Supreme Court of Canada
Brigham v. La Banque Jacques-Cartier, (1900) 30 SCR 429
Date: 1900-06-12
THOMAS GEORGE BRIGHAM (DEFENDANT)
Appellant;
And
LA BANQUE JACQUES-CARTIER (PLAINTIFF)
Respondent
1900: Mar 5; 1900: June 12
PRESENT:—Sir Henry Strong C.J. and Gwynne, Sedgewick, King and Girouard JJ
ON APPEAL FROM THE SUPERIOR COURT FOR LOWER CANADA, SITTING IN REVIEW, AT MONTREAL
Assignment for benefit of creditors—Fraudulent preference—Bribery—Promissory note—Illegal consideration—Nullity—Costs.
A secret arrangement whereby the provisions of the Code of Civil Procedure respecting equal distribution of the assess of insolvents are defeated and advantage given to a particular unsecured creditor is a fraud upon the general body of creditors notwithstanding that the agreement for the additional payment may be made by a third person who has no direct interest in the insolvent's business.
A promissory note given to secure the amount of the preference payable under such an arrangement is wholly void.
An agreement for a payment to an inspector of an insolvent estate to influence his consent to an arrangement which is not for the general benefit of the creditors is a bribe which is, in itself, sufficient reason to adjudge the transaction, to induce which it was given, corrupt, fraudulent and void.
APPEAL from the judgment of the Superior Court for Lower Canada, sitting in review, at Montreal, affirming a judgment of the Superior Court, District of Ottawa (), maintaining the plaintiffs action with costs.
The questions at issue upon this appeal and a statement of the case will be found in the judgments reported.
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Aylen Q.C. for the appellant. The transaction which served, as consideration for the notes sued on is prohibited by the policy of the law providing for equal distribution of assets amongst an insolvent's creditors and contrary to good morals and public order. Ex dolo malo non oritur actio. Arts. 789 990 C. C. Greene v. Tobin () * Birch v. Jervis () per Tenterden C... ; Hall v. Dyson () ; Nerot v. Wallace () ; Gastonguay v. Savoie (); Arpin v. Poulin (); Martin v. Poulin (); Leclaire v. Casgrain (); Ross v. Paul () ; Garneau v. Larivière () ; McDonald v. Senez () ; Bury v. Nowell () ; Howland Sons & Co. v. Grant (); 16 Laurent, n. 151 ; Lyon-Caen & Renault, (2 ed.) Faillites, nos. 965, 968 & 968, bis; Code de Commerce. Arts. 596, 597, 598 ; 3 Bédarride, Dr. Com., Faillites, nos. 1285 1286 1287 & 1292 ; 31 Demolombe, nos. 431, 433, 434. ,
Foran Q.C. and Lajoie for the respondent. The transaction was merely a sale by the bank of its claim against the insolvent estate and, after being duly approved by the judge's order, the transfer was made accordingly. Subsequently, to simplify matters, the appellant consented to the respondent receiving from Greorge C. Wright on account of his promissory note, the 30 cents in the dollar which the latter had undertaken to pay, and credit was given in the usual manner Arts. 1715 1716 C. C. ' 28 Laurent, n. 50 ; Trop-long, Mandat, nn. 519, 522, 535, 597. The bank had full liberty to sell the debt ; Fry v. Malcolm () ; Four
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v. Tardy (). See also S. V. '38-1-461 ; S. V. "74-1-127 ; and Beausoleil v. Normand (). As there is no legislative prohibition nor an Insolvent Act whereby the majority of creditors could bind the remainder to conditions of composition and discharge, nothing, as between debtor and creditor could invalidate an agreement by the debtor undertaking to pay such creditor more than the amount of the composition and a promissory note given for such excess is valid. Racine v. Champoux (); Lamalice v. Ethier (); Tees v. McArthur () ; Collins v. Baril () ; Chaplean v. Lemay (), and authorities there cited.
