McAskill v. Northwestern Trust Co., [1926] SCR 412

Supreme Court of Canada

McAskill v. Northwestern Trust Co., [1926] S.C.R. 412

Date: 1926-05-04

In the matter of The Northwestern Trust Company (in liquidation)

and

In Re Neil McAskill (Defendant) Appellant;

and

The Northwestern Trust Company (in liquidation) (Plaintiff) Respondent.

1926: March 8, 9; 1926: May 4.

Present: Anglin C.J.C. and Idington, Duff, Mignault and Newcombe JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA

Company—Sale of Shares Act, Man.—Non-compliance therewith—Effect —Sale of shares void—Repudiation by purchaser after winding-up order—Company incorporated by special Act—Application of Sale of Shares Act.

If a company, to which the Manitoba Sale of Shares Act (R.S.M., 1913, 175, and amendments) applies, sells its shares without having complied with that Act, the sale, and all steps taken to carry it out, such as an allotment of shares, are void, and not merely voidable; and where the purchaser of the shares has not dealt with them or done anything from which an independent agreement to keep and pay for them can be implied, although his name has been placed on the register of shareholders, he can, even after a winding-up order has been made against the company, repudiate the purchase and successfully resist being placed on the list of contributories, where it appears that he only became aware, after the winding-up order was made, that the Sale of Shares Act was not complied with. Oakes v. Turquand, L.R. 2 H.L. 325. In re Railway Time-Tables Publishing Co.; Ex parte Sandys, 42 Ch. D. 98, and In re Peruvian Railways Co.; Crawley’s Case, L.R. 4 Ch. App. 322, distinguished. Welton & Saffery [1897] A.C. 299, at 321-322, explained.

The company in question was incorporated by special Act which contained no reference to The Sale of Shares Act. It contained many provisions, one of which, s. 26, provided that “every person who makes application in writing for an allotment of shares, to whom any share or shares is or are allotted in pursuance of such application, shall be deemed conclusively to have agreed to become a shareholder of the company in respect of the shares so allotted.”

Held, that the Sale of Shares Act applied as to the matters in question, and s. 26 did not affect its operation or prevent the purchaser from disputing his liability as a shareholder.

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Judgment of the Court of Appeal reversed, and its judgment in In re Northwestern Trust Co.; in re Moreau et al (34 Man. R. 449; [1924] 3 W.W.R. 625) (which reversed the judgment of Dysart J. (34 Man. R. 342; [1924] 2 W.W.R. 1145) ) overruled. Idington J. dissenting.

APPEAL from a judgment of the Court of Appeal for Manitoba affirming an order of Dysart J. placing the appellant upon the list of contributories of The Northwestern Trust Company, which is being wound-up under the Winding-up Act R.S.C. 1906, c. 144, and amendments. The decision of the courts below was governed by a previous decision of the Court of Appeal for Manitoba, in the matter of three shareholders of the same company. See In re Northwestern Trust Company; In re Moreau et al[1] reversing (Prendergast and Trueman J.J.A. dissenting) the judgment of Dysart J. who had refused to place the parties on the list of contributories[2]. An appeal in that case was taken to the Supreme Court of Canada but was quashed for want of jurisdiction. In the present case, as Dysart J. was bound by the decision in In re Moreau et al1, he placed the appellant on the list of contributories, and an appeal to the Court of Appeal from his order was dismissed. The appellant obtained leave to appeal to this court, the amount involved being sufficient under the Winding-up Act. The reasons for judgment to be considered on this appeal were those delivered in In re Moreau et al1 to which the learned judges of the Court of Appeal referred as the grounds of their decision in this case. The proceedings were brought upon a stated case agreed to toy the parties. In substance this stated case set out as follows: The Northwestern Trust Company was incorporated by c. 170 of the Statutes of 1920, Manitoba, and had its head office in Winnipeg. By order dated 17th March, 1924, the company was directed to be wound up, and the liquidator applied to have appellant placed on the list of contributories for the sums of $5,400 and $1,000 in respect of two subscriptions for stock for 50 and 10 shares respectively, of the par value of $100 each, at the price of $125 per share. On its incorporation the company had only a part of its capital stock subscribed, and it authorized two

