Williams Machinery Co. v. Graham, (1918) 57 SCR 229

Supreme Court of Canada

Williams Machinery Co. v. Graham, (1918) 57 S.C.R. 229

Date: 1918-10-21

Williams Machinery Company (Plaintiff) Appellant;

and

John Graham (Defendant) Respondent

1918: October 8, 9; 1918: October 21.

Present: Sir Charles Fitzpatrick C.J. and Davies, Idington, Duff, Anglin and Brodeur JJ.

On Appeal from the Court of Appeal for British Columbia.

Insolvency—Claim as ordinary creditor—Right to revalue—Security—"Creditors' Trust Deeds Act," R.S.B.C. 1911, c. 13, s. 31.

The appellant, a creditor of C., claimed to hold securities on insurance moneys due under a verbal agreement for insurance, covering the whole of C.'s works, made two days previous to their destruction by fire, after which C. assigned to the respondent. The insurance companies refused payment, and litigation followed at the instance of the respondent on behalf of the creditors generally. The appellant, being called upon to value its securities, proved its claim in the hands of the respondent as an ordinary creditor, without mentioning its pretended preference under the insurance policies. Later on, the creditors succeeded in their action against the insurance companies, and the insurance money was paid to the respondent as assignee. Then the appellant claimed part of that money as a secured creditor.

Held, Duff J. dissenting, that the appellant could claim only as an ordinary creditor.

Judgment of the Court of Appeal, (39 D.L.R. 140; [1918] 1 W.W.R. 161,) affirmed.

APPEAL from the judgment of the Court of Appeal for British Columbia^[1], affirming the judgment of Murphy J. at the trial^[2], by which the plaintiff's action was dismissed.

The material facts of the case are fully stated in the above head-note and in the judgments now reported.

Mason and Carter for the appellant.

Griffin for the respondent.

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THE CHIEF JUSTICE.—The facts of this case are not doubtful or indeed disputed. They are sufficiently set out in the judgment of the courts below and only a brief statement of them is called for here.

When the Westminister Woodworking Company assigned to the respondent for the benefit of its creditors, of whom the appellant company were one, this last—named company held certain securities for its claim, the largest in amount arising out of a claim to certain insurance moneys under an agreement for insurance for a much larger amount, covering the whole of the Westminister Woodworking Company's works, made two days previous to the fire which destroyed that company's mill, but for which no policies had been issued or receipts given. The insurance companies refused payment and it was exceedingly doubtful if anything could be recovered under the agreement until as the result of legal proceedings they were held bound by it.

The appellant, called upon by the respondent to value its securities, after some hesitation put in a valuation of the securities it held other than its claim under the insurance in litigation of which it made no mention and proved for the balance of its claim as a creditor.

When the insurance moneys had been recovered, the appellant asserted its original right in these as a secured creditor and its claim to be at liberty to do this was repudiated by the respondent on behalf of the other creditors.

The action is for a declaration that the respondent holds the sum of $9,000 part of the insurance moneys collected as trustee for the appellant.

Whether the appellant considered that the claim against the insurance company was so doubtful as to be negligible or was desirous of holding off until it was seen how the lawsuit would turn out is perhaps im-

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material. The position it eventually attempted to take was that it had reserved the right to take after the event whichever course had been shewn to be for its advantage, either to abandon its security and assert its claim in full or to stand upon its security and prove for the balance of the claim reduced by the amount received in respect of the security. This I do not think it could do. The proof put in must, I think, be considered, under the circumstances, as having been a valuation of all the security claimed to be held. There can, of course, be no question of valuation now when the security has been realised.

The result of the appellant's contention would manifestly be unfair to the other creditors. The appellant would have had the suit fought at their expense though itself the party chiefly interested, besides having the advantage if it had failed of having its claim rank in full with those of the other creditors.

That the appellant was badly advised by its solicitor as suggested in its factum can be no ground for holding that it is not bound by its acts.

The case is concisely, but I think sufficiently, dealt with in the reasons of Chief Justice Macdonald for the judgment appealed from, and I do not think it necessary to add anything further to these with which I agree.

The appeal should be dismissed with costs.

DAVIES J.—I concur with the reasons for judgment of Chief Justice Macdonald in the court appealed from and am of the opinion that either upon the ground of estoppel or of abandonment of its claim the plaintiff is not entitled to the preferential claim it seeks to have affirmed in its action.

The appeal should be dismissed with costs.

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IDINGTON J.—The appellant's factum says that:—

This action was brought for a declaration that the plaintiff was entitled to the sum of $9,000 insurance received by the defendant from certain insurance companies and that the defendant holds the same as trustee for the plaintiff, and for an order directing payment of said amount to the plaintiff.

