Supreme Court of Canada
In the Matter of the Port Arthur Wagon Co., (1918) 57 S.C.R. 388
Date: 1918-10-15
In the Matter of the Port Arthur Wagon Company.
Smyth’s Case.
1918: June 11;1918: October 15.
Present: Davies, Idington, Anglin and Brodeur JJ. and Falconbridge C.J. ad hoc.
ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF ONTARIO.
“Winding-Up Act”—Company in liquidation—Contributory—Subscription for shares—Reduced capital—Power of attorney—Prospectus.
S. signed an application for shares in a company to be formed under the name of The Port Arthur Mfg. Co., with a capital of one million dollars. The company was incorporated with the name of Port Arthur Wagon Co., the capital being $750,000. S. was allotted his shares, elected a director and executed a power of attorney giving authority to sign his name to the prospectus of the company, which, on the hearing, he swore he had done on being told that paid-up shares had been transferred to him for services rendered. The company having been placed in liquidation, S. was settled on the list of contributories for the price of the shares subscribed for, but the order placing him on said list was set aside by a judge, confirmed by the Appellate Division.
Held, Anglin J. dissenting, that S. was properly placed on the list; that his conduct evinced an intention to become a shareholder, and that the reduction in the capital stock and the change in the name of the company did not warrant a rescission of his contract.
APPEAL from a decision of the Appellate Division of the Supreme Court of Ontario affirming, by an equal division of opinion, the judgment of Mr. Justice Britton, who had ordered the name of Smyth to be struck off the list of contributories of the Port Arthur Wagon Co., where it had been placed by order of the Master-in-Ordinary.
The material facts are stated in the above head-note.
Bain K.C. and M.L. Gordon for the appellant.
Strachan Johnston for the respondent.
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DAVIES J.—There has been much conflict of judicial opinion upon this application to settle the name of W.R. Smyth upon the list of contributories of the insolvent company being wound up.
The Master-in-Ordinary settled his name on the list of contributories.
On appeal to a justice of the High Court, Britton J. allowed the appeal and struck off Smyth’s name.
On further appeal to the Appellate Division the judgment of Mr. Justice Britton was affirmed on an equal division of the learned judges of that court, whereupon the present appeal to this court was taken.
I have given the facts of the case much consideration and have reached the conclusion that the appeal should be allowed with costs throughout and the judgment of the Master‑in‑Ordinary restored for the reasons stated by him, and those stated by Chief Justice Meredith and Riddell J. in the Second Appellate Division.
I think the power of attorney executed by Smyth to the Port Arthur Wagon Company, Limited, to sign the prospectus of that company, dated the 23rd September, 1910, and which was duly filed with the Provincial Secretary together with the prospectus, as required by the provincial law, signed by Smyth and the other directors, conclusive as against Smyth, and that his attempted explanation as to why he signed was unsatisfactory.
I cannot think it reasonable or possible that after such a solemn and deliberate act, he can now be heard to say that he never was a shareholder or a director in the company.
Whatever might be said as to other branches of the case, this fact of the signing of the power of attorney to put his name as a shareholder and director to such
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an important official document as the prospectus of the company, intended to be and which was duly filed as by law required with the Provincial Secretary, is conclusive to my mind
IDINGTON J.—The numerous excuses given by, or on behalf of, respondent for relieving him from the position that the report of the learned Master-in-Ordinary had placed him in as a contributory, have been so well met and disposed of by the Master-in-Ordinary and the learned Chief Justice of the Common Pleas (with each of whom in all essential parts of their respective reasons for judgment I agree) that it seems needless for me to reiterate same here.
I also agree with the greater part of the reasons assigned by Mr. Justice Riddell, but cannot feel so charitably disposed as he seems, and hence inclined to accept at its face value, as he does, the respondent’s story of how and why he felt qualified to act in discharge of a most grave and serious part of a director’s duties when only qualified to do so by reason of something that did not take place for four months after his joining in such discharge of a director’s duty.
I am afraid respondent has deceived himself. An argument is made that the appellant did not call the other alleged actor in such a comedy to contradict him.
One of those had, as shewn by the quotation Mr. Justice Rose gives, to all intents and purposes already sworn to what was quite inconsistent with the story in the sense in which it is now put forward.