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of its officers, McCabe and Maber, to procure subscribers for and sell, offer and attempt to sell all of the shares in the capital not then subscribed for. McCabe and Maber engaged one Shallott and one Brand to offer for sale, attempt to sell and sell the stock. Brand offered for sale and attempted to sell shares to various persons and on 21st September, 1922, offered 50 shares to appellant at Winnipeg and by his efforts induced him to sign an application for these shares and appellant paid therewith $550. On 20th November, 1922, Shallott offered 10 shares to appellant at Winnipeg and by his efforts induced him to sign an application for these shares and appellant paid therewith $250. These applications and payments were transmitted to the company, the stock allotted to appellant, and notice thereof given to him. The company made an application to the Public Utility Commissioners for Manitoba under The Sales of Shares Act, R.S.M., 1913, c. 175, and amending Acts, for permission and authority to offer and attempt to sell, and sell its shares, but the application was not granted and the company did not comply with the provisions of the said statute and never filed the papers required by the Act and never obtained a certificate under the Act nor a license for its agents. Neither McCabe, Maber, Shallott nor Brand had a license under The Sale of Shares Act as agents for the company. The appellant was not aware until after the winding-up order had issued that the company had not secured a certificate and its agents had not a license as aforesaid or that the provisions of the said Sale of Shares Act had not been complied with. The question submitted was “Is the said Neil McAskill [appellant] liable in the absence of other defence for any sum under the alleged subscriptions * * * and to be settled on the list of contributories herein therefor”? Further material facts, and a detailed reference to the provisions of the special Act incorporating the company will be found in the judgment of Mignault J. S. 26 of said special Act which, among other things, was relied upon by the liquidator, is set out in the headnote, which also indicates the other questions considered by the court.

H. M. Hannesson and J. F. McCallum for the appellant.

E. Lafleur K.C. and P. C. Locke for the respondent.

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Anglin C. J. C.—I concur with Mr. Justice Mignault.

Idington J. (dissenting).—This is an appeal from the Court of Appeal for the province of Manitoba in a matter wherein a question was raised by the appellant as to his liability as a shareholder in said trust company to pay the balance due by him upon certain shares he had acquired as the result of two distinctly separate applications in writing to the board of directors of said trust company for stock in same, and in response to each of which he had been by said board duly allotted the shares so applied for.

The liquidator appointed under said Winding-up Act when seeking to enforce the rights of the creditors of said company took steps therefor against the appellant and many others to recover the respective balances due by each of such like subscribers as the appellant.

They each set up a rather remarkable defence under the provisions of the Manitoba Sale of Shares Act, and were successful before the judge hearing the applications and, in each of four such cases, an appeal was taken to the Court of Appeal for Manitoba.

That court by a majority allowed the liquidator’s appeal with costs.

From said judgment as against appellant he now appeals herein.

I so fully agree with the said view taken by said majority that, for the reasons respectively assigned by the Honourable Chief Justice Perdue, and the Honourable Justices Fullerton and Dennistoun, I am of the opinion that said appeal should be dismissed with costs against said appellant.

I, therefore, do not see much to be gained by repeating herein their several reasons or extending the course of reason by making new points, or trying to do so.

I only desire to point out that the said Sale of Shares Act was enacted some ten years or more before the special Act in question herein and had been radically amended several times, but had got into a settled form such as it had been for some years before the Manitoba legislature created said trust company by a special Act of said legislature, being chapter 170 of Manitoba Statutes, for 1920, at great length assigning the powers it desired to confer upon the said trust company.

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In course thereof there are so many provisions in conflict with those of the Sale of Shares Act and inconsistent therewith, when one looks at their respective purview and realizes such inconsistency and conflict that, as a matter of elementary law, full effect must be given to the later legislation whenever there is any such conflict or inconsistency.

Section 26 of said special Act has been much relied upon as binding appellant.

The said Sale of Shares Act has given certain stringent powers to the commissioner appointed thereunder and requires returns to him, but in the 22nd section of said special Act returns are to be annually made to the department of the Provincial Secretary. I cannot imagine such a duplication being deemed necessary by any legislature. It is one of several analogous provisions which I find in said special Act as quite unlikely to be enacted therein if the legislature ever thought the Sale of Shares Act was to apply in the way appellant contends.

Let anyone read the whole Act section by section and try to grasp the purview of the whole, and that of the Sale of Shares Act, and apply the law as set forth in the numerous decisions cited in Craie’s 1901 Edition of Hardcastle’s Statute Law, on pages 228, 344, 501 and 502, when dealing therein with the repugnancy between later and earlier statutes and, I submit, he will find it difficult to maintain appellant’s pretensions herein.

It would be interesting to know something more anent the alleged application of the company in question, referred to in the eleventh paragraph of the stated case herein, than appears.

The bald facts in said eleventh paragraph without any date of the alleged application are not very satisfying and indeed such that I can attach no importance thereto, save that therein is the clear implication that nobody was ever given a licence under the Sale of Shares Act to sell shares in said company.

Its bald presentation and circuitous expression suggest a suspicion that possibly the directors started out with the impression that possibly they should get for their agents, such like licences as in question, and were told, either by the commissioner, or some other good authority, that said

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company specially created as a trust company by the legislature, and the many sections in the Act doing so, which would conflict with such an obligation as the Sale of Shares Act had imposed upon other companies had rendered it absurd to appoint licensees to sell shares in its stock.

This suggestion of mine is not of the slightest consequence; save in looking at the said Sale of Shares Act and if at all applicable, when considering the consequences of its non-observance, and the bearing thereof herein upon the liability of such subscribers as in question upon their respective contracts and validity or invalidity of such shares as allotted them in said trust company’s stock.

It is to be noted in this connection that there is nothing in said Act expressly rendering the stock void, and the inferences of law applicable might be very different when dealing with an obviously honest error and a brazen defiance of the law.