This is possibly in accord with the writ issued by appellant which claimed $9,000 out of moneys received by respondent from four companies named. But the statement of claim, departing therefrom, claims in respect of insurance contracts with five companies named.

Whichever way it is put, the prayer in the statement of claim is for a declaration that defendant (now respondent) holds as trustee for plaintiff (now appellant) $9,000 and an order for its repayment to the plaintiff, or alternatively that plaintiff is entitled to the sum of $9,000 out of the proceeds of the said insurance policies, which must mean out of the five policies.

There is a further prayer for costs but no other specific alternative or, as usually happens, in way of a prayer for such further or other relief as the plaintiff might be found entitled to.

I do not think the appellant at the trial made out by the evidence adduced any such claim as set forth, or, on such basis, right to relief as prayed for.

The claim as made is of a very ordinary character if the facts had supported it.

It is that of the ordinary mortgagee with a covenant assuring him that the mortgaged property will be insured for his benefit. He sometimes gets an assignment of the policy thus promised, and at other times gets a policy containing a clause reading

loss, if any, payable to him as his interest may appear.

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The appellant and the insolvent company or the latter's founder began a course of dealing on that basis which, if adhered to, would have produced a very simple set of facts to deal with.

Their dealings, however, so grew in complications arising from the later form of insurance policy adopted and the conflicting interests of others entitled to claim under the several policies issued, and relied upon, that I am strongly inclined to think the legal situation of the several parties under the policies so issued was entirely different from what they imagined and present in the statement of claim.

The companies concerned had agreed on a basis of indemnity which distributed the total amount of any given policy over a number of different subject matters, which would result in the application or appropriation of the proceeds in the event of a loss in a manner entirely different from that originally agreed on, or that presented by appellant in its statement of claim.

The claim so made was attacked in the court below and here by respondent on the ground of illegality, as infringing the provisions of the Imperial "Gambling Act" re—enacted in British Columbia.

That ground is fairly arguable, but upon what I conceive to be the true construction of the policies (which is that the terms used do not extend the insurances in favour of appellant to buildings) is not, in my opinion, tenable.

The claim, however, as made by appellant and founded upon an entirely different construction, is untenable. And whilst it had a tenable claim such as I conceive existed at one time, it failed by its statement of claim to put forward that and cannot do so now without amendment of its pleadings, which is not asked for and in any event at this stage should not

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be granted, under the peculiar circumstances of its devious course of conduct which has, beyond doubt, induced the respondent and those he represents to change his and their position.

The actual situation in law, of the appellant, on the true construction of the policies confining its rights to such claims according to its interests (which I take to mean insurable interests) as might appear would upon the application of the relevant facts reduce same to a mere fraction of what is now claimed.

That claim, perhaps legal at one time, is not now put forward and by its conduct the appellant is debarred from now setting it up. Quite true the counsel for appellant, at an early stage of the argument, in answer to my suggestions that the claim might be a fractional part, was good enough to say his client would accept that rather than nothing. An examination since, of the pleadings, leads me to the conclusion which I have already expressed.

I am not to be taken as holding that an insurance upon property of a debtor in which a creditor has no interest may not, pursuant to an agreement therefor, be assigned as a security by the debtor to his creditor and the fruits thereof claimed by such assignee in event of loss. I merely hold that the ordinary phrase:—

"Loss, if any, is payable to the party named as his interest may appear,"

does not extend his rights to cover more than his insurable interest unless and until something more express is made to appear, as the intention of the parties.

In the case of McPhillips v. London Mutual Fire Ins. Co.^[3], relied upon by appellant, the late Mr. Justice Burton, whose opinion is entitled to great re-

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spect, evidently held the same view, for he says, after quoting the phrase in question:

This, though an appointment in favour of the mortgagee, was manifestly confined to his interest in the mortgaged premises.

When the judgment for recovery therein was given for something more in respect of chattels, it was expressly rested upon a later assignment by the assured to the creditor. If that had been made, and in question herein, another case than pleaded would exist. Or if any verbal agreement existed to produce such an assignment the pleading falls far short of expressing any such case; as do also the particulars delivered to make the pleading clear.

The case of Castellain v. Preston^[4], though not expressly in point, furnishes an exposition of the relevant principles of law. well worth bearing in mind, that an insurance contract is one of indemnity only, and surely primâ facie is confined solely to property the assured had claimed to be interested in. There are many American authorities cited in May on Insurance, 4th ed., sections 347 and following, to end of chap. 22, giving illustrations of almost every shade of opinion as to the relative right of mortgagor and mortgagee, and what falls within the usual phrase,

"Loss, if any, payable to one named as his interest may appear."

I suspect all these considerations were present to the mind of the solicitor for the appellant when he framed the last proof of its claim on the basis of discarding such a security as practically worthless.

