Supreme Court of Canada
Charlebois v. Delap, (1896) 26 S.C.R. 221
Date: 1896-03-28
Alphonse Charlebois and Others (Defendants) Appellants;
and
J.B. Delap and Others (Plaintiffs) Respondents.
1895: November 6, 7, 8, 9, 11, 12, 13, 14, 15; 1896: March 28.
Present: Taschereau, Gwynne, Sedgewick, King and Girouard JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Joint Stock Company—Ultra vires contract—Consent judgment on—Action to set aside.
A company incorporated for definite purposes has no power to pursue objects other than those expressed in its charter or such as are reasonably incidental thereto, nor to exercise their powers in the attainment of authorized objects in a manner not authorized by the charter. The assent of every shareholder makes no difference.
If a company enters into a transaction which is ultra vires and litigation ensues in the course of which a judgment is entered by consent, such judgment is as binding upon the parties as one obtained after a contest and will not be set aside because the transaction was beyond the power of the company.
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APPEAL from a decision of the Court of Appeal for Ontario affirming the judgment of the Chancellor who set aside a judgment by consent in favour of the defendant Charlebois.
This action was brought by the Great North-west Central Railway Company to set aside two judgments obtained by the appellant Charlebois against the company, in an action by Charlebois to recover a balance claimed to be due to him upon a contract for the construction of a section of that company’s line of railway.
The Great North-west Central Railway Company was a company organized for the purpose of constructing a line of railway from some point on the Canadian Pacific Railway in Manitoba at or near Brandon in a north-westerly direction to Battleford. Another company under two different names had previously been in existence for the purpose of constructing the same railway, but had been unable to do so.
The Souris & Rocky Mountain Railway Company was incorporated by an Act of the Parliament of Canada, passed in the year 1880, and in the year 1884 the name of the company was changed to The North-west Central Railway Company. Construction was commenced and carried on during the summer and autumn of the year 1883, and the then contractors (who were the present defendants, McDonald and Preston) claimed to have expended a large sum of money and that a balance was due to them, amounting to $126,000.00 and upwards by the old company. This company failed to carry on the work, and in 1886 by an Act 49 Vict. ch. 11, the Governor in Council was authorized to grant to the North-west Central Railway Company, or to such other company as should undertake the construction of the railway, Dominion
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lands to the extent of 6,400 acres for each mile of railway, for a distance of 450 miles.
The Governor in Council was also authorized to grant a charter for the incorporation of a new company, which upon being published in the Canada Gazette should have force and effect as if it were an Act of the Parliament of Canada.
The defendants Clemow, Charlebois, Allan, Murray and one Charles T. Bate, since deceased, in 1886 made application for a charter, and a charter was granted pursuant to the power given by the last mentioned Act, and was published in the Canada Gazette of the 6th November, 1886.
In September, 1889, the other shareholders of the company agreed to transfer their shares to Charlebois, who entered into an agreement with one Codd, who had a claim against the original company, and one Stevens, an English solicitor, who professed to represent English capitalists. In form the agreement was with Codd, and by it Charlebois undertook to carry out a previous arrangement which had fallen through whereby fifty miles of the road was to be completed and transferred to Codd for £200,000 sterling, £50,000 to be paid on the transfer of the shares and execution of a construction contract. Stevens’s connection with the agreement was by an endorsement signed by him guaranteeing the payment to the satisfaction of Charlebois’ bankers.
In pursuance of the above, all the shareholders of the company transferred their shares to Stevens and four others named by him, who became the directors of the company, and a construction contract was entered into with Charlebois for the building of the fifty miles of road. In September, 1891, Charlebois, claiming to have completed the work, brought an action against the company in Ontario for recovery of a balance due
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to him therefor in which by consent of counsel a judgment was entered in his favour, the material portions of which are set out in the judgment of Mr. Justice King on this appeal. By its terms the company was given immediate possession of the railway and was allowed six months to pay Charlebois on condition that the whole of the bond issue should be deposited within one month with a deposit company in England. It also directed that the sum payable to Charlebois should be charged in favour of certain subcontractors and others having claims against the company under former contracts for construction of the road.
The plaintiffs Delap and Mrs. Mansfield had agreed with Codd and Stevens to advance money to enable them to acquire the road under the agreement of September, 1889, and had made advances on security of the bonds of the company. In 1893 they brought an action to have the consent judgment set aside, alleging that the agreement of September, 1889, was ultra vires; that Codd and Stevens had entered into an agreement of partnership to share the profits made by the transaction; and that Charlebois had taken the proceedings he did take to harm the company and had been guilty of fraud against the company and these plaintiffs. The case was heard by the Chancellor, who ordered the judgment to be set aside, and his judgment was affirmed by the Court of Appeal. Charlebois, and the other defendants interested in the distribution of the moneys recovered by the judgment, appealed to the Supreme Court.
McCarthy Q.C. and Chrysler Q.C. for the appellant Charlebois. The contract having been executed by Charlebois it will not be set aside except upon terms which will do justice to all parties. See Brice on Ultra Vires; Webb v. Shopshire Railway Co.
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The fact that a judgment enforces ultra vires terms of a contract is not a reason for setting it aside. Ashbury Railway Co. v. Riche; In re South American & Mexican Co. Ex parte The Bank of England.
A judgment by consent in the presence of the court is res judicata as completely as a judgment in invitum. In re South American & Mexican Co.4 Nashville Railway Co. v. United States; United States v. Parker.