The marvel is that the other, if present in court as alleged, was not called to corroborate respondent if he could be got to do so.
It is not necessary to assume that respondent manufactured the whole story. Having regard to his failure
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to respond to the demands made upon him for payment of calls made, upon the stock allotted to him, it was quite natural he should, when asked to act as director, make some such remark as he swears to, and equally well might Lindsay, hearing it, recall the fact that he was to give him some stock got for nothing and make the response alleged.
That any one concerned in such idle talk could have taken it seriously as the basis for qualifying a director to act, and yet the implementing of such a basis be delayed for four months, I cannot accept.
Much less can I understand why he should, for the many months thereafter, continue to submit, as previously, without response, to be dunned so persistently, if in fact he intended to repudiate acceptance of the allotment. That was a time for him to speak or forever afterwards be silent.
The case, as I view it, is that of a man who, having agreed to take stock, might have withdrawn from the consequences of that act at least up to the time when interpreted by those concerned as a proposal still on foot and valid, and when they assented thereto, by the allotment they duly made, and by his election as director, and possibly including the time of his failure to repudiate either, but when all that is followed by an act as a director which involved possible serious consequences to himself and others, he was thereby inviting to join him and rely upon his representations, he should not be permitted, years afterwards, successfully to say that what he did rested, not upon the written record, but upon, and only attributable to, some idle persiflage.
It is idle to dwell upon the frame of the contract as it originally stood as being only between him and Cameron. Neither that sort of document, nor even articles of association, can be said to be in themselves,
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when standing alone, a contract with the company which is created later.
When the company has come into existence the subscription may be given vitality, or possibly be nullified by those becoming empowered under its charter to act in relation thereto.
The conduct of the parties concerned must ever remain as the true test of what measure of responsibility there may attach to any one claimed to have become legally liable to be placed on the list of contributories.
Indeed, as said long ago by Lord St. Leonards, in the case of Spackman v. Evans, at page 208:—
A man may become a contributory to a company by his acts although he has not made himself legally a member of it.
I think possibly Leeke’s Case, of all the many cases I have looked at, bears the most instructive resemblance, in its leading features, to this, in the way of supporting the line of thought I have adverted to.
The contributory there in question had never signed any application for shares, but had taken some little part in the initiatory steps towards the creation of the new company in which he was allotted shares, and his acceptance of the office of director, though evidenced only by a simple act of very minor importance, was held sufficient to bind him also in way of an acceptance of what had been allotted.
And curiously enough, in that case, there was also a discarded side-light story, as to the possibility of the shares having been paid up.
The case of Robert v. Montreal Trust, decided what some of us thought of men who subscribe and pay no heed to the consequences of their acts.
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I do not feel called upon to express any opinion upon the validity or invalidity of the liquidator’s transaction with Wiley. The proper time to have raised any contention, if ever founded, as to the status of the liquidator, was before or immediately after these proceedings had begun.
I think this appeal should be allowed with costs throughout and the report of the learned Master-in-Ordinary be restored and confirmed.
ANGLIN J.—The question raised on this appeal is the liability of the respondent to be placed on the list of contributories of the Port Arthur Wagon Company, which is being wound up, in respect of 50 shares of preferred stock. The Master held the respondent liable. On appeal a judge of the High Court Division reversed this holding and removed his name from the list of contributories. This judgment was affirmed by an equally divided court of the Appellate Division.
The liquidator asserts the liability of the respondent on two grounds: (a) a subscription by him for the 50 shares duly accepted by allotment; (b) conduct estopping him from denying that he is the holder of these 50 shares.
(a) Mr. Justice Britton, Mr. Justice Riddell, Mr. Justice Lennox and Mr. Justice Rose all agree that there was no subscription by the respondent for the shares allotted to him. The document relied on as a subscription is an agreement made in September, 1909, with Mr. (now Sir) Donald C. Cameron and other prospective subscribers, to take 50 shares in a projected company—
the Port Arthur Manufacturing Company * * * with a capital of $1,000,000, divided into 10,000 shares of $100 each.