Duff J.—Speaking with the greatest respect, I cannot concur with the view expressed by the learned Chief Justice of Manitoba, that s. 26 of the special statute of the Northwest Trust Company affects the operation, as concerns that company, of the Sale of Shares Act. The Sale of Shares Act is an enactment of general application, intended obviously to extend to all companies, whether incorporated under some statute providing generally for the incorporation of Companies, or brought into existence by a special Act. There is nothing in the Northwest Trust Company’s Act to indicate that, speaking broadly, the Sale of Shares Act is not to be observed, and the special statute must be read as containing an implied provision that the company is empowered to do the things authorized, on compliance with the requirements of the earlier legislation. The books are not wanting in precedents for this manner of reading a special Act. The decision of this court in Canadian Niagara Power Co. v. Stamford[3] is one. In this case I thought the view of the majority was wrong, but that view was sustained by the Judicial Committee. Manifestly, s. 26 is not intended to validate an ultra vires agreement. Probably the true reading of it is that, in the circumstances mentioned, the applicant is

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deemed conclusively to have agreed in point of fact to take the shares allotted to him.

I have no manner of doubt that the doctrine of ultra vires (if not the doctrine laid down by the House of Lords in Ashbury Railway Carriage and Iron Co. v. Riche[4], at least the doctrine expounded by Lord Blackburn, then Blackburn J., in the Exchequer Chamber[5] in that case) governs the acts of the company. My reasons for that view are fully given in The Canadian Bank of Commerce v. The Cudworth Rural Telephone Company[6], inclusive, and I will not repeat them here. It is sufficient to say that, if the legislature, in the Sale of Shares Act, has manifested an intention that such a company as this shall not, in the given circumstances, enter into a contract such as the appellant’s contract to take shares, then that contract, although concluded in fact, was an illegal contract, and wholly void, and the act of the company in placing the appellant’s name on the register of shares was unauthorized, and, as concerns the appellant, vis-à-vis the company, in its legal effect inoperative.

The real question to be determined is that to which the majority of the learned judges of the court below addressed themselves, namely, Is the appellant, as a consequence of the winding-up proceedings intervening before any repudiation by him of his status as a shareholder, precluded from denying that status, as against the liquidator in the capacity in which he represents the creditors?

In point of law, the appellant never assented to having his name put on the register. There was not merely an assent voidable at the election of the appellant; there was no assent which in law would bind or affect either the company or the appellant. The responsibility of the appellant as contributory arises out of s. 51 of the Winding-up Act, which imposes the liability to contribute upon shareholders or members of a company being wound up. If, in contemplation of law, the appellant was not a shareholder or a member of the company, I do not understand on what principle he is brought within the sweep of that section.

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The case would, of course, be very different if the appellant were the holder of shares allotted to him pursuant to a contract capable of being rescinded on some proper legal ground, such as fraud, but valid and binding until so rescinded. Such a right may be lost by reason of some change in the circumstances making it unjust to permit the exercise of that right, and accordingly it has been held, and has long been settled law, that a registered shareholder, having a right to rescind his contract to take shares on the ground of misrepresentations contained in the company’s prospectus, will lose that right if he fails to exercise it before the commencement of winding-up proceedings. The basis of this is that the winding-up order creates an entirely new situation, by altering the relations, not only between the creditors and the shareholders, but also among the shareholders inter se. This was the principle of the decision in Oakes v. Tur quand[7], a decision which has been applied many times since. But the rule in Oakes v. Turquand7 has no application where there has never been a concluded agreement to take shares, or where the agreement, though concluded in fact, is, in point of law, a nullity. The principle, in this aspect of it, is lucidly stated in a passage I shall quote from Buckley on Companies, on p. 103 of the tenth edition, a passage reproduced ipsissimis verbis, from the ninth edition, which we have the authority of Lord Wrenbury himself for saying was entirely the work of his own hands:—

If the transaction in which a name has been entered on the register is not voidable but void, the decision in Oakes v. Turquand has no application. If the transaction be void, there can be no contract; under such circumstances the fact that a winding up has commenced is no ground for retaining the name on the list of contributories. For the liquidator for enforcing a contract stands only in the place of the company, and cannot enlarge the engagement of the alleged shareholder beyond that which he has entered into. If, therefore, it is shown that the alleged member has never agreed to become a shareholder, if, that is, there is no contract at all, it is immaterial that the name is found on the register at the commencement of the winding-up.

The principle has been applied in numerous cases, many of which are discussed in detail in the second volume of Lindley on Companies. It has been applied in cases in which the shares that the company has professed to allot

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have been such as the company had no power to issue— such, in other words, as could not in point of law be considered to have a legal existence. In re London and Northern Insurance Corporation; Stace and Worth’s Case[8]. It has been applied where there was no concluded contract, by reason of the failure to notify the applicant of the allotment, by reason of the non-performance of a condition precedent—In re Universal Banking Company; Rogers’ Case[9], or because a condition of the application was not assented to, or was such that the company was incapable of assenting to it—In re Richmond Hill Hotel Company; Pellatt’s Case[10].