An action will not lie in Ontario to set aside a judgment. Dumble v. Cobourg, &c., Railway Co.
W. Nesbitt for the appellants, The Crossen estate and others, contended that however the judgment might be dealt with as against Charlebois it could not be disturbed as against these appellants who were to share in the distribution of the moneys citing The Bellcairn; Huddersfield Banking Co. v. Lister.
Robinson Q.C. for the appellants, The Union Bank, The Commercial Bank and others, referred to Hammond v. Schofield.
Lewis followed for the Union Bank and Nugent for Schiller and McDonald, sub-contractors.
W. Cassells Q.C. and Howland Q.C. for the respondent Delap. The judgment ordered the road to be sold piecemeal which it should not have done. Henderson v. The Bank of Hamilton; British South Africa Co. v. Companhia de Mocambique. And see Grand Trunk Railway Co. v. Bickford.
A judgment by consent is never res judicata. Hudde field Banking Co. v. Lister9.
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The contract sued upon was ultra vires. What is not expressly or impliedly permitted by a company’s charter is prohibited. Ashbury Railway Co. v. Riche; Attorney General v. Great Eastern Railway Co.
Arnoldi Q.C. and Bristol for the respondents, the bondholders, referred to Wheatley v. Silkstone Coal Co.; In re Land Credit Co.; Bargate v. Shortridge.
McCarthy Q.C. in reply.
TASCHEREAU J.—I am of opinion that we should allow the principal appeal with costs. I adopt my brother King’s reasoning. The cross-appeal by the plaintiffs should be dismissed with costs. The incidental appeals of the Banks, the Crossens, Schiller and Preston, Allan, Devlin and others should all and every one of them be dismissed with costs. These appeals were quite unnecessary, and I should have been disposed to give treble costs against these appellants had it been in our power to do so. I agree with what my brother Gwynne says on these incidental appeals.
GWYNNE J.—However much we may sympathize with the plaintiff Delap, and what upon the evidence does certainly appear to be the cruel way in which he has been involved to the extent of some ninety thousand pounds expended in the construction of this road, we must bear in mind that we are not adjudicating upon a case wherein his right to redress against any persons for the injuries of which he may have reason to complain are submitted to the court for adjudication thereon. The action is not one instituted by Delap against the railway company for the purpose of having any question as to his rights and in-
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terest in certain bonds of the company in his hands determined by the judgment and decree of the court. Whether Delap is or is not a holder of bonds of the company in the only right in which he claims to hold them, namely, as a pledge and security for certain advances made by him to the company, is a matter of no importance in this suit, as the company are acting in concert with him as co-plaintiffs in seeking relief against a consent judgment obtained in an action instituted by the now defendant Charlebois as plaintiff against the now plaintiffs the railway company, upon the ground that such judgment was obtained solely as is charged upon the fraudulent consent thereto of the then president of the company; and upon the ground further that the judgment contains certain declarations and directions as assented to by the company which were ultra vires of the company to assent to and of the court to decree. True it is that the statement of claim contains an allegation, wholly unnecessary as it appears to me, to the effect that Delap is a holder of bonds in the company and stating the circumstances under which and the consideration for which he became such holder, but he does not (and framed as the suit is he could not successfully) claim any special relief as such bondholder. No relief is prayed different from that which is prayed by the company. Whether Delap is or is not the holder of the bonds of which he claims to be holder would have been a question of importance in this suit if he was sole plaintiff claiming a right as bondholder to set aside the consent judgment upon the ground of its being for any reasons fraudulent or ultra vires as against the holders of bonds, but no such question arises here for whatever irregularity if any there was in the first institution of the suit by Delap claiming relief upon behalf of himself and all other shareholders except those excepted, there
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can be no doubt that the railway company are now plaintiffs and are upon the record co‑plaintiffs with him, and the company have no doubt a right to the relief prayed if a case warranting such relief being granted is established. The courts below have determined, in which I concur, that Delap’s joinder with the company as a co-plaintiff if objectionable originally cannot now be a matter of any importance whatever, and the conclusion from such adjudication in my opinion is that the judgment of the Court of Appeal at Toronto which has assumed to declare—
that the bonds mentioned in the suit were not validly pledged by the company to the plaintiff James Bogle Delap and that the plaintiff Delap was not entitled to hold the £465,000 face value of bonds in his control brought into court in this action by him, for all or any moneys owing to him, and that the said bonds were not nor were any of them pledged by the said company to him for the repayment of all or any moneys owing to him by the company and that the claim of the respondent Delap to enforce the same should be dismissed without costs here or below—
must be set aside as an adjudication upon a matter for adjudication upon which the suit is not framed and in respect of which no relief is prayed. As already pointed out, the suit is not framed for any such purpose. The only relief prayed is the setting aside of the consent judgment for the reasons stated in the statement of claim. To the whole of the relief prayed the plaintiffs the railway company are entitled if the case as it is presented should be established. The 17th, 18th and 19th paragraphs of the learned Chancellor’s judgment must in my opinion be expunged for a like reason from his judgment for the learned Chancellor therein pronounces a judgment affirming the validity of the pledge of the bonds to Delap which as already observed was a declaration not warranted by the frame of the suit any more than was the judgment of the Court of Appeal for Ontario negativing such pledge and all