In this instance, four inspectors advocated the transfer before the agreement was made and it did not affect the assets of the insolvents. The appellant's relationship to the insolvents and George C. Wright was sufficient consideration for the note The appellant cannot invoke his own fraud and perfidy. Nemo potest invocare turpitudinem, suant. See Benjamin on Sales no. 513 (a) 16 Laurent no. 109; Dal. Rep. vo. " Oblig." no. 115 ; Dussol v, Benoit () ; Mahieu v. Blum () ; Merlin Quest, de Dr. vo. " Atermoiement' pp. 278, 279 ; Sirey & Gilbert, Code de Commerce, Arts. 597 598.
The Chief Justice.—In my opinion the judgment appealed from is erroneous and must be reversed, The depositions disclose uncontradicted facts which shew that the promissory note, the balance of which is sought to be recovered in this action, was given for the purpose of carrying out what amounted to a fraud
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on the creditors of the insolvent firm of C. B. Wright & Sons, other than the respondent.
The facts are not complicated, and may be concisely stated as follows : The firm of C. B. Wright & Sons having abandoned their property for the benefit of their, creditors under the provisions of the Code of Civil Procedure relating to cessions of property contained in Articles 853 to 892 inclusively, the defendant, Thomas George Brigham, Mr. Anderson of the Union Bank, Mr. Hector Mc Rae, Mr. Campbell and Mr. de Martigny, the general manager of the respondent's bank were appointed inspectors of the estate,. and Mr. Hyde was named as curator. Of the five inspectors, three were creditors in their own right, and. the other two Mr Anderson and Mr. de Martigny, were the officers and representatives of banks which. were large creditors. George C. Wright, a son of one-and a brother of the other partner in the insolvent firm, proposed to purchase the assets for an amount sufficient to pay privileged creditors in full, and the-unprivileged creditors a dividend of thirty cents in the dollar on the amount of their debts.
This proposition having been submitted to the inspectors, it was, on the 8th of November, 1894, at a meeting of those persons, accepted by all but de Martigny, the respondent's general manager, who expressly dissented. from the resolution in which the approval of the offer by the other inspectors was recorded. Subsequently,. by a secret arrangement between George C. Wright and Mr. de Martigny acting on behalf of the respondent bank, it was agreed that the respondent should be paid ten cents in the dollar more than the other creditors, that is to say, forty per cent of their debt, and. that in consideration of this arrangement which was-to be kept secret from the other creditors, and also in. consideration of $150 to be paid to Mr. de Martigny
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for his own personal use, he (de Martigny), should withdraw his objection as one of the inspectors, and the Banque Jacques-Cartier should accept the forty cents in satisfaction of their interest in the assets. This arrangement, as far as regards the acceptance of the forty cents was assented to by the directors of the respondent bank.
. Mr. de Martigny having refused to accept the note of George 0. Wright for the additional ten per cent to be paid to the bank, the latter having no other means of paying the excess over the thirty per cent, applied to the present appellant who was his brother~in~law, to secure the payment of the additional amount to de Martigny's satisfaction, and also to pay de Martigny the $150 he was to receive as a bonus for his services in the matter.
In order to carry out this arrangement a meeting was held on the 27th of November, 1894, at the office of the solicitor of the bank in Hull where there appears to have been present besides Mr. McDougall (the solicitor and a» mis~en~cause in the present action), Mr. de Martigny, George C. Wright and the appellant. The latter then signed, a promissory note for the sum of $7,666.55, being forty per cent of the full amount of the respondent's claim against the estate according to the dividend sheet settled by the curator, also a cheque purporting to be dra/wn by the appellant on the Quebec Bank of Ottawa in favour of Mr. de Martigny for $150.