In particular, where the shareholder has agreed to take paid-up shares, and only paid-up shares, and the company in the circumstances has no power to allot such shares, the applicant will not be treated as a member in respect of the shares allotted to him unless, expressly or by his conduct, he has accepted them. In re Barangah Oil Refining Co; Arnot’s Case[11]; in re Scottish Petroleum Co.[12]; in re Railway Time Tables Publishing Co.; Exparte Sandy[13]. There are no facts in the stated case to support a conclusion that there was a valid contract by conduct between the company and the appellant not falling within the prohibition of the Sale of Shares Act.

The view taken in the court below by Mr. Justice Denistoun, which seems also to have been the view of the Ap-lellate Division of Alberta, as expressed in the judgment of Harvey C. J., in in re Great North Insurance Co.[14], was that the failure on part of the appellant to have his name removed from the share register prior to the winding up has the effect of precluding him from disputing his status as a shareholder and contributory in the winding up proceedings. This view is founded chiefly on the passage in the judgment of Lord Macnaghten in Welton v. Safferyt[15], and in argument on behalf of the liquidator, it was this passage which was pressed upon us most vigorously in support

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of the judgment of the court below. The passage is in these words:

Why then, I ask, is the appellant to be relieved from the obligation of contributing his proportionate share of the losses of the undertaking? It was said that there was a “social contract,” to which effect ought to be given now that the rights of creditors are out of the way. There, as it seems to me lies the fallacy. How was the supposed contract made? Who gave the requisite authority for making it? Not the company, nor yet the shareholders. It is beyond the powers of a limited company to limit the liability of shareholders in a manner inconsistent with the conditions of the memorandum of association. The directors, therefore, had no authority from the Company to issue shares at a discount, or on any terms relieving the shareholder from liability to pay in full. The shareholders had no power to authorize the directors to do on behalf of the company that which the company itself could not authorize them to do. The articles of association no doubt empower the directors to issue shares on such terms as they think fit; but that must mean, of course, on such terms as they think fit consistently with the provisions of the Companies Acts. The articles in express terms purport to authorize the directors to issue shares at a discount. That provision, however, is in contravention of the statute of 1862, and simply void; neither the company nor the shareholders, even if they had been unanimous, could have empowered the directors to do anything of the kind. If the directors acted without authority, how can their action bind those who are supposed to have given them authority, but who, in fact, gave them none? The truth is, as it seems to me, that there never was a contract between the company or the shareholders, on the one hand, and the persons to whom these discount shares were offered, on the other. There was an offer by the directors purporting to act on behalf of the company, but it was an offer of that which the company could not give, because the law does not allow it. There was an acceptance by the discount shareholders of that offer. But that offer and acceptance could not constitute a contract. Both parties acted under a misconception of law, and the whole thing was void. The company, however, placed the names of the discount shareholders on the register; they allowed their names to remain there until their remedy against the company was gone; and now they cannot be heard to say that they were not shareholders.

Here it is made quite clear, not only that it was Lord Macnaghten’s own opinion, but that there was so much unanimity on the subject as to make discussion upon it superflous, that the original allotment, and the contract upon which the allotment was based, were both null; and that this was the view of the other Law Lords is sufficiently clear from the speeches of Lord Watson at pp. 310-11, and of Lord Davey, at pp. 331-2. If that had been the only contract expressed or implied, then, if I am right in what I have already said, Welton was not liable as a contributory, and we should certainly not have had the elaborate arguments and judgments delivered in that case, assuming as an indisputable and undisputed proposition that for the

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purpose of satisfying the demands of creditors and the costs of winding up, Welton was liable as a contributory. I can find nothing in any of the reports of the case indicating the facts upon which this accepted view rested. I am quite unable to entertain a doubt, however, that the shares had been dealt with, or that the shareholders had acted with respect to the shares in such a way as to create an agreement by conduct to accept them, an agreement not affected by the condition that the shares should be treated as fully paid up. Many considerations can be presented in support of this opinion—considerations which appear to me to be quite conclusive. It is incredible, for one thing, to my mind, that, in the absence of such facts, Welton’s liability, which in such circumstances would appear to have been conclusively negatived by the decision in in re Barangah Oil Refining Co.; Arnot’s Case[16], would have been admitted by everybody, as it was. Then, Lord Macnaghten’s judgment is not mentioned in Buckley on Companies, as containing anything inconsistent with the passage quoted above, or in the elaborate discussion of the whole subject in Lindley on Companies, as having any relevancy at all to the point now under discussion; or in the edition of 1901 of Rawlins & Macnaghten on Companies, at pp. 331 and 332, where the cases in which a shareholder is entitled to have his name removed from the register after the commencement of the winding up are carefully classified; or, again, in the discussion of the subject in Palmer on Companies. There appears to be abundant justification for thinking that Lord Macnaghten’s judgment has not been considered to bear the interpretation ascribed to it in the argument of the appellant.

The appeal should be allowed and the question submitted answered in the negative.