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right of Delap to the bonds by way of pledge or otherwise. By the erasure of these paragraphs from the learned Chancellor’s judgment the parties interested, that is to say, the company and Delap as having actual possession of the bonds will be able to settle between themselves their respective rights. Until they shall differ upon the matter and shall submit their difference to the court it will be expedient to withhold the expression of a judicial opinion upon the subject. As to the residue of the learned Chancellor’s judgment I do not think it necessary to refer to any of the matters in evidence further back than the 7th September, 1889, for I agree with the view taken by Mr. Justice Burton that upon that day the evidence shows clearly that the agreement of April, 1889, which was the sine quâ non foundation of the agreement of July, 1889, which Delap, by the advice of his solicitors the Messrs. Stevens & Co. entered into with Codd was entirely put an end to and absolutely abandoned. Thereupon, as the evidence also shows, Charlebois entered into an agreement with all of his co-shareholders in the company for the purchase at a fixed price of their respective shares upon which 30 per cent. had been paid up and expended by the company. He then entered into negotiations with Codd and Stevens, who were then acting in concert as co-adventurers or co-partners, for the sale and transfer to them and their nominees of the whole of the shares which had been subscribed for and taken in the capital stock of the company including his own, and so to make such transferees of the stock sole members of the reorganized company who when so reorganized should give him a contract for building 50 miles of the railway of the company at the price or sum in the whole of £200,000 sterling equal to $973,133. These negotiations were finally reduced to a contract which substantially was as follows, that Charlebois should be
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paid £50,000 sterling=$243,333, upon the execution of the contract or certain other sums for rails during the progress of the work and the balance upon the completion of the 50 miles. Out of this balance, however, when paid there was an agreement between Charlebois and Codd that the former should pay to Codd $173,133 being the difference between $800,000 and £200,000 sterling for his the said Codd’s personal use and benefit. Now, Charlebois’s contract being for a fixed price for the transfer of the shares and for building of the road, it is manifest that he must acquire all the shares not held by himself by purchase from the persons holding the shares, and this manifestly was known to Codd and Stevens with whom he was contracting, and he must also transfer his own shares and cause all the shares owned by the other shareholders to be transferred to them and their assignees before the contract with the company for building the 50 miles of road could be executed; this also was well known to Codd and Stevens, who together with their nominees, claiming under them, were to constitute the company to execute the contract with Charlebois, and as the persons with whom Charlebois was negotiating and their nominees were to be sole members of the reorganized company to enter into a building contract with him in their corporate capacity, I cannot see that it was a matter of any importance to Charlebois how such persons when constituted into the reorganized company should arrange between themselves as individual shareholders and themselves as constituting the corporate body as to the manner in which the sum to be paid to Charlebois should be apportioned and entered in the books of the company; that was a matter easy of adjustment between themselves with which Charlebois had nothing to do. Neither the reorganized company nor the persons forming it had any concern
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with the amount Charlebois might have to pay to his co-shareholders to procure the transfer of their shares as he had agreed to do; nor as to the manner in which or as to the funds out of which he should pay such amount, although it must have been well known to Codd and Stevens that the amount so to be paid by Charlebois must naturally constitute an element in his determining the amount to be paid to him, in case his proposal should be accepted; nor had they any concern with the amount of profit which Charlebois might probably derive from the contract if his proposal should be accepted further than to consider whether the amount demanded by him was in their judgment so large that they must decline acceding to it. It might be that the amount necessary to be paid to his co-shareholders for their shares would be more than he was prepared to pay in cash and he might possibly require to have the payment deferred until he should build the 50 miles of road and should receive the full amount then to be paid to him. It is apparent that the company was one of these companies formed, as is not unusual in this country, for the purpose of constructing railroads, not as purely commercial undertakings and not constructed wholly or chiefly with subscribed capital, but chiefly upon the security of government or municipal subsidies or both. In the present case the subsidy was a government land grant which could not be obtained by the company until they should enter into a contract for building 50 miles of road to be completed by a fixed date. A question has been suggested whether Charlebois’s proposal was that he should procure the shares to be assigned and transferred as paid up in full or that he should transfer or procure them to be transferred as they then were with 30 per cent paid thereon, but I cannot see how any question upon this point, if any such does exist, between the parties to the transaction can affect the present case.
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Assuming the payment of 75 per cent upon the amount of stock which had been subscribed for prior to the 16th February, 1889, to be by force of the resolution of the old company payment in full of these shares, the amount necessary to pay such 75 per cent was very little short of the £50,000 sterling, and the evidence shows that upon that day Stevens, although it was with Delap’s money, paid that amount to the company as originally organized upon the subscribed shares severally and respectively so as to make them to be actually and truly paid in full in conformity with the resolution of the company as formerly constituted. If Charlebois had agreed with Stevens to pay the shares up in full so as to transfer them as shares paid up in full it is plain that he did not do so unless Stevens paid the money upon the shares as a loan to Charlebois and upon his promise to repay Stevens the amount, which promise Charlebois has fulfilled. Of this we have no evidence, nor is it necessary that we should have any evidence upon the point in this case, for if Charlebois agreed with Stevens to pay up the shares in full and has not done so, it is Stevens who alone can call him to account for the nonfulfilment of his promise.