These securities having been placed in the hands of Mr. McDougall, and Mr. de Martigny having also deposited with him all the notes and securities held by the bank for their debt to be delivered up to the respondent on payment of the respondent's claim as well as of the cheque a memorandum signed by Mr. McDougall, as trustee, which is set forth in the decla-
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ration, was drawn up and signed by him whereby the arrangement with Mr. de Martigny was described as a sale by the hank of its debt and claim to the appellant and whereby it was agreed that the documents mentioned as having been signed by the appellant should. be held by Mr. McDougall as a trustee until the sale of the estate to George C Wright and the transfer in pursuance of such sale should be completed by payment of the purchase money.
On the same day, Mr. Justice Malhiot, a judge of the Superior Court, authorised the proposed sale of the estate to George C. Wright at the price mentioned in the letter of the latter to the curator dated 30th October, 1894, therein referred to, namely, a sum sufficient to pay the privileged debts in full and thirty cents in the dollar on the unprivileged debts, and the learned judge signed an order accordingly. This order was made upon the withdrawal of all opposition by Mr. de Martigny and the respondent bank.
There was no communication either to the judge who so made the order, or to the inspectors other than de Martigny and the appellant, or to the curator, Hyde, or to any of the other creditors of the secret agreement of the 27th of November 1894 which had as before mentioned, been entered into between Mr. de Martigny on behalf of the respondent and the appellant.
The attempt to give this transaction the colour of a sale by the respondent of its debt or claim to the appellant was just one of those fraudulent contrivances which so often recoil against those who resort to them* So far from helping the respondent's case it assists to prove the fraudulent character of the transaction as regards the general body of the creditors.
In the divident sheet dated the 10th of July 1895 prepared and signed by John Hyde, the curator to the estate, the respondent is collocated as a creditor for
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the full amount of its claim $18953 55 and. the dividend to wlhich it was entitled therein at thirty cents in the dollar is put down at $5 685 91. This latter amount was, months after the bank had pretended to sell its debt to the appellant received by the bank itself and credited as a payment on the promissory note of the appellant for the balance of which alone, after deducting the payment, this action is brought.
How the respondent could have honestly and rightfully claimed and received payment of the thirty cents in the dollar out of the estate if it really had sold and transferred the debt to the appellant is not explained. The inference must be and is that the arrangement so carefully cloaked and concealed from all those who were interested in frustrating it was in substance and in reality nothing less than an agreement by which the bank was to receive ten per cent more than the other creditors, induced by a money payment of $150 secured to de Martigny by the cheque deposited with Mr. McDougall, and the concealment practised by the parties shews their consciousness of the fraudulent and illegal character of the arrangement they had entered into.
The law applicable to such an agreement cannot be and is not doubtful. Where the law carefully provides for the equal distribution of assets amongst creditors any arrangement concealed from the general body of creditors, whereby the policy of the law is defeated, and. a particular creditor having no legal right to preference or priority, is secured an advantage over the other creditors must, under every system of law be void as a fraud on those to whom another is so preferred in the distribution of assets. Cokshott v Bennett () Jackson v. Lomas (); Eastabrook v. Scott (); Jackman v. Mitchell (); Mare v. Sandford ().
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All the ground, of fairness, common honesty and public policy which have led to the establishment of the principle by the English courts that such an arrangement cannot stand are equally applicable under the Quebec Code.
That the additional amount which, under the secret agreement, was in the present case to be paid to the respondent, was guaranteed and to be paid in the first instance by a third person, the appellant, who was to take no direct interest in the purchased assets, can make no difference. Upon a principle well established by the English courts such a payment by a third person is just as much a fraud on the general body of creditors as a payment or an agreement to pay by the insolvent debtor himself. Wells v. Girling (); Knight v. Hunt () Bradshaw v. Bradshaw () ; McKewan v. Sanderson (); Re Milner ().
For these reasons the promissory note sued upon must be considered as wholly void, as having been given in furtherance of a fraudulent and corrupt agreement, and the judgment recovered on it cannot stand. To decide otherwise would be to subvert all those principles of equality in the payment of creditors which the articles of the Code providing for abandonment were destined to secure.
