Mongeau et al. v. Mongeau et al., [1973] SCR 529

Supreme Court of Canada

Mongeau et al. v. Mongeau et al., [1973] S.C.R. 529

Date: 1971-12-20

Louis Mongeau and Dame Myrtle Clark (Plaintiffs) Appellants;

and

Berthold Mongeau, Rene Mongeau and Roger Robert (Defendants) Respondents.

1971: October 22; 1971: December 20.

Present: Fauteux C.J., and Abbott, Martland, Hall and Pigeon JJ.

ON APPEAL FROM THE COURT OF QUEEN’S BENCH, APPEAL SIDE, PROVINCE OF QUEBEC

Mandate—Sale of shares—Companies—Obligations of mandataries—Breach of trust—Civil Code, art. 1713.

On May 29, 1959, Imperial Oil Ltd. purchased all the shares of the four Mongeau brothers in Mongeau & Robert Cie Ltée, for the sum of $2,600,000 and all the shares of the brothers Berthold and René Mongeau in Monro Ltée for the sum of $1,000,000.

Previously to this purchase, Irving Oil Ltd. had made a verbal offer to Berthold and René Mongeau, in the presence of Roger Robert, (a) to purchase all the shares in Mongeau & Robert Cie Ltée for the sum of $2,500,000; and (b) to retain the services of each of them for a ten-year period.

The two brothers Berthold and René Mongeau negotiated the sale with Imperial Oil Ltd. and the other two brothers Louis and Gaston Mongeau got their respective share of the sale price of the shares of Mongeau & Robert Cie Ltée. The first two kept for themselves the sale price of the shares of Monro Ltée which belonged to them personally but were practically worthless.

Louis and Gaston Mongeau, the latter since deceased and now represented by his widow Dame Myrtle Clark, claimed in Court from their brothers Berthold and René and from Roger Robert their share of that sale price which was obtained by the sale at the same time of the shares in Mongeau & Robert Cie Ltée.

The action was dismissed by the trial judge and a majority judgment of the Court of Appeal upheld this judgment. The plaintiffs appealed to this Court.

Held: The appeal should be allowed against the Mongeau brothers and should be dismissed as far as Roger Robert is concerned.

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This case is one of a mandate granted by the brothers Louis and Gaston Mongeau to their brothers Berthold and René and art. 1713 of the Civil Code applies. Respondents Berthold and René Mongeau had to comply with the rule that the mandatary must deliver and pay over all that he has received under the authority of the mandate.

It has been established that the million dollars paid for the shares of Monro Ltée were, in so far as the purchaser was concerned, a part of the price for the shares in Mongeau & Robert Cie Ltée. From that moment, the burden of proof was on the defendants to justify their position and to show, if they could, that the amount represented the price of property belonging to them personally. This proof was not made and the secret nature of this part of the transaction rather created a presumption against the mandataries.

The abandonment of the employment contract offered by Irving Oil, the relationship between Monro Ltée and Mongeau & Robert Cie Ltée as well as the leading role played by respondents Berthold and René Mongeau did not constitute legitimate reasons for taking for themselves the sum of $1,000,000 unknown to the appellants. The action should have been maintained against those two respondents but it was rightly dismissed as far as Roger Robert was concerned, the evidence not having proved his complicity with sufficient probability.

Considering the conclusion on the principles of the mandate, there is no need to examine the question of the responsibility of company directors.

APPEAL from a judgment of the Court of Appeal for Quebec[1] dismissing an appeal from a judgment of the Superior Court of Quebec. Appeal allowed with costs against Berthold and René Mongeau; appeal concerning Roger Robert dismissed with costs.

J.G. Ahern, Q.C., and J.R. Nuss, for the appellant Louis Mongeau.

Raymond Noël, Q.C., for the appellant Myrtle Clark.

Thomas H. Montgomery, Q.C., for the respondents.