The subscribers covenanted and agreed with each other to become incorporated. No other subscriptions
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to this agreement were obtained. It was not proceeded with. Another company, the Port Arthur Wagon Company, was incorporated in January, 1910, with a capital of $750,000. The respondent had nothing whatever to do with this incorporation. Long before it took place—indeed, very shortly after he had signed the September agreement—he learned that a representation made to him by the promoter, Lindsay, when his signature was obtained, that the Town of Port Arthur had passed a by-law giving a cash bonus of $100,000 to the projected company, was untrue and he at once notified Lindsay, who had secured his subscription, that he withdrew it on account of the misrepresentation and Lindsay acquiesced in his doing so. There was nobody else whom he could notify at that time. Lindsay had also told him that he had practically all the $1,000,000 capital, subscribed, which was likewise an untrue statement.
The company incorporated decided to issue part of its stock as preference shares, and it is for 50 of these preferred shares that it is sought to hold the respondent as a contributory. As Mr. Justice Riddell says:—
In my view it cannot be successfully contended that a subscriber for shares in a proposed company with $1,000,000 can be compelled to take shares in a company with only $750,000, nor can a subscriber for shares be compelled to take “preferred shares”—and unless his conduct subsequent to the allotment bound him the respondent must be cleared of liability.
(b) The estoppel which is invoked against the respondent is rested on two grounds: (1) his neglect to answer numerous letters notifying him of the allotment of shares to him, demanding payment of calls, advising of meetings, etc. (2) The execution of a power of attorney authorising the appending of his name as a director to a prospectus of the company now in liquidation.
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(1) If the respondent had ever subscribed for the shares which it is sought to fasten upon him, a great deal might be made of his failure to answer letters of the company’s secretary addressed to him, or to take other steps to repudiate liability. But I know of no ground on which a person who has never subscribed can be made liable in respect of shares, which a company has purported to allot to him, merely by inaction—by refusing or neglecting to reply to letters notifying him of calls, etc., or failing to take steps to have his name removed from the books of the company as a shareholder. No authority for such a proposition was cited and I venture to think none can be found.
(2) The matter of the power of attorney is not so easily disposed of. If the only shares in respect of which the respondent could have qualified as a director had been the 50 shares here in question, his signature to the power of attorney and action upon it which ensued might be taken to estop him from denying his liability as a contributory. But he makes this explanation about the signing of the power of attorney: He had been elected a director of the company without his knowledge or assent. The company’s secretary had written him stating that the company was obliged to issue a prospectus and that it was necessary that all the directors should sign it and assent to retain office. In answer to this letter he went to Mr. Lindsay’s office and tells this story of what happened there.
Q.—Then do you recollect sending this power of attorney? A.—I do.
Q.—Was that signed in Mr. Lindsay’s presence? A.—Yes.
Q.—Tell His Honour what took place then? A.—Mr. Lindsay—Mr. Fox, I believe the gentleman who was here had written me regarding calling at his office that he wanted to see me particularly, and I think I wrote him to say that I would be in the city some day and would perhaps call on him. I don’t remember exactly the circumstances, what I said in the letter. However, I called at the office. Mr. Lindsay and Mr. Fox were both there, and I told Mr. Lindsay there, and Mr.
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Fox as well, that I couldn’t sign no prospectus, that I had no stock, had subscribed for no stock in this company; didn’t understand why they should ask me to sign any prospectus. The reasons they gave me for asking me to sign a prospectus were that they had put my name in as a director—which was absolutely without my authority—that they put my name as a director for this company, and they were stuck regarding the prospectus because my name had been put in as a director, and asked me if I would sign this power of attorney, and I said, “No, I will not sign it because I am not a shareholder.” Then Mr. Lindsay said: “You are a shareholder of the company because I have given you some of my stock” for services that I had done for him in connection with introducing Mr. Price and Mr. Clair to Mr. Lindsay some time the previous winter, and he said that he placed to my credit, in my name, a certain number of shares fully paid up. I says: “Under those circumstances I will sign the prospectus on the condition—taking your word for it—that you have placed to my name 25 shares of stock in the company that you are asking me to sign the prospectus for.”
Q.—Did you ever attend a directors’ meeting, Mr. Smyth? A.—Never.
