority or as an adoption of his application or as an acceptance of any offer to be inferred from the allotment. Everything is consistent with the view that he was treating all of these matters as a part of the transaction for the acquisition of his business by the company. See In re Aldborough Hotel, Company; Simpson’s Case.
Lord Lurgan’s Case, upon which the learned trial judge relied, does not seem to me to have any application to the case before us. Under the Companies’ Act, 1862, Lord Lurgan became, in fact, a shareholder by signing the memorandum of association and by the registration of the company. He endeavoured to have
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his contract rescinded by shewing that it was induced by the misrepresentation of a promoter of the company. Here the question is whether the defendant ever contracted with the company to become a shareholder. The position taken by the Court of Appeal, that his transaction with Kelly did not, of itself, constitute a contract with the company, and could not be made so by any ratification, is beyond question. The argument before us was that the contract was made through Kelly’s agency. This contention, also, is not sustained.
The appeal should be dismissed with costs.
Appeal dismissed with costs.
Solicitor for the appellants: Taylor McVeity.
Solicitors for the respondent: Perkins, Fraser & Burbidge.
3 Ch. App. 633, at p. 637.
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