The judgment of the Court was delivered by

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PIGEON J.—The appeal is from a judgment of the Court of Appeal of Quebec¹ which has upheld, the Chief Justice dissenting, the judgment of the Superior Court dismissing with costs the action instituted by appellant Louis Mongeau and his brother, the late Gaston Mongeau, now represented by his wife, appellant Myrtle Clark.

The trial judge summarized the facts of the case as follows:

[TRANSLATION] 1. The father of the four Mongeau brothers, who was one of the founders of Mongeau & Robert Cie Ltée, on his death left each of his sons a one-fourth interest in the said company. The Mongeau brothers subsequently acquired the shares held by third parties, so that long before the events in question here, they each held twenty-five per cent (25%) of the share capital issued by the company.

2. Without going back any further, I note (a) that in 1957 and subsequent years the four Mongeau brothers, together with defendant Roger Robert (their first cousin) who had only one share in his name, were members of the Board of Directors of Mongeau & Robert Cie Ltée; (b) that Berthold Mongeau was president, René Mongeau vice‑president, and Roger Robert secretary-treasurer; and (c) that Louis and Gaston Mongeau, for whatever reasons, took very little part in the management and operation, current or otherwise, of the company.

3. It seems that during 1958 Irving Oil Company Limited made a verbal offer to Berthold and René Mongeau, in the presence of Roger Robert, (a) to purchase all the shares in Mongeau & Robert Cie Ltée for the sum of $2,500,000.00; and (b) to retain the services of each of them for a ten-year period, at $40,000.00 per annum plus $10,000.00 for personal expenses for Berthold and René Mongeau respectively, and $35,000.00 per annum for Roger Robert.

I feel certain that all the parties concerned considered the offer of $2,500,000.00 very acceptable at that time. Moreover, it is worth pointing out that plaintiffs did not seek to prove the contrary.

I am also satisfied that Berthold and René Mongeau, without disclosing the length of and the consideration offered in the contract of employment which

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Irving Oil Limited had offered them, did not fail to inform Louis and Gaston Mongeau of it, and that the latter did not raise any objections or oppose it.

However, because of a prior agreement between Mongeau & Robert Cie Ltée and Imperial Oil Company Limited that the latter would be informed of any purchase offer made to the former, the above-mentioned offer by Irving Oil Limited was not accepted immediately.

4. Subsequently, following certain negotiations and discussions between Berthold and René Mongeau and the representatives of Imperial Oil Company Limited, Imperial Oil (on May 29, 1959, see Exhibits P.1 and P.2) purchased all the shares of the four Mongeau brothers in Mongeau & Robert Cie Ltée for the sum of $2,600,000.00, and all the shares of Berthold and René Mongeau in a company known as Monro Ltée for the sum of $1,000,000.00.

5. It is the latter transaction which is the basis for this suit.

It is indisputable (a) that Louis and Gaston Mongeau owned no interest in Monro Ltée, a truck transport company distinct from Mongeau & Robert Cie Ltée but doing business with the latter; (b) that the shares of Monro Ltée had a value much below the price paid for them by Imperial Oil Limited; (c) that the latter, however, from its own point of view, considered the two aforementioned transactions (Exhibits P. 1 and P. 2) as one and the same; (d) that in view of the refusal by Imperial Oil Limited to retain their services for ten years, Berthold and René Mongeau saw this approach as a means of securing $1,000,000.00 in capital, which indeed was even more attractive to them than an employment contract; (e) that Berthold and René Mongeau would not have consented to the sale of their shares in Mongeau & Robert Cie Ltée if this had not been accompanied by an offer to purchase their shares in Monro Ltée, any more than they would have accepted the proposition by Irving Oil Limited without an employment contract; and lastly (f) that none of the defendants informed Louis or Gaston Mongeau of the Monro Ltée transaction because, in their opinion, nothing required them to do so.

