Communities Economic Development Fund v. Canadian Pickles Corp., [1991] 3 SCR 388

Communities Economic Development Fund v. Canadian Pickles Corp., [1991] 3 S.C.R. 388

Communities Economic Development Fund                         Appellant

v.

Rudy Vincent Maxwell                                                                  Respondent

and

Canadian Pickles Corporation and

June O'Donnell                                                                               Defendants

Indexed as:  Communities Economic Development Fund v. Canadian Pickles Corp.

File No.:  21816.

1991:  June 3; 1991:  November 14.

Present:  La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, Stevenson and Iacobucci JJ.

on appeal from the court of appeal for manitoba

Guarantee ‑‑ Liability of guarantor of ultra vires loan ‑‑ Statutory corporation making loan contrary to statutory objects ‑‑ Whether loan ultra vires ‑‑ If so, whether guarantor liable to repay loan ‑‑ The Communities Economic Development Fund Act, R.S.M. 1987, c. C155, ss. 1, 3, 7(c), 9(7), 26(2), (5) ‑‑ The Corporations Act, R.S.M. 1987, c. C225, ss. 3(1)(b), 16(3).

Corporations ‑‑ Statutory corporation making loan contrary to statutory objects ‑‑ Applicability of doctrine of ultra vires to statutory corporation ‑‑ The Communities Economic Development Fund Act, R.S.M. 1987, c. C155, ss. 1, 3, 7(c), 9(7), 26(2), (5) ‑‑ The Corporations Act, R.S.M. 1987, c. C225, ss. 3(1)(b), 16(3).

The appellant is a lending institution created by the Manitoba Communities Economic Development Fund Act (the "Act").  Its objects, as set out in s. 3 of the Act, are to encourage the economic development of "remote and isolated communities" in Manitoba.  In 1986, the appellant approved a loan to Canadian Pickles, a company operating in Stony Mountain, a small community some 20 kilometres north of Winnipeg. The loan was guaranteed by the directors of the company, including the respondent, who was also a shareholder.  The full amount of the loan was advanced by the appellant to creditors of Canadian Pickles, to equipment manufacturers, and in trust to the respondent as Canadian Pickles' solicitor. The company later defaulted on the loan.  The appellant then sued the company and the guarantors for repayment.  The Court of Queen's Bench held that the loan was ultra vires the appellant but that the respondent was still obliged to honour his guarantee because he had encouraged the appellant to lend the money, and because he benefited from the loan as a shareholder and director of the company. Applying Breckenridge, the trial judge found the respondent liable on his guarantee on the principle of moneys "had and received". On appeal, the Court of Appeal reversed the judgment and dismissed the action. This appeal raises two issues: (1) whether appellant's loan was ultra vires; and, if so, (2) whether the respondent is liable to repay the loan as guarantor.

Held:  The appeal should be dismissed.

As a statutory corporation created for a public purpose (namely, to encourage economic development in remote and isolated regions), the appellant has only those powers which are expressly or impliedly granted to it by statute. Acts of the appellant which exceed those powers will be ultra vires.  Here, the loan to Canadian Pickles was contrary to the statutory objects of the appellant. Stony Mountain, where the company's operation was located, is not a remote and isolated community. Appellant's loan was thus ultra vires because s. 9(7) of the Act prohibits the making of loans in contravention of the Act.

Both the Act and The Corporations Act indicate a legislative intention to retain the doctrine of ultra vires for the appellant with respect to loans that contravene the Act. Indeed, while s. 26(2) of the Act is a clear indication of the legislative intention to give the appellant all the powers of a natural person, and to abolish the doctrine of ultra vires with respect to the appellant, s. 9(7) creates a limit on the appellant's powers. Not only is no remedy provided within the statutory scheme for a breach of s. 9(7), but the remedial provisions in Part XIX of The Corporations Act are expressly made inapplicable to the appellant by s. 3(1)(b) of The Corporations Act. Section 7(c) of the Act, which allows the appellant to exercise the powers set out in Part III of The Corporations Act, is intended only to give the appellant the incidental and ancillary powers necessary to further its statutory objects.  Finally, s. 16(3) of Part III of The Corporations Act, which provides that no act of a corporation is invalid only because the act is contrary to its articles or to The Corporations Act, does not, when read together with s. 3(1)(b) of The Corporations Act and ss. 9(7) and 26(5) of the Act, abolish the doctrine of ultra vires with respect to loans that contravene the Act. In any event, if there is any conflict between s. 9(7) of the Act and s. 16(3) of The Corporations Act, it must be resolved in favour of s. 9(7), because s. 26(5) of the Act provides that where there is a conflict between the Act and The Corporations Act, the Act prevails.