Mignault J.—This is an appeal by leave of a judge of this court from a judgment of the Court of Appeal of Manitoba, affirming an order of Mr. Justice Dysart placing the appellant upon the list of contributories of The Northwestern Trust Co., which is being wound-up under the provisions of the Dominion Winding-up Act.

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The decision of the courts below, in this case, was governed by a previous decision of the Court of Appeal of Manitoba, in the matter of three shareholders of the same company, to wit, Alfred M. Moreau, Reginald Drayson and Lucy E. Vicary[17]. In those cases, Mr. Justice Dysart had refused to place the parties on the list of contributories, but his judgment was reversed by the Court of Appeal (Prendergast and Trueman JJ.A. dissenting). An appeal was then taken to this court, but was quashed for want of jurisdiction, no leave to appeal having been obtained and the amount in each case being under $2,000. In the matter of McAskill, however, a subscription for sixty shares was involved, amounting in nominal value to $6,000., and these shares had been sold to him at a premium, to wit, $125 per share of a nominal value of $100. As Mr. Justice Dysart was bound by the decision in In re Moreau et al., he placed McAskill on the list of contributors, and an appeal to the Court of Appeal from his order was dismissed. Thereupon McAskill obtained leave to appeal to this court, the amount involved being sufficient under the Winding-up Act. The reasons for judgment to be considered on this appeal are those delivered in the cases of Moreau, Drayson and Vicary, to which the learned judges refer as the grounds of their decision in this case.

The proceedings were brought upon a stated case agreed to by the parties. In substance, this stated case sets out that The Northwestern Trust Company was incorporated by a Manitoba statute, being chapter 170 of the Statutes of 1920, and had its head office in Winnipeg; that by order, dated the 17th of March, 1924, the company was directed to be wound-up and the liquidator applied to have McAskill placed on the list of contributories in respect of two subscriptions for stock, for 50 and 10 shares respectively, at the price of $125 per share, the balance unpaid thereon being $6,400; that on its incorporation the company had only a part of its capital stock subscribed, and it authorized two of its officers, McCabe and Maber, to procure subscribers for its capital stock not then subscribed for; that

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McCabe and Maber engaged one Shallott and one Brand to offer for sale and attempt to sell the stock; that Brand offered 50 shares of stock to McAskill at Winnipeg on the 21st of September, 1922, and by his efforts induced him to sign an application for these shares on which McAskill paid $550; that Shallott offered 10 shares of stock to McAskill at Winnipeg on the 20th of November, 1922, and by his efforts induced him to sign an application for these shares on which McAskill paid $250; that these applications were transmitted to the company, the stock allotted to McAskill, and notice thereof given to him; that the company made an application to the Public Utility Commissioners for Manitoba under The Sale of Shares Act, chapter 175 of the Revised Statutes of Manitoba, and amending Acts, for permission and authority to sell its shares, but the application was not granted, and the company did not comply with the provisions of the said statute and never filed the papers required by the Act and never obtained a certificate under the Act nor a license for its agents; that McCabe, Maber, Shallott and Brand did not at any time have a license under the Act when they offered the shares for sale to McAskill; that McAskill

was not aware until after the winding-up order herein had issued that said company had not secured a certificate and its agents had not a license as aforesaid, or that the provisions of the said Sale of Shares Act had not been complied with.

The following question is submitted by the stated case:

Is the said Neil McAskill liable in the absence of other defence for any sum under the alleged subscription for stock marked exhibits 2 and 3, and to be settled on the list of contributories herein therefor?

Before making special reference to the charter of the Northwestern Trust Company, it will be convenient to set out as briefly as possible the material provisions of the Sale of Shares Act. This statute was first enacted by the Manitoba legislature in 1912, 2 Geo. V, c. 75, and is chapter 175 of the Revised Statutes of Manitoba of 1913. As it stood at the time of the revision of 1913, it applied only to foreign companies, but in 1914, by chapter 105 of the statutes of that year, an important amendment was adopted, striking out the word “foreign” wherever it appeared in the statute, and defining the term “company” as including every company, corporation, syndicate of persons, incorporated or unincorporated.

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The language of section 4 hereinafter quoted was also changed.

As a good deal in this case turns on the language of sections 4 and 6, I will quote them in extenso.

Section 4, as enacted by chapter 105 of the statutes of 1914:—

It shall hereafter be unlawful for any person or persons, corporation or company, or any agent acting on his, their or its behalf, to sell or offer to sell, or to directly or indirectly attempt to sell, in the province of Manitoba, any shares, stocks, bonds or other securities of any corporation or company, syndicate or association of persons, incorporated or unincorporated, other than the securities hereinafter excepted, without first obtaining from the Public Utility Commissioner, hereinafter styled “the commissioner,” a certificate to the effect hereinafter set forth and a license to such agent in the manner hereinafter provided for.

The words “other than the securities hereinafter excepted” are a reference to section 5 of the amending statute, the purport of which is stated below.