This summary needs no comment except that the evidence indicates that the shares of Monro Ltée were completely worthless, not simply of a value much below a million dollars. The learned judge then said:

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[TRANSLATION] 1. In their statement plaintiffs submit that the defendants acted in this matter as the mandataries of Louis and Gaston Mongeau. As such, they say, “art. 1713 of the Civil Code required them to deliver and pay over all that they had received under the authority of their mandate” … (P.4).

In this connection, if necessary, I readily concede that there was an implied and gratuitous mandate given to defendants by Louis and Gaston Mongeau, to find a purchaser for the shares of Mongeau & Robert Cie Ltée.

In spite of this he dismissed the action, holding:

[TRANSLATION] I take the view that Berthold and René Mongeau, having obtained a fair and reasonable price for the shares of Mongeau & Robert Cie Ltée (and there is no evidence to the contrary), were not legally bound to disclose “the second transaction” to which they were parties, in view of (a) their abandonment of the employment contract offered to them personally by Irving Oil Limited, and which they had brought to the notice of Louis and Gaston Mongeau; (b) the leading role they had played in bringing about the progress of Mongeau & Robert Cie Ltée to a point where the said company’s shares were worth the sum of $2,600,000.00, even though it is true that in so doing they had received a substantial salary over a number of years; and (c) in the absence of any proof that Monro Ltée was in effect a subsidiary of Mongeau & Robert Cie Ltée, or formed a single undertaking with the latter, or carried on a business and had activities which were so closely associated with those of Mongeau & Robert Cie Ltée that for all practical purposes, if not from a purely legal standpoint, it became almost impossible to sell the shares of the one without selling the shares of the other.

In appeal the majority opinion adopted, on the whole, the reasons of the trial judge. The Chief Justice, after quoting the foregoing reasoning, pointed out—and this was not disputed in this Court—(1) that the evidence showed clearly that Imperial Oil’s offer for the business had really been of $3,600,000; (2) that the shares of Monro Ltée were of negligible value; and (3) that respondents Berthold Mongeau and René Mongeau had themselves admitted that

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the sum of one million dollars which they had received did not really represent the price of those shares, but [TRANSLATION] “found its real consideration in the sale of the shares of Mongeau & Robert”. Then, he said:

[TRANSLATION] I note that this is not a case in which each shareholder conducts the sale of his shares himself. In this case two shareholders relied on two others to handle the sale of the shares owned by the four of them. As the trial judge stated, this was clearly at least an implied mandate. The mandataries, Berthold and René, took advantage of the confidence of Louis and Gaston to deceive them to make them think that the selling price for all the shares owned by all four of them was $2,600,000.00, when in reality it was $3,600,000.00. By thus concealing the true amount of the transaction, they cheated their brothers of $500,000.00, they appropriated to themselves $500,000.00 belonging to their brothers. This they must return.

In my opinion this is the correct conclusion.

We must note, first, that all the judges who gave their opinions in this matter were unanimous in holding that Berthold and René Mongeau acted as mandataries for Louis and Gaston Mongeau. The validity of that premise was not discussed in this Court. We are thus called upon to decide solely what conclusion follows at law. The legal principle is stated in art. 1713 of the Civil Code (Code Napoléon art. 1993) as follows:

Art. 1713. The mandatary is bound to render an account of his administration, and to deliver and pay over all that he has received under the authority of the mandate, even if it were not due; …

On this point Guillouard says, in his Traité sur le mandat, at No. 106:

[TRANSLATION] One must become thoroughly imbued with the notion, fundamental in any mandate contract, that the mandatary can make no other profit from the contract than the salary allowance agreed upon between him and the mandator, or fixed by custom; any other profit is illegal, not only where this is acquired by dishonest means, such as the culpable non-disclosure we have just mentioned, but by whatever means this gain is realized.