The respondent is not liable to repay the ultra vires loan as guarantor. First, Breckenridge has no application in this case. The respondent received no money from the lender and, consequently, could not be liable on the basis of money "had and received". Second, on the correct interpretation of the contract of guarantee, the respondent is not liable to repay the money advanced in the event the principal debt is ultra vires. Under the contract, the guarantors are liable as principal debtors only in the circumstances enumerated. These circumstances do not include the invalidity of the principal debt.

Cases Cited

Distinguished:  Breckenridge Speedway Ltd. v. The Queen in right of Alberta, [1970] S.C.R. 175; disapproved:  Alberta (Provincial Treasurer) v. Meadow Rue Holdings Ltd. (1986), 45 Alta. L.R. (2d) 294; considered:  Bonanza Creek Gold Mining Co. v. The King, [1916] 1 A.C. 566;  Ashbury Railway Carriage & Iron Co. v. Riche (1875), L.R. 7 H.L. 653; Attorney‑General v. Great Eastern Railway Co. (1880), 5 App. Cas. 473; Baroness Wenlock v. River Dee Co. (1885), 10 App. Cas. 355; referred to:  Brougham v. Dwyer (1913), 108 L.T. 504; Sutton's Hospital Case (1613), 10 Co. Rep. 1a, 23a, 77 E.R. 937, 960; Union Bank of Canada v. A. McKillop & Sons, Ltd. (1915), 51 S.C.R. 518; Canadian Pacific Railway Co. v. City of Winnipeg, [1952] 1 S.C.R. 424; Canadian Pacific Ltd. v. Telesat Canada (1982), 133 D.L.R. (3d) 321; Redlin v. Governors of the University of Alberta (1979), 23 A.R. 42 (Dist. Ct.), aff'd  (1980), 23 A.R. 31 (C.A.); Alberta Mortgage and Housing Corp. v. Ciereszko, [1986] 2 W.W.R. 57; Hazell v. Hammersmith and Fulham London Borough Council, [1991] 2 W.L.R. 372; Canadian Bank of Commerce v. Cudworth Rural Telephone Co., [1923] S.C.R. 618; Yeoman Credit, Ltd. v. Latter, [1961] 2 All E.R.  294; Heald v.  O'Connor, [1971] 1 W.L.R.  497; General Produce v. United Bank, [1979] 2 Lloyd's Rep. 255; Upper Canada College v. Smith (1920), 61 S.C.R. 413; Garnham v. Tessier (1959), 27 W.W.R. 682; Penner v. Hutlet (1984), 33 Man. R. (2d) 168; Manufacturers Life Insurance Co. v. Hauser, [1945] 3 W.W.R. 740; Minchau v. Busse, [1940] 2 D.L.R. 282.

Statutes and Regulations Cited

Business Corporations Act, R.S.S. 1978, c. B‑10, s. 15(1).

Business Corporations Act, R.S.Y. 1986, c. 15, s. 18(1).

Business Corporations Act, S.A. 1981, c. B‑15, s. 15(1).

Business Corporations Act, S.N.B. 1981, c. B‑9.1, s. 13(1).

Business Corporations Act, 1982, S.O. 1982, c. 4, s. 15.

Canada Business Corporations Act , R.S.C., 1985, c.   C‑44 ,  s.   15(1) .

Communities Economic Development Fund Act, R.S.M. 1987, c. C155, ss. 1 "remote and isolated communities", 2, 3, 7(c), 9(7), 26(2), 26(5), 26(6) [ad. 1990-91, c. 12, s. 3].

Communities Economic Development Fund Act, S.M. 1971, c. 84, ss. 2, 9(c).

Communities Economic Development Fund Amendment Act, S.M. 1991‑92, c. 38.