Section 6:—

It shall not be lawful for any person or any such company, either as principal or agent, to transact any business, in the form or character similar to that set forth in section 4, until such person or such company shall have filed the papers and documents hereinafter provided for. No amendment of the charter, articles of incorporation, constitution and by-laws of any such company shall become operative until a copy of the same has been filed with the commissioner as provided in regard to the original filing of charters, articles of incorporation, constitution and by-laws, nor shall it be lawful for any such company to transact business on any other plan than that set forth in the statement required to be filed by section 7, or to make any contracts other than those shown in the copy of the proposed contracts required to be filed by section 7, until a written statement, showing in full detail the proposed new plan of transacting business, and a copy of the proposed new contract shall have been filed with the commissioner, in like manner as provided in regard to the original plan of business and proposed contract, and the consent of the commissioner obtained as to making such proposed new plan of transacting business and proposed new contract.

The prohibition at first extended to all sales or attempted sales of stock however made. But while the scope of the statute was extended in 1914 as above mentioned, the prohibition was restricted by section 5 of the amending statute of that year to sales or attempts to sell made “in the course of continued and successive acts.” What the words just quoted mean is shewn by the rest of section 5 which states:

The printing, publication or advertisement in any newspaper, magazine or other periodical, or by any other means of display whatsoever, or the issue, putting forth or distribution of any advertisement, circular

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letter or other paper containing any offer to sell or solicitation to purchase or intimation of the fact of the issue of any of such shares, bonds, stocks or other securities, or solicitation by agents or employees, shall be evidence of an attempt to sell in the course of continued and successive acts in violation of this Act.

The other provisions of the Act, so far as they are pertinent, may be briefly summarized. A company or person desiring to sell any shares must file in the office of the Commissioner (i.e. the Public Utility Commissioner) a statement of the plan on which the company proposes to transact business, a copy of all contracts, bonds or instruments which it proposes to make with or sell to its contributors, an itemized account of its actual financial condition shewing its property and liabilities, and such other information touching its affairs as the commissioner may require (s. 7). These documents are examined by the commissioner who may make or have made a detailed investigation of the company’s affairs; and if he finds that the company is solvent, that its articles of incorporation, its constitution and by-laws, its proposed plan of business and contracts provide a fair plan for the transaction of business and promise a fair return, he issues a certificate reciting that the company has complied with the Act and is permitted to do business in the province. If the Commissioner finds that the articles of incorporation, charter, constitution and by-laws, the plan of business or proposed contracts contain provisions that are unfair, unjust, inequitable or oppressive, or if he decides that the company is not solvent and does not intend to do a fair and honest business, or does not promise a fair return, he notifies it, or the person offering its shares for sale, of his findings, and it shall then be unlawful for the company or any agent on its behalf to sell or offer for sale its shares, bonds or other securities until the company shall change its constitution and by-laws, articles of incorporation, its plan of business and proposed contracts and its general financial condition in such a manner as to satisfy the Commissioner on all these points (s. 10).

When the company has obtained the Commissioner’s certificate, it may appoint one or more agents, but no such agent shall do any business for the company until he has registered with the Commissioner and received a licence from him, which licence shall be produced to every person

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with whom he proposes to transact business (s. 11). The company shall file with the Commissioner every twelve months, or oftener if required, a statement under oath of its financial condition and of its assets and liabilities. The Commissioner may revoke his certificate if he finds that the assets of the company are impaired and do not equal its liabilities, or that it is conducting business in an unsafe manner, or if the company refuses without satisfactory reasons to file any papers, statements or documents required by the Act or by any order of the Commissioner (s. 12).

The Commissioner is granted other powers of investigation of the company’s affairs, and when his finding is adverse to the company on the points mentioned above, he reports the facts to the Attorney General, who may apply to the Court of King’s Bench or to a judge thereof for the appointment of a receiver to take charge of and wind-up the affairs of the company (ss. 13 and 14).

The Act provides for a penalty of not less than fifty dollars nor more than five hundred dollars to be recovered from any person who shall do anything forbidden by the Act or declared unlawful by it (s. 15).

We now come to the incorporation of the Northwestern Trust Company by a special Act of the Manitoba legislature, chapter 170 of the statutes of 1920.

It will not be necessary to do more than refer briefly to some of the salient provisions of this charter which is very long and detailed. The capital stock is $1,000,000 in shares of $100 each, with power to increase it to an amount not exceeding $5,000,000. Stock to the amount of $100,000 must be subscribed and $35,000 paid thereon before the company goes into operation (s. 3). The objects of the company are stated in great detail in section 5 and following and are those generally of a trust company. It is also authorized to act as an executor, administrator, etc., without security when approved by the Lieutenant Governor in Council. Its liability in fulfilling these offices is the same as that of a private person acting in a like capacity, and the whole of its capital stock together with its property and effects are security for the faithful performance of its duties, but no shareholder is liable for more than the amount unpaid on the stock held by him (s. 11).