What the evidence establishes beyond all doubt is that on the 16th September, 1889, before the company was reorganized by the transfer of the shares to Codd and Stevens and their nominees, the shares were actually and truly and bonâ fide paid to the company to the amount of 75 per cent; and to that amount, or if that amount did under the resolution aforesaid constitute payment in full, then these shares in whosoever hands they now are must be held to be to all intents and purposes shares paid up in full or at least to the amount of 75 per cent, which amount the company has actually received and enjoyed the full benefit thereof. There
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seems to be no foundation whatever for the suggestion that the payment of the money by Stevens on the 16th September, 1889, was merely fictitious. He paid the money, beyond all question, upon the shares and to the company who have applied it to their own purposes; no part of the money so paid has ever been returned; it is impossible therefore to say that the proceeding was in any respect fictitious or any thing else than an actual payment upon the shares and to the company. With any controversy between Delap and Stevens as to the propriety of the application in such a manner of Delap’s money by Stevens this suit is not concerned.
There is not in my opinion any ground whatever for imputing fraud to Charlebois or to any person as regards the amount paid by Charlebois for the shares or for avoiding the contract entered into with him by the company as ultra vires in whole or in part by reason thereof or by reason of his having reimbursed himself therefor by the amount promised to him in that contract to be paid by the company. The company have in virtue of that contract acquired the government subsidy and they must in all justice abide by the terms of the contract with Charlebois in virtue of which they have acquired the subsidy, to the extent at least of $800,000 which appears to be the whole of the amount to be paid to, or which was asked by, Charlebois for his own benefit. In so far therefore as the learned Chancellor’s judgment has reduced the consent judgment in respect of the moneys comprised in the £200,000 sterling as representing the value of the shares, it is in my opinion erroneous and must be reversed, but as to the $173,133 which was agreed to be paid to Codd and as security therefor was also included in the £200,000 sterling mentioned in the contract executed by the company, that amount being so imposed as a liability
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upon the company, constituted in my opinion a manifest fraud upon the company, and as the consent judgment appears to have been obtained solely upon the consent of the president Codd, the person to be benefited by that fraud, the consent judgment must be set aside at least quoad that amount which cannot be reduced by reason of any part thereof having been already paid by Charlebois to Codd or by reason of Charlebois having accepted any charge purported to be imposed by Codd upon the amount. It is Charlebois’s misfortune, for which the company cannot be made responsible, that he should have paid to Codd any part of that sum before himself receiving it. As regards this $173,133 the learned Chancellor’s judgment must in my opinion be maintained.
Now by deducting from the principal sum of $600,226 this sum of $173,133, we arrive at the sum of $427,093, or the precise sum which, if the whole work had been finished as provided for in the contract would have been then due to Charlebois in respect of $800,000 the whole of the sum named in the contract, which was really payable to him for his own benefit; but it is contended that in point of fact the whole work was not finished and therefore upon this point the learned Chancellor has directed a reference to the master. I should be very glad to be in a position to be able to determine this question without a reference for the enormous expense of this suit which already cannot be short of 25 per cent of the whole claim makes it extremely desirable to prevent if possible any further delay and the incurring the expense of an inquiry before the master. Perhaps the parties may be able to agree upon this point without prosecuting the reference which otherwise would be necessary.
The substantial variance which I thus make in the judgment of the learned Chancellor requires also vari-
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ance in its form, and I think it should be varied as follows: Let the 1st, 2nd and 3rd paragraphs remain. Expunge the 4th, 5th, 6th, 7th, 8th, 9th, 10th, 14th, 16th, 17th, 18th, 19th, 25th, 26th and 27th paragraphs, and substitute therefor the following:
4. Insert for 4th paragraph the 11th paragraph of the learned Chancellor’s judgment.
5. Insert for 5th the 12th paragraph of the learned Chancellor’s judgment.
6. Declare that in so far as relates to the sum of $173,133, that sum being part of the sum of $200,000 named in the contract of the date of 16th Sept., 1889, and being made part of such sum for the sole benefit of the defendant, John Arthur Codd, the defendant, the said Charlebois, had no right to recover the same or any part thereof against the said company, and declare that by reason of that sum being included in the calculations whereby the sum of $622,226 mentioned in the consent judgment was arrived at the said consent judgment was and is fraudulent as against the said company and should be for such fraud, and the same is hereby therefore, vacated, annulled, reversed and set aside.
7. Declare that at the date of the consent judgment the defendant Charlebois was entitled to have judgment against the company for no greater sum than the sum of $427,093, together with so much of the $22,000 of interest as was attributable to the said sum of $427,093, less the amount of the work and materials which were contracted for by Charlebois to be finished and supplied if any there were not then finished and supplied.
7a. Refer it to the master to take an account of the amount if any which should be charged to Charlebois for the non-completion of the work if the master shall find it not to have been completed and declare that
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such amount, if any, shall be deducted from the said sum of $427,093, and thereupon enter judgment nunc pro tunc as of the date of the consent judgment for the said sum of $427,093 and the proportion of the said sum of $22,000 by way of interest as the master shall find to be properly attributable to the said sum of $427,093, less such sum, if any, as upon the taking of the account aforesaid he shall find to be chargeable to Charlebois in respect of such unfinished work or unsupplied material.
8. Declare that the persons and corporations mentioned in the 10th paragraph of the learned Chancellor’s judgment shall have the like charge upon the amount to be recovered by the judgment hereby ordered to be entered nunc pro tunc as by said the consent judgment they were declared to have upon the amount therein mentioned; declare this by recital of the provisions of the judgment as to these parties in full as therein and declare that the judgment hereby ordered to be entered nunc pro tunc shall be subject to the like provisions.
9. Declare the defendant Charlebois to have a like lien for the amount of the judgment hereby ordered to be entered nunc pro tunc as he is in the 13th paragraph of the learned Chancellor’s judgment declared to have. In framing this declaration, adopt simply the language of the 13th paragraph of the learned Chancellor’s judgment to the judgment hereby ordered to be entered nunc pro tunc.