There remains the question of. the $150 cheque payable to Mr. de Martigny and signed by the appellant That is not sued upon in this action, but it is material as shewing that for this personal advantage in addition to the extra ten cents on the dollar to be paid to the respondent de Martigny was induced to allow himself to be influenced to consent to a sale which as he says himself, was not for the general
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benefit of the creditors. This $150 cheque was therefore nothing less than an illegal advantage, and for this reason alone the transaction to induce which it was given must he adjudged corrupt, fraudulent and void. The appeal is allowed with costs, and the action must be dismissed without costs. The appellant was himself an inspector and should not have been a party to the agreement with de Martigny.
GWYNne Sedgewick and King JJ. concurred in the judgment, allowing the appeal with costs in the Supreme Court and dismissing the action without costs. No costs to be allowed in the Court of Review or in the Court of Queen's Bench.
GIROUARD J.—The question raised by the appeal is not whether pending the proceedings for the liquidation of an insolvent estate, a creditor can bona fide sell or transfer his claim to a third party whether a creditor or not, for a sum larger than the amount realised or received by the other creditors but whether one of the inspectors of an insolvent estate, without the knowledge of his Co-inspectors, or of the curator or judge and in violation of his duties as such inspector, can legally bargain for and secure an undue preference with a third party whether related or not to the insolvent in favour of a creditor who is a party to the transaction, fully aware of its nature and object. Is such a contract contrary to public order and public morals ?
The facts of the case are not disputed and in order to fully understand the point at issue it is sufficient to reproduce the following remarks of Acting Chief Justice Tait, speaking for the court appealed from :—
As I have stated, Mr. de Martigny, general manager of the was appointed one of the inspectors of the estate. Under the law it
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is the duty of the judge, upon demand of a party interested, to appoint upon the advice of the creditors, inspectors or advisers. (Arts. 769 and 772 C. C. P. (old) ; Arts. 867 and 877 (new). Those gentlemen, in accepting that position, became officers of the court like the curator, and like him are subject to its order. It seems to me that an inspector is bound to act in absolute good faith towards the court. Now we have it established in this case that de Martigny first opposed the acceptance of George C Wrights proposition to purchase the balance of the assets although the other inspectors were in favour of that offer. He has stated in his evidence that the plaintiff at first wanted fifty cents on the dollar; that George C. Wright, the purchaser offered him his own note for an additional ten cents, which he refused; that afterwards the Board of Directors told him to accept forty cents on the dollar if he thought best, and that after it was arranged that the bank was to get forty cents, the method of carrying this out was being left to the solicitor. He admits that it was understood that the plaintiff should get the thirty cents-from ,the curator in the same manner as the ordinary creditors, but all he thought of was to settle his bank's claim and did not concern himself about the Union Bank. He admits that it is probable that the Union Bank would have asked for forty cents if they had known that the plaintiff was getting it. I now quote from his evidence at page 7, which is as follows :
Q. You see this resolution of the inspectors of the 8th of November was not approved of by you. It says,u motion carried, Mr. de Martigny dissenting." Would you read the letter recited in that resolution and say if it is the offer of the purchase of this estate that you refer to ?— A. Yes.
Q Why did you dissent from that?—A. It was accepted.
Q. It was accepted afterwards, but you voted against it ?—A. I voted against it at the time because I had not .sold at the time.
Q. Why did you vote against it ?—A. Because we thought the estate would pay a great deal more than that. That was our impression, and that is my impression yet.
Q. That has always been your impression ?—A. Yes.
Q. And has that always been the impression of the directors of your bank 1 A. Yes.
And at page 11 his evidence is as follows:
Q. You still were dissenting at this time, the 8th of November ?—A. Yes always dissenting.
Q. Did you notify your bank that a majority of the inspectors had passed a resolution accepting, as far as they could, the thirty cents ?— A. Yes.