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The powers of the directors are also stated in detail, and, inter alia, are to issue stock, make calls thereon and prescribe the terms of payment (s. 19). The persons mentioned in the preamble are named provisional directors and are empowered to open in the city of Winnipeg and elsewhere stock books in which are recorded the subscriptions of those who desire to become shareholders (s. 20). The company is directed to prepare and annually transmit to the Provincial Secretary a statement in duplicate under oath setting forth the capital stock of the company, the portion paid up, the assets and liabilities of the company, and stich other information as the department may require (s. 22).

Every person who makes application in writing for an allotment of shares, to whom any share or shares is or are allotted in pursuance of such application, shall be deemed conclusively to have agreed to become a shareholder of the company in respect of the shares so allotted.(s. 26).

The register of the shareholders is prima facie evidence of any matters by the Act directed or authorized to be inserted therein (s. 27).

Sections 29 and 30 of the charter are taken verbatim from sections 48 and 49 of the Manitoba Companies Act (R.S.M. c. 35), and render each shareholder, until his stock has been fully paid up, liable to the creditors of the company for the unpaid portion thereof, but relieve him otherwise from liability for the acts, defaults or liabilities of the company. The company is directed to keep a register of the shareholders containing their names, the number of shares held by them and the amount paid thereon (s. 33). The company is declared subject to the general laws of the province relating to loan and trust companies (s. 50). The powers granted by the Act cease and determine unless the company begins business and goes into operation within two years (s. 51). Finally sections 31, 34, 47 and 59 to 65 inclusive of the Manitoba Companies Act are made applicable to the company (s. 52).

The first question we have to decide is whether the Sale of Shares Act applies to this company, a point on which there was a difference of opinion in the court below. The charter of the company contains no reference to this Act. The majority of the judges in the Court of Appeal considered that s. 26, which I have quoted verbatim, prevented

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the appellant from disputing his liability as a shareholder.

It may well be that certain provisions of the company’s charter override some of the enactments of the Sale of Shares Act. For instance, in so far as the charter expressly sets out the objects and defines the powers of the company, the Public Utility Commissioner, acting under the Sale of Shares Act, could not call on this company to change the plan of business mentioned in its Act of incorporation or to modify its charter powers. But because the charter authorizes the directors to issue stock and make calls thereon—powers belonging to directors in joint stock companies generally under the Manitoba Companies Act —it by no means follows that measures of supervision and control with respect to the sale of shares, such as those prescribed by the Sale of Shares Act, are inconsistent with or repugnant to this company’s charter. In the absence of anything in the charter excluding these measures, which are undoubtedly of great public importance and designed to be of universal application, they should not be excluded by inference on account of the general power given to the directors to issue stock. Sect. 26 of the charter, which was specially relied on in the court below, can be given full scope without affecting any of the prohibitions of the Sale of Shares Act. It concerns a mere matter of evidence, authorizing the inference, from the fact of an allotment of shares pursuant to an application in writing therefor, that the applicant has agreed to become a shareholder in respect of the shares so allotted. Here there is no question that the appellant did consent to become a shareholder, but the point is whether such consent is binding on him in view of the prohibitions of the Sale of Shares Act. Section 26 presupposes a valid and binding application for the shares alloted. Nothing in that or any other section of the company’s special Act excludes the applicability of the safeguarding provisions of the Sale of Shares Act to the appellant’s purchase of shares in the Northwestern Trust Company.

It is common ground that this company did not obtain from the Public Utility Commissioner a certificate as required by the Act before selling shares to the appellant. It had applied for this certificate, which was not granted,

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and it had never filed the papers and documents required by sections 6 and 7 of the Act. It is also admitted that McCabe, Maber, Shallott and Brand, its agents, who offered the shares for sale, did not have or produce any license when offering them. The stated case further alleges that the appellant was not aware, until after the issue of the winding-up order, that the company had not secured a certificate, that its agents had no licenses, and that the provisions of the Act had not been complied with. Under these circumstances, is the appellant liable to be placed on the list of contributories of this company for the shares purchased by him?

The applications for stock and the allotments took place in the fall of 1922, and the winding-up order is dated the 17th of March, 1924. The stated case sets out no dealings by the appellant with the stock, no assisting at meetings or receipt of dividends by him. We have only the facts that the stock was subscribed for and allotted and that notice of the allotment was sent to the appellant. The appellant’s repudiation of his purchase took place after the winding-up order issued, for at that time only did he become aware that the requirements of the Sale of Shares Act had not been complied with.

On behalf of the appellant it is contended that in view of the prohibitions of the Sale of Shares Act, his contract to purchase shares was void ab initio, and not merely voidable, and that he could, under the circumstances, successfully resist an application to place his name on the list of contributories.

The liquidator’s submission is that, if the statute applies, the contract is not void but only voidable at the election of the shareholder, and that the latter’s repudiation made after the beginning of the winding-up is too late. The liquidator also contends that the appellant having accepted the stock allotted to him and his name having been placed on the register of shareholders, he is now estopped from setting up against the creditors of the company, who are represented by the liquidator, that his purchase of shares is void and that he is not a contributory.