10. Adopt paragraph 15 of the learned Chancellor’s judgment.
11. Adopt paragraph 20 of the Chancellor’s judgment.
12. “ “ 21 “ “
13. “ “ 22 “ “
14. “ “ 23 “ “
15. “ “ 24 “ “
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16. Reserve further considerations and further costs.
17. Adopt paragraph 28 of the Chancellor’s judgment.
I confess that I have not been able clearly to determine the precise mode in which the amount $600,226 was arrived at which so precisely to a cent corresponds with the amount recoverable assuming Charlebois’s contract price to have been $800,000 and that his contract had been fully completed. If there should be anything in the exhibit 26 or elsewhere in the exhibits which may appear to require consideration other than is covered by the above directions it may be spoken to on the minutes but it must be understood that no allowance can be made in favour of Mr. Charlebois in respect of the item of $50,000 spoken of in the exhibit 26 as “bonus” nor in respect of any payment or loan to Codd upon or in respect of the $173,133 above mentioned.
I should have preferred directing an ordinary judgment as in an action upon a covenant to pay money to be entered for Charlebois in the judgment hereby substituted for the consent judgment without burthening the judgment with charges in favour of his creditors not parties to the suit which was instituted by him against the company, but I presume there was some reason for the adoption of that course which is certainly not usual and as the learned Chancellor has adopted the same course I have also adhered to it, and the judgment as above varied seems to me to give to the defendant Charlebois the utmost that he was entitled to when the consent judgment was entered.
As to the costs of this appeal I think that the proper order to make will be that as between the plaintiffs and the defendant Charlebois, they must respectively bear their own costs; and as to the appeals of the defendants who claim under the defendant Charlebois these appeals were wholly unnecessary and never should have been prosecuted, and as the appellants
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had no interests distinct from those of Charlebois, their appeals must be respectively dismissed with costs to be paid to the plaintiffs by them respectively.
Upon the judgment being varied as above the appeal of Charlebois and the cross-appeal of Delap should be dismissed without costs.
SEDGEWICK J.—I concur in the judgment of Mr. Justice King.
KING J.—A company incorporated for definite purposes has no power to pursue objects other than those expressed in the Act or charter, or such as are reasonably incidental thereto. Ashbury Railway Carriage Co. v. Riche; Attorney General v. Great Eastern Railway Co. The assent of every shareholder makes no difference.
The same is the case in respect to the powers exercisable by such a corporation in attainment of authorized objects.
I am of opinion not only that the objects which the corporation may legitimately pursue must be ascertained from the Act itself, but that the powers which the corporation may lawfully use in furtherance of these objects must either be expressly conferred or derived by reasonable implication from its provisions.
Per Lord Watson in Wenlock v. River Dee Co.
Then as to the application of the company’s funds to purposes other than those so as above authorized, Lord Herschell in Mann v. Edinburgh Northern Tramways Co., says of this:
No approval of those who may happen to be directors at the time when the company is formed, or of those who may happen at that time to be all the shareholders in the company, can possibly give it validity, because it is something which the company itself cannot do, and which it cannot be authorized to do either by its then directors or by its then shareholders.
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In the present case the charter of the company (which by Act 49 Vict. c. 11 (D.) is declared to have the force of an Act of Parliament), after providing that the capital stock shall be two millions of dollars to be divided into shares of $100 each, declares that:
The money so raised shall be applied in the first place to the payment of all expenses and disbursements connected with the organization of the company and other preliminary expenses, and making the surveys, plans and estimates connected with the works hereby authorized, and all the remainder of such money shall be applied to the working, completing and equipping and maintaining of the said railway and other purposes of this charter and no other purpose whatever.
The purpose named in the charter was the construction of a railway from a point on the Manitoba and North-western Railway, or from Brandon on the Canadian Pacific Railway, to Battleford, a distance of about 450 miles.
A contract for the construction of the first 50 miles was entered into between Charlebois and the company on the 16th September, 1889.
The alleged ultra vires character of the contract lay (as was contended) in the improper inclusion in the contract price of the price of shares transferred by Charlebois to some of the directors, and of a bonus or commission of $173,000 to one of them.
The whole of the subscribed stock amounted to $500,000 in 5,000 shares, which up to the 16th September, 1889, were held by Messrs. Charlebois, Clemow, Allan, Devlin, and Murray, and upon which 30 per cent, representing $150,000, had been paid up. These gentlemen were also the directors of the company.
In 1888 the shareholders had entered into an agreement with a Mr. Codd to sell him their shares (i.e. all the subscribed shares) and to complete 50 miles of road then under construction for the sum of £200,000 sterling, Codd to pay £50,000 on the transfer of the shares
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within a month, and the balance on completion of the 50 miles within several months thereafter. And the shareholders agreed (as they well might, for they were not purporting to bind the company) that upon payment in full they would allow to Codd for commissions, etc., the very considerable difference between $800,000 and £200,000 sterling. Codd was not able to make his financial arrangements within the time named and the matter remained in suspense.
In 1889, however, he fell in with the person he was looking for, a wealthy gentleman named Delap, a client of a firm of London solicitors, Stevens, Bawtree & Stevens, who agreed to advance £50,000 sterling to Codd to enable him to carry out the agreement. Delap was (inter alia) to have transferred to him £90,000 of the shares of the company as security.