Q.—Some time later you got a certificate shewing that you were the holder of 25 shares of stock? A.—I did.
Q.—Do you know who sent that? A.—Mr. Lindsay sent me that. Certificate marked exhibit No. 12.
Q.—Did you see this prospectus that was signed Mr. Smyth. A.—No.
Neither Mr. Lindsay nor Mr. Fox was called to contradict this story, although both were in court and heard it sworn to by Mr. Smyth. Mr. Fox gave other evidence in rebuttal. The stock certificate produced corroborated Mr. Smyth’s statement as to the 25 shares given him by Lindsay. He was not discredited as a witness by the Master who heard his evidence. His statement is accepted by Riddell J. as well as by Britton, Lennox and Rose JJ. There is nothing to shew that he did anything whatever in respect of the 50 shares. His signature to the power of attorney, and the use of his name as a director, which he permitted, is fully explained by his understanding that he was the holder of the 25 shares given him by Lindsay. The fact that the certificate issued to him for 25 shares bears a date subsequent to that of the prospectus has no special significance. He acted on
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the assumption that Lindsay had transferred, or would transfer, the shares to him. Smyth did no act which he thought, or which anybody else who knew of the arrangement in regard to the 25 shares could reasonably think, was based upon his being also the holder of 50 shares of preferred stock. There was, therefore, as Mr. Justice Rose points out, nothing done by the respondent which amounted to a representation that he was the holder of 50 shares of the stock of the Port Arthur Wagon Company—nothing which he knew, or should have known, was calculated to create that impression. The foundation for an estoppel is, therefore, lacking.
Morrisburg and Ottawa Electric Railway Co. v. O’Connor, cited by Mr. Justice Riddell, was not, as is that at bar, a case of no subscription by the allottee—it was a case of a voidable subscription not repudiated with reasonable promptitude, in that respect not unlike a a case recently dealt with in this court; Robert v. Montreal Trust Co.
For these reasons and those stated by Mr. Justice Rose, I would dismiss this appeal.
BRODEUR J.—We are called upon to decide whether the respondent, W.R. Smyth, should be placed on the list of contributories of the appellant company in liquidation.
There is a great divergence of opinion in the court below as to the liability of the respondent. The Master-in-Ordinary, who heard the evidence and whose findings are, therefore, entitled to a great deal of weight, and two judges of the Appellate Division have
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declared that he was liable, while the other three judges who dealt with the case stated that he was not.
The defence of Smyth was that he never subscribed nor applied for shares in the appellant company, and that any subscription which might have been obtained from him was obtained by fraud or misrepresentation. But the latter ground seems to have been abandoned, since there is no mention of it in his notice of appeal from the report of the Master-in-Ordinary.
Some other objections have been raised before this court and the Appellate Division, viz., the one concerning the validity of the sale of the assets to Wiley, but as the facts on which these grounds might be based have not been fully inquired into, it would be rather dangerous to pronounce upon them. I prefer to confine myself to the pleadings and to the facts which have been tried.
On the 24th September, 1909, Sir Douglas Cameron and the respondent Smyth signed the following document:—
We, the undersigned, do hereby severally covenant and agree each with the other to become incorporated as a company under the provisions of the first part of the “Companies Act” under the name of The Port Arthur Manufacturing Company, Limited, or such other name as the Secretary of State may give to the company, with a capital of one million dollars, divided into ten thousand shares of one hundred dollars each.
And we do hereby severally, and not one for the other, subscribe for and agree to take the respective amounts of the capital stock of the said company set opposite our respective names as hereunder and hereafter written, and to become shareholders in such company to the said amounts.
In witness whereof we have signed.
D.C. Cameron(s) 1 Sept. 24th, Toronto, Winnipeg, Man.
W.J. Lindsay as Vice-President.
W.R. Smyth(s) 50 Sept. 24th, Rydal Bank, W.J. Lindsay.
As far as the signature of Smyth was concerned, it was obtained on the solicitations of a company promoter by the name of W.J. Lindsay, whose name
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appears on the above document as having witnessed the signatures of the subscribers.