The first proof of claim made by the appellant, immediately after the assignment to respondent, set forth its total claim of indebtedness, and said:

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That the said A.R. Williams Machinery Company of Vancouver, Limited, hold lien security for the said indebtedness.

It was only lien security that was thought of and it might be fairly inferred insurance thereof but not of something else.

The appellant's course of business had been, in making sales, to take receipts shewing that the property in the thing agreed to be sold did not pass to the intended vendee. And then it was agreed to insure such personal properties for the benefit of the appellant.

The schedule system was never intended to give any substantially different right but was supposed no doubt to be so proportionately adjusted as likely to work out approximately the same result.

I do not think, in fact, that it did so work out. But certainly it never occurred to any one concerned to imagine that the insurance on the buildings which might, in event of loss, be satisfied by reinstatement, was to go to pay off the appellant or such like parties concerned in personal or chattel property only.

When the parties concerned were confronted with the actual situation of the results of a fire, it turned out that application had been made two days before the fire for a total insurance, in a new set of companies, of $40,000—an insurance of $5,000 beyond that theretofore existent and to be taken up or placed as old policies expired.

This was only an oral arrangement with insurance agents and its validity, or at all events enforceability, is of a dubious nature.

None of the companies concerned seemed inclined to respond to such a claim, and appellant failed to take any steps to enforce its alleged individual rights against any of such companies, though well aware of all the

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facts known to respondent. I was surprised to hear it suggested in argument that appellant could not sue and was entirely at the mercy of respondent in that regard. The common law right of action, no doubt, rested with the insolvent company and was passed on by virtue of the effect of sec. 2 of the "Creditors' Trust Deeds Act" to the respondent, who, in the view contended for by the appellant, became a mere trustee for it of the entire insurance of the $6,000 placed with and accepted by the Stuyvesant Company.

The clear right of the appellant under such circumstances, if any foundation for its contention, was, in the first place, exactly what the assignee of any chose in action had long been in the enjoyment of, namely, to bring an action in the name of the assignor thereof upon duly indemnifying him against costs or what practically amounted to the same thing, any form of suit which local procedure sanctions to enforce its alleged equitable right; and in the next place, under sec. 53 of the "Creditors' Trust Deeds Act," to obtain an order from the judge entitling it to bring the action and receive the benefit thereof solely for itself.

The appellant, very prudently having regard to the untenable nature of its right to extend its claim into the region of illegality, if anything worth while is to be made of its claims, did none of these things, but being represented by its manager, as one of the inspectors of the estate, took an active part in promoting actions by the assignee for the joint benefit of all creditors against some of the insurance companies alleged to be liable on the oral agreement for insurance and formulating a scheme for the financing of such litigation.

This latter necessity was met by an assessment made upon the creditors; first of one per cent. of their

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respective claims, and again of another, and a third call till $750 had been collected.

The appellant first contributed $90 to this fund and, after the learned trial judge had decided in respondent's favour in the suit against the Stuyvesant Company, which case was tried as a test one, another $90 to fight the appeal in which the respondent was successful.

Then appellant turned around and put forward the claim now presented that it was entitled to the whole $6,000 so secured as its own and to $3,000 beyond out of later recoveries.

Meantime, some months after the action was brought and months before it was tried, the assignee, apparently advised to make clear and undoubted the actual position of the appellant, called upon it to value, in accordance with the "Creditors' Trust Deeds Act," any securities it had and, in accordance with such request, it filed an amended claim whereby its secretary, on its behalf, conversant with the foregoing history of the litigation then pending and advised by counsel, well aware of all the facts then obtainable, after setting forth as previously its claim, declared as follows:—

3. That the said The A. R. Williams Machinery Company of Vancouver, Limited, holds security for the said indebtedness in the form of lien notes covering machinery and an insurance policy with Ceperley, Rounsefell & Company covering portion of insurance on the machinery, which security we value as $3,700.

This was done, not hastily or in error, but on the advice of a solicitor since deceased, who, no doubt, appreciated not only the difficulties of supporting any litigation in maintenance of the assignee's claim, but also the difficulties which I have already referred to, of appellant, in any aspect of the matter involved, getting more than a fractional part of its entire claim.

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The difference between what it might get standing alone, or jointly with other creditors of which its claim above represented, roughly speaking, would be a fourth part, was such that it could not be worth while raising any question about, and, alone, unaided running risk of litigation.

The statute under which such proof was made, provided, by sec. 31, sub-sec. (a) as follows:—

Every creditor in his proof of claim shall state whether he holds any security for his claim, or any part thereof, and if such security is on the estate of the assignor or on the estate of a third party for whom such assignor is only secondarily liable, he shall put a specified value thereon; and the assignee, under the authority of the creditors, may either consent to the rights of the creditor to rank for the claim after deducting such valuation, or he may require from the creditor an assignment of the security at the specific value to be paid together with interest thereon at the legal rate from the date of filing the claim until payment out of the estate as soon as the assignee has realised such security, and in such case the difference between the value at which the security is retained and the amount of the gross claim of the creditor shall be the amount for which he shall rank and vote in respect of the estate. Before assigning such security such creditor shall be entitled to receive security from such assignee for the value of such security so to be assigned. In case of any dispute a Judge of the Supreme or County Court may settle the same on a summary application.