Early in September Codd came to Canada accompanied by Stevens, who came out in the interest of Delap and who was supplied by him with the £50,000. Soon after arrival they met Clemow, Allan, and Charlebois at Toronto. The parties for some reason failed to come to terms. Upon this happening Charlebois proposed to his fellow shareholders to buy them out, naming a price. After Messrs. Clemow and Allan had the opportunity of conferring with their associates, the four agreed to sell to Charlebois their 4,300 shares for the sum of $226,000.
In anticipation of the assent of the others Charlebois entered into an agreement with Codd on the 9th September, by which he agreed to carry out the agreement of the year before with modifications, one of which was that on the completion of the 50 miles he was to be paid an additional $50,000 or, at Codd’s option, its equivalent in stock. Afterwards, Codd, in consideration of Stevens having obtained the £50,000 to enable him to purchase the shares, agreed to transfer
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to the latter one-half of the shares; and all profits of the undertaking were to be divided equally. Any moneys coming to Codd out of the £200,000 were to belong to him absolutely. And, until all moneys advanced or which might be advanced by Stevens or any of his clients should be repaid, Stevens was to hold 90 per cent of the paid up shares of the company as security for such repayments.
Interviews and negotiations took place between the several parties during the week preceding the 16th of September, and on that day the directors met to carry out what had been agreed upon. Two main things were to be done; there was to be a transfer of all the shares to Stevens or his nominees, and (upon the installation of the new board of directors) a contract between Charlebois and the company for the construction of the first 50 miles. At request of Charlebois, Messrs. Clemow, Allan, Devlin, and Murray were to transfer direct to Stevens or his nominees.
The price to Charlebois for the 4,300 shares of his associates was, as stated, $226,632. Adding a proportionate amount for his 700 shares, the price to the purchasers for the whole would be about $263,000.
These shares were transferred as “fully paid up.” How they came to be so will be stated presently. If Delap’s money in Stevens’s hands were to be paid out for shares on which 30 per cent only had been paid up, the holders of the shares would be subject to the contingent liability of 70 per cent, and Delap’s security might be inadequate.
The plan was then adopted of using the £50,000 in fully paying up the shares; and (then having thus guarded against future liability, etc., and having put the company in funds), of using these funds through the medium of a construction contract to pay Charlebois for the shares of himself and his associates.
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It seems difficult to wholly acquit any of the parties of some connection at least with this plan.
The retiring shareholders at the meeting of 16th September helped to pave the way. By resolution they recited that they had offered to pay their stock in full, less a discount of 25 per cent, and under clause 10 of the charter declared such discount expedient and reasonable. They also directed that such certificates be issued upon such payment being made, and adopted a form of transfer for paid up shares.
It is clear from the minutes that certificates of paid up stock were then immediately issued. Mr. Allan then made a transfer of his paid up stock, and it was resolved “that Mr. Allan having sold and assigned his stock in the company and tendered his resignation as a director of the company, his resignation be accepted, and that Mr. Stevens being duly qualified, be elected a director in his place.”
Then the other shareholders one by one sold and assigned, and were succeeded as directors by their transferees. Stevens was then elected president and after loaning the company $15,158.33 (the balance of the Delap money left after fully paying up the shares) it was resolved that a construction contract be entered into with Charlebois. This contract, which was at once executed, was for £200,000 sterling of which £50,000 were to be paid down. Then four assignments by Charlebois in favour of Messrs. Clemow, Allan, Devlin, and Murray, amounting in all to $100,687.84 of the moneys first thereafter payable under the contract, were presented to and accepted by the company. Payment to Charlebois of the £50,000 ($243,333.33) under the contract was then ordered and the meeting closed. Out of this $243,333.33 Charlebois paid to his associates $129,945, an amount about equal to the 30 per cent paid up by
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them. The balance was provided for through the four assignments just alluded to.
It ought to have been stated that Stevens had deposited to the credit of the company, out of the £50,000, the 45 per cent required (with the allowed discount) to fully pay up the shares.
It is contended by Mr. McCarthy that this was merely a piece of book-keeping, or at most, a device of Stevens’s for his own purposes, and that in reality the $243,333.33 were paid by Stevens for the shares. He contended that Stevens had no authority from Charlebois or his fellow shareholders to pay up the shares on their behalf. It seems to me that this contention overlooks the resolutions. They say in these that they propose to pay up and they direct stock certificates to issue upon such payment. They certainly had no intention of paying out of their own moneys, nor did they do so; and yet they obtained and transferred fully paid up shares. We must conclude therefore that they adopted the means by which they were enabled to do what they did. Some of them probably, possibly all of them, at one time thought that the transaction might be carried out differently. But before they got through they must have understood that the real effect of what was being done was to make use of the company (as a temporary expedient at least) to carry the transaction of the purchase of the shares. Mr. Charlebois could scarcely have a doubt that the company was the paymaster for the price of the 5,000 shares sold by him. It is not, however, a question of good faith. The question is not, whether in what they did they intended to do wrong, but whether they have between them attempted to accomplish an illegal thing.
Mr. Justice Maclennan, while admitting that the effect was to cast upon the company the burden of paying for the 5,000 shares to the extent of about $245,000,
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expresses the opinion that the only effect as against Charlebois would be to give the company (had it acted promptly) the right to elect to avoid the contract on the ground of the equity between the company and its directors with knowledge of which Charlebois was affected. But as the burden was cast upon the company by means of a contract, how could the contract be made use of to compel the payment of moneys which the Act forbids to be so made? The transaction seems to me to be clearly ultra vires (at least pro tanto), and I fully agree with what the learned Chief Justice of Ontario has said about it.