In the month of November, 1909, at the request of Lindsay an application was made to the Secretary of of State by the firm of solicitors Starr, Spence & Cameron, and two of their students, for the incorporation of the company under the name of Port Arthur Wagon Company. The application stated that the amount of capital stock of the company would be $750,000. The application was granted and letters patent were issued on the 11th January, 1910.
The organization of the company was then proceeded with and a by-law was passed declaring that 3,000 shares of the capital stock of the company be issued as preferential shares of $100 each with cumulative dividend of 7% and priority over all the other shares of the capital stock of the company.
On the 22nd March, 1910, at a meeting of the directors of the company, the allotment of preferred shares was made to different persons, namely, to Sir Douglas Cameron for one share and to W.R. Smyth for 50 shares, and Smyth was elected as one of the directors. A notice of allotment was given to the respondent. He was at the same time also informed of his election as director and was given notice of different meetings of directors which were called later on; but he does not seem to have ever attended any of these meetings.
He was called upon also several times to pay calls upon his stock.
At first he did not answer, but on the 19th October, 1911, he wrote stating:—
It is impossible for me to accept your draft for reasons which I have several times explained to the company at their office, while I was in Toronto. I also explained my position to the Honourable Mr. Cameron of your city, who was then, I believe, president.
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As to what those reasons were, the evidence is rather conflicting. The secretary of the company said that Smyth had never repudiated his subscription, and he added that Sir Douglas Cameron had reported at a meeting that he had met Smyth and that he was unable to take up drafts on account of losses he had got in a fire. On the other hand, Smyth states in his evidence that he told to his co-shareholders that his subscription had been obtained by fraud and misrepresentation and that he should not be considered as a shareholder.
On the 29th August, 1910, he, however, as a director, gave to the secretary of the company a power of attorney to sign the prospectus of the company.
Now he says that when he was asked by Lindsay and the secretary of the company to give that power of attorney, he objected, stating that he was not a shareholder; but Lindsay answered that he had put some of his own shares in his name.
That story does not agree with what has been said by the secretary of the company, who claims that, to his knowledge, Mr. Smyth never repudiated his contract to take shares in the company.
In those circumstances should he be held liable for the 50 shares which he subscribed for on the 24th September, 1909?
He complains that the company incorporated is known as Port Arthur Wagon Company, and that his subscription was for a company called Port Arthur Manufacturing Company. It is true that the latter name was mentioned in the document which he signed, but it is stated also in that document that his subscription could cover any other name that the Secretary of State might give. It is no wonder that the name Port Arthur Manufacturing Company would not be
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accepted by the Secretary of State, because it was too general; and it is no wonder, therefore, that the application, in order to meet that objection which would certainly be made to the name of the company, would have described it the Port Arthur Wagon Company. Besides, in his evidence, Mr. Smyth admits himself that it would not be an objection which would have prevented him from carrying out his obligation.
It is likewise argued that the capital of the company is not $1,000,000, as stated in the subscription, but only $750,000. He could not, in my opinion, complain of that fact. If there were evidence to prove that with a capital of less than $1,000,000 the company could not carry out its work, that might be a very serious objection. But there is no such evidence.
He further says:—
I have subscribed for common shares and not for preferential shares, as were allotted to me.
I do not see how he can complain of that, because the preferential cumulative shares were far more advantageous than the ordinary shares.
He says that he had notified Lindsay that he could not carry out his contract. Well, Lindsay was not the company, and I think his duty was, when he received notice of his allotment, to formally notify the company that his subscription would not cover the allotment which had been made.
He accepted the position of director; he signed the prospectus; and it seems to me now that he is estopped from stating that he is not liable for the agreement which he signed.
For those reasons, I think that he has been properly put on the list of contributories and that the decision of the Master-in-Ordinary should be restored with
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costs of this court and of the courts below. Appeal allowed.
FALCONBRIDGE C.J.—For the reasons given in the court below by the Chief Justice of the Common Pleas and Mr. Justice Riddell, I would allow this appeal.
Appeal allowed with costs.
Solicitors for the appellant: Bain, Bicknell, Macdonnell & Gordon.
Solicitors for the respondent: Thomson, Tilley & Johnston.
34 Ont. L.R. 161; 23 D.L.R. 748.
56 Can. S.C.R. 342; 41 D.L.R. 173.
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