Q. What did they say ?—A. They authorised me to refuse it.
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Q. What steps did they take to protect your refusal ?—A. I left it completely to the lawyer.
Q. Did you give him instructions to refuse the transfer for the thirty cents ? A. Until the sale was made to Mr. .Brigham, always.
Q. So it was the intention of the bank to oppose the carrying out of the sale for thirty cents from the start ?—A. Yes, they wanted to get fifty cents.
Q. And then when this arrangement was made with Mr. Brigham, whatever it was, they withdrew their opposition ?—A. Yes.
He states that his intention was to be paid by some one ten cents over the other creditors, and although he does not admit any agreement to keep the matter secret, still he intimates that the reason it was kept a secret was that they did not want the other parties to hear of it. as they might object.
It is clear from the proof of record that the other inspectors would not have allowed the sale of the estate to have been made had they known the plaintiff's real motive for withdrawing its opposition to it.
The learned Chief Justice could not however disturb the judgment of the Superior Court condemning the third party, that is the appellant, to pay the extra ten per cent, because
the proof seems to fall short of establishing conclusively that it was represented to the judge that Mr. de Martigny had withdrawn his opposition. If it had been established to my satisfaction, (continues the learned Chief Justice) that Mr. de Martigny had allowed it to be represented to the judge that he was in favour of this sale while at the same time he was under the belief that the assets were worth more than thirty cents on the dollar and in virtue of that belief had secured by secret arrangement ten cents more than any other creditor. I should have regarded such conduct as wilful deception practised towards the judge, and taken in conjunction with his conduct towards his co-inspectors I should have considered that there was ample ground for reversing this judgment. In such a case I think it should be our duty to see that inspectors act in good faith and above board in their transactions towards their co-inspectors and towards the court.
As we understand the case we believe it is of little importance whether the judge was actually deceived or not. We know for a certainty that an attempt was made to deceive him ; that he was not made aware of the transaction concluded with the appellant through
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one of the inspectors. We have also the evidence of some of the inspectors that, alter the compromise with the bank, Mr. de Martigny recommended v very strongly" the acceptance of the offer of thirty cents, and that they were all deceived by him Finally we cannot forget that as such inspector, Mr. de Martigny was the "adviser " of both the curator and of the judge, and that his duty was clearly to communicate to them his honest opinion as to the value of the estate. He intentionally did not do so at the request of the respondents and for their benefit, because his sole object was to protect a large preference in favour of his bank and a remuneration of $150 for his alleged expanses and fees, or rather a promise from the appellant to "oay both
The Superior court held that the cheque for the $150 was absolutely void and null, and dismissed de Martigny's action, but maintained the claim of the bank for the amount of the preference. We believe that the contract or note to obtain such a preference is likewise null and void and cannot be enforced as being contrary to public order and good morals. The whole transaction savours of a bribe made to a person in a position of trust to violate the duties of his trust To sanction especially such a partial and even corrupt conduct on the part of officers of a court of justice called upon to discharge quasi judicial functions, and to permit any party to it to benefit by the same, would be to destroy the machinery created by the legislature for the honest and equitable realisation and distribution of insolvent estates This court has recently laid down in Gastonguay v. Savoie () that
no one having duties of a fiduciary character to discharge should be followed to put his duties in conflict with his interest,
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and in Lambe v. Armstrong (1), we said that to permit litigants in default
to take advantage of the irregularities and misdoings of officers of the court would be simply to hinder the administration of justice and destroy the usefulness of courts of law.
We are therefore of opinion that the appeal should be allowed with costs and that the action of the respondent should be dismissed without costs, as the appellant was himself one of the inspectors and participated in the fraud. No costs will be allowed in any of the courts below.
Appeal allowed with costs.
Solicitor for the appellant : Henry Aylen.
Solicitor for the respondent: Thomas P. Foran
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