But now we come to a wholly different question. Charlebois is not suing upon the contract. That has become merged in the judgment rendered upon it, and the present proceedings are to set aside that judgment or to restrain its enforcement.
The proceedings in which the said judgment was obtained are stated in the record as follows:—
The original action was commenced by Charlebois in the High Court of Justice, Chancery Division, on the 11th September, 1891, to recover the balance claimed to be due upon his contract, and to establish his lien upon the property of the company until payment, in accordance with his contract.
An Interim Injunction Order was obtained on behalf of Charlebois to restrain the company from encumbering or selling their land grant, or from dealing with or disposing of their bonds.
The railway company had previously, on the 9th September, 1891, commenced an action against Charlebois for damages for non-completion and other alleged breaches of his contract to construct.
Affidavits were filed, upon the injunction motion, and the president of the company was cross‑examined upon the affidavit filed by him.
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No pleadings were filed, because the motion for injunction when renewed was turned into a motion for judgment, and after about a week’s discussion a settlement or compromise was arrived at, by which Charlebois obtained the judgment of the 28th September, 1891, and the action of the company was withdrawn and dismissed.
The judgment declared that Charlebois had a lien on all the property of the company for $622,226 which the company was ordered to pay within six months, in default of which Charlebois could exercise over the property the full rights of a mortgagee, with judgment for a sale. The company was to be entitled to immediate possession and retain it until default, and all the bonds issued were to be deposited with a deposit company in England and not to be pledged except to pay Charlebois, and the contracts held by Charlebois for further construction of the road were to be transferred to a nominee of the company, Charlebois to retain the plant. These directions were complied with, except that the bonds were not deposited. The judgment contained also this provision:
The said sum of $622,226 is at the request of the said plaintiff declared to be payable to the following persons in the following order of priority, and the said fund is charged accordingly in favour of such persons:
(a.) To Macdonald & Schiller, the sub-contractors on the road, $60,640, and $3,789 for interest on the said sum to date, in all $64,429, which sum includes the order for $20,000 dated the 10th June, 1890, accepted by the defendants, and now in possession of Frank S. Nugent, Esq., which lien the said parties represented herein by their solicitor and counsel, the said Mr. Nugent, agree to accept as cash, and to credit the same in the suit now pending in the courts of Manitoba by the said Macdonald & Schiller against the said plaintiff as if paid into court in the said suit. The said sum is paid as the amount found due by the final certificate of J.H.E. Secretan, civil engineer, the plaintiff’s engineer, with interest as agreed upon, the said Macdonald & Schiller being at liberty to continue their action in the province of Manitoba
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for the recovery of any alleged balance that may be claimed by them against the plaintiff.
(b.) To W.A. Preston, fencing contractor, $7,810, and for interest $590, in all $8,400, the said Preston hereby accepting the provisions of this judgment by the said solicitor and counsel, the said Nugent, consenting thereto in full of his claims against the said plaintiff.
(c.) To the Crossen estate or company for their judgment and costs against the plaintiff, $39,000. The three preceding claims are to rank as between themselves pari passu, and these claims are payable by the defendant company in six months from this date with interest on their respective sums of principal money from this date. And these parties accepting the provisions hereof do so in full of all other liens now claimed, and deliver up possession of the said railway and all the property thereof to the defendants.
(d.) The second charge on the said fund is to be the sum of $380,397 with interest at six per cent on $271,555, and at four per cent on $108,842, which is payable to the plaintiff for his own use or for the use of any person or corporation to whom he may have heretofore assigned the moneys payable to him or a portion thereof under his said contract, according to their several present priorities if any, payment to any holder of any such order or orders to be considered as payment to the plaintiff by the defendants.
(e.) The third and last charge on the said fund is to be the residue, namely, the sum of $130,000, with interest thereon to date, payable to Daniel McMichael, Esq., Q.C., as trustee, in full satisfaction of all claims under a certain order or agreement for the payment of a sum stated therein at $173,333.33 in full adjustment of all matters in dispute between the said parties hereto, J.A. Codd, the said D. McMichael, trustee, the defendants, and all other persons, waiving and declaring all personal claims against the plaintiff under the said order or agreement as satisfied and discharged.
The learned Chancellor was of opinion that the judgment has no greater validity than the contract, because it was determined by consent, and the company could not validly give a consent to treat as valid what was ultra vires.
The learned Chief Justice of Ontario, however, draws no distinction between a decree by consent and one otherwise determined. “It seems just the same,” says His Lordship, “as if on plaintiff stating all his claims, lawful and unlawful, the company either says nothing
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against them in case of judgment, or formally confesses them to be well founded. The suit was simply for moneys alleged to be due which stand admitted by the defendants.”
In the case of In re South American and Mexican Coy., decided subsequently to the Chancellor’s judgment, it is held that a judgment by consent creates an estoppel to the same extent as a judgment where the court has exercised a judicial discretion. Lord Herschell says, at p. 50:
The truth is a judgment by consent is intended to put a stop to litigation between the parties just as much as is a judgment which results from the decision of the court, after the matter has been fought out to the end. And I think it would be very mischievous if one were not to give a fair and reasonable interpretation to such judgments, and were to allow questions that were really involved in the action to be fought out again in a subsequent action.