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English jurisprudence, as described by Mr. Lehr in the following terms, follows an excellent principle on this point:

[TRANSLATION] “The agent must refrain from deriving any personal benefit from the business he conducts merely as the representative of another party and on that party’s behalf, other than the remuneration agreed upon between him and his principal. Such benefits could be of two kinds: either he might accept payment from the adverse side, or take over for himself the transaction he was instructed to conclude for another. In the first case he is guilty of fraud; this is not necessarily so in the second, but in either case the law strongly protects the principal’s rights in the matter”.

These principles will have to be applied in our French law: they are based on the idea that the mandatary must use all his skill in the interest of the mandator to whom he has promised his services, and not in his own interest which is adequately protected, if the mandate is for a salary, by the compensation to which he is entitled.

In Quebec, the cases have for a long time been in the direction indicated by Guillouard. Thus, in a decision of the Court of Appeal prior to the Code, Mackenzie v. Taylor[2] we read:

the rule has often been laid down, in effect, as follows: “that where an agent has duties of a fiduciary character to perform towards his principal, he shall not be allowed to enter into engagements in which he has or can have a personal interest conflicting, or which possibly may conflict, with the interests of those he is bound to protect”.

In 1889, in Davis v. Kerr[3], Taschereau J. said in this Court:

Towards a tutor, a sub-tutor or a member of a family council, more than to any others perhaps, the tribunals are bound to rigorously enforce the wholesome doctrine that “no one having duties of a fiduciary character to discharge shall be allowed to enter into engagements or assume functions in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those he is bound to protect;” or as the Privy Council tersely puts it in Bank of Upper Canada v. Bradshaw[4], that an agent or mandatary (and a

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tutor or a sub-tutor are mandataries) cannot be allowed to put his duty in conflict with his interest.

At the hearing respondents Berthold and René Mongeau did not really dispute such long‑established principles. The only argument which they pressed was the contention that, by negotiating the sale of their shares in Monro Ltée with Imperial Oil, they were entering into a transaction that had nothing to do with the sale of the shares in Mongeau & Robert Cie Ltée. In short, they said to us: “By the Irving Oil offer, which our brothers were willing to accept, we were entitled to a contract under which the purchaser was to pay each of us $40,000 per annum, plus $10,000 for expenses, for ten years. It was the right to that benefit which we converted into a cash payment of one million dollars for worthless shares”.

This contention is ill-founded in fact and in law. Respondents Berthold and René Mongeau really only negotiated one matter with Imperial Oil: the purchase by the latter of the shares of Mongeau & Robert Cie Ltée. The purchaser was right in regarding the total sum of $3,600,000 which it was agreeing to pay as the price of those shares. It was only to comply with the request of the persons negotiating with it that it agreed to carry out the transaction in the manner described. It did not wish to employ the Mongeau brothers, and had no obligation towards them. It had no interest in Monro Ltée, and was subsequently to abandon its charter. Hence, the one-million dollar consideration it ostensibly paid for the shares in Monro Ltée was actually for the transfer of the shares in Mongeau & Robert Cie. Thus the amount they appropriated by the device which they employed unknown to their younger brothers, was unquestionably a part of the price they obtained for these shares. But, they say, our brothers had agreed to recognize our right to

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obtain an employment contract for ten years as a condition of the proposed sale to Irving Oil. Were we not entitled to obtain compensation for the loss of that benefit?

There is no need to seek an answer to that question, because it could only be asked of the only persons entitled to answer it. The younger brothers’ consent to the employment contract did not represent a transaction that was distinct and severable from the sale of the shares. Can we be sure that this undertaking, securing the services of the two older brothers, did not represent an advantage rather than an additional cost to Irving Oil? Similarly, for these brothers the employment contract did not confer a gratuitous benefit on them but, on the contrary, was a bilateral contract which required them to furnish ten years of service that might well be worth the salary agreed upon.