It was thus obligatory by the statute, as well as otherwise, upon the appellant to be honest in presenting its claim, and to name any security from which it hoped to reap anything exclusively for itself, such as now claimed, and to value it. The respondent assignee was advised by the creditors to accept and act upon this declaration and surrender the securities claimed, and did so, on faith thereof.

With that obligation by statute and all other moral obligations resting upon it requiring the observance of fidelity in dealing with its co-adventurers who had embarked with it in promoting risky litigation for their common advantage, it saw fit, after the victory sought was won, to turn round and claim as its own one-half of the entire sum recovered. This was a violation of

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the contract clearly inferable from the expressions and conduct of the parties. It was an improper attempt to evade or to abuse the provisions of the statute. Its conduct had estopped it from so claiming.

We are called upon to give effect to such a claim deliberately abandoned, if faith was to be put in its statutory declaration. It had clearly elected to take its chances in common with all its fellow-creditors, instead of bearing alone the burden of asserting in litigation a claim for which I can find no support in law, and if possible still less in equity, to the rules of which it pretends to appeal as against the respondent, claimed by it to have been throughout its trustee.

I should be very sorry, indeed, if I had found our law such an impotent instrument for the administration of justice as to compel us to assent thereto.

I think the appeal should be dismissed with costs.

DUFF J. (dissenting)—I am of the opinion that this appeal should be allowed.

ANGLIN J.—Whether what the appellants did should be held to amount to an abandonment of their claim upon the insurance in question as security for the indebtedness to them of the Westminister Woodworking Company Limited, in liquidation, or merely to be conduct raising an estoppel in pais against their asserting a prior right to an integral part of such insurance as against the other creditors of the Woodworking Company and its assignee, for the reasons stated by the learned Chief Justice of the Court of Appeal, I am of the opinion that, having regard to all that has taken place, it would certainly be inequitable to permit such a right to be now insisted upon.

BRODEUR J.—The question in this case is whether the appellant company, having failed to claim a security

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and to value it under the provisions of sec. 31 of the "Creditors' Trust Deeds Act" of British Columbia, is considered as having abandoned it or is estopped from exercising any right in connection with that security.

The appellant company had sold some machinery to the Westminister Woodworking Company, and it had been agreed between them that out of their total insurance on their mill and machinery the latter company would undertake to see that their liability to the Williams Company would be protected, and the policies provided that fire losses would be payable to the Williams Company as its interest may appear.

Several of those insurance policies terminated on the 13th of February, 1914, and an insurance agent verbally agreed in the name of different companies which he represented to insure the plant and the machinery of the Woodworking Company for the amount asked for. There was no written receipt given.

Before any policies were issued a fire occurred and the mill and contents were destroyed.

That accident put the Woodworking Company in financial difficulties and they were forced to assign for creditors under the "Creditors' Trust Deeds Act" of the province to respondent, John Graham.

It was decided by the creditors to claim the payment of the insurance, and the creditors were called upon to fyle their claims.

On the 16th of March, 1914, the appellant filed with the respondent a sworn declaration stating that a sum of $13,267 was due them and claimed security by lien. Later on the assignee asked the appellant to give particulars of their securities and the value they placed on them. That letter of the assignee was referred to their solicitors, who discussed the question with

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the solicitor of the estate and he evidently came to the conclusion that the appellant company would be in a better position to rank as an ordinary creditor than to claim any preference under the verbal insurance policies which were under litigation.

They could have valued their securities but then would have lost a part of their claim if later on the litigation with the insurance company would prove to be unsuccessful.

They could also abandon their securities and prove their total claim as an unsecured creditor.

They adopted the latter course.

Later on, however, the creditors succeeded in their action against the insurance companies and the insurance money was paid to the assignee. Now the Williams Company wants to claim part of that money as a secured creditor.

I agree with the trial judge and the Court of Appeal that the appellants can claim only as ordinary creditors. They were, under the provisions of the Act, bound to prove their claims and to state if they had some securities and value them, or they could abandon their securities. They thought, when the matter was under litigation and their alleged securities were very uncertain, that their interests would be better served by abandoning their privileged claims on that insurance money. They have deliberately elected not to claim as privileged creditors and they have abandoned their rights in that respect.

The appeal should be dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Russell, Hancox, Wismer & Anderson.

Solicitors for the respondent: Martin Griffin & Co.