In Huddersfield Banking Co. v. Lister an order in the course of winding-up proceedings was made by consent, and had been completed and acted upon, but without affecting interests of third parties. The order was set aside on the ground of common mistake, and it was held that a consent order can be impeached upon any grounds which would invalidate the agreement it expresses.
The case of Jenkins v. Robertson merely decided (touching the point here) that where the public at large may be bound by the result of an action brought by an individual, the result will not so bind unless it was arrived at after judicial consideration, and that it would not bind the public if arrived at by consent. This is so referred to by Vaughan Williams, J. in In re South American and Mexican Co.
Such being ordinarily the effect of a judgment by consent, is it different where the cause of action arises
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on a transaction ultra vires of the defendant company? If in an action the defence of ultra vires is raised and the decision is against the defence, the company is certainly in no better position than an individual to raise again a decided issue.
On principle it does not differ, apart of course from fraud or collusion, if the company for one reason or another abstains from raising the question of ultra vires. It is the company that is in court, and the company is to be bound the same as others by what it does and by what it leaves undone. Between the same parties or privies, and in respect to the same cause of action, the judgment binds not only as to defences in fact raised, but as to such as might have been raised. It would seem against all reason to leave it open to a company, upon a change of management, to re-open litigation. If the judgment binds the company when recovered, it binds notwithstanding any change in the constitution of its governing body. Otherwise you could never get to the end of litigation with an incorporated company, and no one would be safe in acting upon a judgment against such a company. The effect of a judgment must be the same whether the claim sued on is ultra vires or not. The judgment forms a new obligation having a character of its own, and it is not ultra vires for a company to pay the amount of judgment recovered against it. Balkis Consolidated Company v. Tomkinson.
Then if a company being in court gives its consent to a judgment being rendered against it, it is as mischievous to allow questions that were really involved in the action (here, the question whether the company owed Charlebois a certain amount) to be fought out again in a subsequent action as if the action were against individuals. The learned Chief Justice was
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impressed by the possible result of enabling directors to do wholly unlawful acts and then agree to a judgment against them to make such acts valid. But the same thing might be said of judgments by default. And besides such a course of conduct as that supposed would amount to fraud and collusion, and vitiate any judgment so obtained.
It has been said that judgments obtained on ultra vires contracts operate by way of ratification. I think this hardly the proper ground on which to put it. The necessity in the administration of justice of reaching a point where there shall be an end of litigation—interest republicœ ut sit finis litium—which is perhaps the weightiest consideration operating to give to judgments recovered the effect which in all jurisprudence they are admitted to have, seems to be as pressing a necessity in a case where company is a defendant, and where the question is as to its power to contract, as where the defendant is sui juris.
Apart altogether from fraud or collusion, there is, however, in the case of all judgments, the right upon sufficient and proper grounds to maintain a suit in equity for relief against the judgment, either to set it aside wholly or in part or to restrain the execution of it.
Fraud is of course one ground for relief, i.e., not fraud as to the cause of action, for that is a matter which should have been raised in the original action, but fraud in the obtaining of the judgment. Collusion is another ground. There are other grounds for relief, as where a party without fault of his own is shown to have been prevented from fairly presenting his case.
Now, here, none of the learned judges have found fraud or collusion in respect of the obtaining of the judgment, and this ought not to be found by us at this stage.
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Nor was the company, without its fault, prevented from presenting its case. The transactions relative to the contract were known to all the shareholders, and there is no reason to suppose that any defence which the then shareholders or the company at that time desired to make was omitted to be made.
The company, however, is entitled to show the facts as to Codd’s breach of duty, and to claim that the amount secured to him by the judgment shall be declared to belong to it. This would not be to contradict the judgment to which Codd was not formally a party, but is wholly collateral and merely proceeds upon the ground that the company is beneficially entitled to the amount secured through Charlebois to him by the judgment. Moreover, there has been no appeal by Codd.
The learned Chancellor thought that the stock should be charged with the amount of the price of Charlebois’ shares, and that Mr. Delap should be considered liable to Charlebois for the amount. As Mr. Delap is manifestly the person who would chiefly profit by the relief asked for so far as regards the price of the shares, it would seem as though (in the view of the whole case taken by the learned Chancellor) the fulfilment of Mr. Delap’s declared obligations might very well have preceded the enforcement of the equitable relief sought for.
As to the matter of the lien and its validity I do not think it necessary from my point of view to do more than refer to the judgments of Mr. Justice Burton and Mr. Justice Maclennan.
Then as to the issue of the bonds, the same observation may be made. The issue to Mrs. Mansfield seems scarcely to rest on stronger grounds than those which the Court of Appeal thought insufficient in the case of Mr. Delap.
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The result is that the appeals should be allowed and the action be dismissed except so far as the judgment relates to the sum of $130,000 payable to the defendant Codd, which sum is to be deducted and not to be recoverable upon the judgment.
Inasmuch as the conduct of Mr. Charlebois and his associates in reference to the contract was the occasion of all this litigation it seems proper that they should not have their costs. The others who claim through him must also bear their own costs. Accordingly there will be no costs to any party, either here or below.
GIROUARD J. concurred.
Appeal allowed without costs.
Solicitors for the appellants Charlebois and others: Chrysler & Lewis.
Solicitors for the appellants Macdonald and Shiller and others: Robinson, O’Brien & Gibson.
Solicitors for the appellants Crossen estate and others, Beatty, Blackstock, Nesbitt, Chadwick & Riddell.
Solicitors for the respondents: Howland, Arnoldi & Bristol.
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