There is therefore absolutely nothing to prove that the million dollars paid for the shares of Monro Ltée by Imperial Oil represented the monetary equivalent, of giving up the agreement. On the contrary, it is clear that the amount of a million dollars had no relation to the said value, and that the brothers did not go beyond that amount solely because that was the sum they thought they could secretly get hold of in the circumstances.

Moreover, it must be observed that even if it was proved that Berthold and René Mongeau lost a significant personal benefit by concluding the transaction with Imperial Oil rather than with Irving Oil, this did not, in law, in any way permit them to take secretly a part of the price of their brothers’ shares for their own benefit. This follows clearly from the legal principle stated above.

With respect to the reasons given by the trial judge and previously quoted, it must be noted, first, that the fact that a mandatary has obtained a fair and reasonable price for what he is authorized to sell does not permit him to appropriate surreptitiously a further amount which the purchaser is willing to pay. If a broker can

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obtain a higher price than what his mandator is willing to accept, this does not authorize him to have the difference paid to himself, unknown to his client, by foisting some worthless object on the purchaser.

As to the “leading role” played by the older brothers in bringing about the progress of Mongeau & Robert Cie Ltée, the rule to be kept in mind is that a salaried mandatary is only entitled to the remuneration agreed upon for his services. The law forbids an agent to lay hands surreptitiously on his principal’s property on any pretext, even the pretext that his services are worth more than what he is paid for them.

Finally, regarding the absence of evidence that Monro Ltée was in effect a subsidiary of Mongeau & Robert Cie Ltée, or was so closely associated with Mongeau & Robert Cie Ltée that it became almost impossible to sell the shares of the one without selling the shares of the other, this aspect of the matter might call for consideration if the shares of Monro Ltée had had some value. On the contrary, the balance sheet of Monro Ltée shows they had no value. Further, in the circumstances of this case the burden of proof on this point did not rest with the plaintiffs. Indeed, from the moment that it was established—and this point was not contested at the hearing—that the million dollars secretly received by Berthold and René Mongeau were actually, in so far as the purchaser was concerned, part of the price for the shares in Mongeau & Robert Cie Ltée, the burden of proof was on the mandataries of the plaintiffs to justify their position and to show, if they could, that the amount represented the price of property belonging to them personally. That burden was all the greater in that the secret nature of the transaction created a presumption against them. As a result of this secretiveness, the subsidiary transaction was altogether null and void as regards the plaintiffs according to the legal principles previously stated. If the guilty persons were entitled to raise any defence, which I doubt, this could at most be for the actual value of what they had transferred, a value which it was for them to establish.

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For these reasons, I conclude that the action should have been maintained against respondents Berthold and René Mongeau. As I have arrived at this conclusion on the basis of the obligations resulting from a mandate given by the plaintiffs, there is no need to consider whether this recourse should also be allowed by virtue of the principles governing the responsibilities of company directors.

As regards Roger Robert, the Chief Justice of the Province has agreed with his brothers and the trial judge [TRANSLATION] “that the evidence does not prove his complicity with sufficient probability”. On that point there is nothing in the record to justify an interference with this concurrent finding of fact.

On the whole, I am of opinion to allow the appeal against respondents Berthold and René Mongeau; to set aside the judgments of the Court of Appeal and of the Superior Court as to the said respondents and to condemn them to pay to appellant Louis Mongeau $250,000 and appellant Myrtle Clark $250,000 also, the whole with interest from April 28, 1961, and costs throughout. The appeal concerning Roger Robert is to be dismissed with costs.

Appeal allowed with costs against Berthold and René Mongeau; appeal concerning Roger Robert dismissed with costs.

Solicitors for the plaintiff, appellant, Louis Mongeau: Ahern, De Brabant, Nuss & Drymer, Montreal.

Solicitors for the plaintiff, appellant, Dame Clark: Noël & Delorme, Montreal.

Solicitors for the defendants, respondents: Ogilvy, Cope, Porteous, Hansard, Marler, Montgomery & Renault, Montreal.