Taking into consideration the character of the statute, its language and also the purpose for which it was enacted —which was to protect the general public against schemes

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or campaigns to sell shares or securities of doubtful value to unwary investors through agents, and with the aid of advertisements, circulars or other methods of publicity— the conclusion seems inevitable that the Sales of Shares Act deals with a matter of public policy and that anything done in contravention of its prohibitions is void and not merely voidable. It is true that per se every sale of its shares by a company is not made unlawful (s. 5 of c. 105 of 1914). It is the sale effected “in the course of continued and successive acts,” as defined, which falls under the prohibitions of the statute. A sale so made, and all steps taken to carry it out, such as an allotment of shares, are void.

This case must be decided on the basis of the facts alleged in the stated case, and by them it is established that the requirements of the Sale of Shares Act were not complied with. The application for shares by the appellant and the allotment of these shares to him are consequently void, and there is no contract between him and the company. No dealings of the appellant with the stock are alleged, and there is nothing from which an independent agreement to keep the stock and pay for it can be implied.

The present case is therefore distinguishable from the cases on which the liquidator relies. The contract to take stock being void, such decisions as Oakes v. Turquand,[18]—where the contract induced by fraud was merely voidable —can have no application here. Nor can an independent contract to keep the shares and pay for them be implied as in In re Railway Time Tables Publishing Co.; ex parte Sandys[19], where the original contract to purchase shares at a discount was void, but the purchaser had dealt with the stock, had sold or attempted to sell a part of it, and had signed proxies as a shareholder for voting purposes. Neither is there such a circumstance as signing a blank form of transfer which, in In re Peruvian Railways Co.; Crawley’s Case[20], was considered sufficient to imply acceptance of stock for the allotment of which a notice had not been sent to the shareholder.

The liquidator strongly relies however on the case of Welton v. Saffery[21]. But the only point determined

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there was that a purchaser under a void offer, at a discount, of stock purporting to have been issued as fully paid up, who had already admitted his liability to contribute to the payment of the company’s creditors and the cost of the litigation (which was unquestionable in view of the previous decision of the House of Lords in Ooregum Gold Mining Co. of India v. Roper[22], was also liable to contribution in order to adjust the rights of the shareholders inter se. The liquidator invokes the following dictum of Lord Mac-naghten, at pp. 321-322:—

The truth is, as it seems to me, that there never was a contract between the company or the shareholders, on the one hand, and the persons to whom these discount shares were offered, on the other. There was an offer by the directors purporting to act on behalf of the company, but it was an offer of that which the company could not give, because the law does not allow it. There was an acceptance by the discount shareholders of that offer. But that offer and acceptance could not constitute a contract. Both parties acted under a misconception of law, and the whole thing was void. The company, however, placed the names of the discount shareholders on the register; they allowed their names to remain there until their remedy against the company was gone; and now they cannot be heard to say that they were not shareholders.

This raises the question whether the appellant is estopped from denying that he is a shareholder of the company, as two of the learned judges (Perdue C.J.M., and Dennistoun, J.A.; Fullerton, J.A. contra on this point) thought in the court below.

This question must also be decided on the basis of the facts alleged in the stated case. It is not even set out there that the appellant’s name was placed on the list of shareholders, but we may perhaps assume that it was. No dealing by the appellant with the stock is alleged as a basis of estoppel; the most that could possibly be said is that he allowed his name to go on the register, but for that the only authority given by him was his subscription for the stock. How then can it be asserted that he is estopped from setting up that his purchase of shares is void and his name wrongly on the register, when it is admitted that he was not aware until after the winding-up order issued that the requirements of the Sale of Shares Act had not been complied with, and then promptly repudiated? The liquidator cannot admit this lack of knowledge, and assert

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in the same breath that the appellant should have repudiated his purchase before the winding-up. In a much stronger case for estoppel than that with which we are concerned, the Court of Appeal for Ontario refused to hold an applicant for shares estopped from denying that he was a shareholder, and upheld a judgment striking his name from the list of contributories. Re Pakenham Pork Packing Co., Higginbotham’s Case,[23]. There the applicant for shares had attended meetings of the company and had moved resolutions, but it was admitted that he had had no notice until after the liquidation of irregularities in the creation of the preference stock for which he had subscribed. This Ontario decision was followed by the Court of Appeal of British Columbia in Re Bankers’ Trust and Barnsley.[24] See also Bower on Estoppel, s. 146, p. 129.

No difficulty arises from the fact that the name of the appellant was on the register of shareholders. It was illegally there, and the register is not conclusive either before or after the liquidation, but is only prima facie evidence (s. 27 of the company’s charter), and names illegally thereon can be removed.

The appeal should therefore be allowed with costs throughout and the question submitted in the stated case answered in the negative, with the result that the name of the appellant should be struck from the list of contributories of the company. The costs of all parties should be paid out of the estate.

Newcombe J.—I concur with Mr. Justice Duff.

Appeal allowed with costs.

Solicitors for the appellant: McCallum, Wilson and Co.

Solicitor for the respondent: Philip C. Locke.