Companies Act, R.S.M. 1970, c. C160 [rep. 1976, c. 40, s. 371], s. 26(1).

Company Act, R.S.B.C. 1979, c. 59, s. 21(1).

Corporations Act, R.S.M. 1987, c. C225, ss. 1(1) "articles", "corporation", "special Act", 3(1)(b), 15(1), 16(3), 231 "complainant", 240.

Corporations Act, S.M. 1976, c. 40.

Corporations Act, S.N. 1986, c. 12, s. 30(1).

Interpretation Act, R.S.M. 1987, c. I80, s. 9.

Statute Law Amendment Act (1978), S.M.  1978, c. 49, s. 18(2).

Statute Law Amendment Act, 1990‑91, S.M. 1990‑91, c. 12, s. 3.

Authors Cited

Goff, Robert, Lord Goff of Chieveley, and Gareth Jones. The Law of Restitution, 3rd ed. London:  Sweet & Maxwell, 1986.

Gower, Laurence Cecil Bartlett, et al.  Gower's Principles of Modern Company Law, 4th ed. London:  Stevens & Sons, 1979.

Klippert, George B. Unjust Enrichment.  Toronto:  Butterworths, 1983.

Maxwell, Sir Peter Benson. Maxwell on the Interpretation of Statutes, 12th ed. By P. St. J. Langan. London:  Sweet & Maxwell, 1969.

Mockler, E. J. "The Doctrine of Ultra Vires in Letters Patent Companies". In Jacob S. Ziegel, ed., Studies in Canadian Company Law. Toronto: Butterworths, 1967, 231.

O'Donovan, James and John C.  Phillips. The Modern Contract of Guarantee.  Sydney:  Law Book Co., 1985.

Ontario. Legislative Assembly. 1967 Interim Report of the Select Committee on Company Law, 1967.

Wegenast, Franklin Wellington. The Law of Canadian Companies. Toronto:  Carswell, 1979.

APPEAL from a judgment of the Manitoba Court of Appeal (1989), 62 Man. R. (2d) 170, 64 D.L.R. (4th) 489, 45 B.L.R. 261, [1990] 2 W.W.R. 547, setting aside a judgment of the Court of Queen's Bench (1989), 62 Man. R. (2d) 177, [1989] 3 W.W.R. 514, granting the appellant's action on a guarantee.  Appeal dismissed.

Donald G. Murray and Allan MacDonald, for the appellant.

Sidney Green, Q.C., for the respondent.

//Iacobucci J.//

The judgment of the Court was delivered by

Iacobucci J. -- This appeal raises two issues: the applicability of the doctrine of ultra vires to a statutory corporation, and the liability of a guarantor to repay a loan which is ultra vires the lender.

I.  Facts

Canadian Pickles Corporation was a Manitoba company in the business of producing and selling pickles.  Canadian Pickles' operation was located in Stony Mountain, some 15 or 20 kilometres north of the City of Winnipeg.  The majority shareholders of Canadian Pickles were Robert and June O'Donnell and the respondent, Rudy Vincent Maxwell, a lawyer who also acted as such for Canadian Pickles.  The respondent, who owned 25 per cent of the issued shares of Canadian Pickles for which he had paid the sum of $7,000 was also a director and officer of the company.

The appellant, the Communities Economic Development Fund, is a lending institution created by The Communities Economic Development Fund Act, R.S.M. 1987, c. C155 (the "Act").  As set out in the statute, the objects of the appellant are to encourage the economic development of "remote and isolated communities" in the province of Manitoba.  The Board of Directors of the appellant did not exercise its power under its statute to pass a by‑law to establish criteria of remoteness and isolation.

In the fall of 1986, Canadian Pickles approached the appellant for a loan for working capital and additional equipment.  The appellant approved a loan to Canadian Pickles in the amount of $150,000.  The Board of Directors of the appellant had earlier made a policy decision to grant a limited number of loans to enterprises in Southern Manitoba.  As a condition for granting the loan, the appellant required a guarantee from the directors of Canadian Pickles.  A document entitled "Guarantee" was signed by Robert O'Donnell, June O'Donnell and the respondent.

The full amount of the loan was advanced by the appellant to creditors of Canadian Pickles, to equipment manufacturers, and in trust to the respondent as Canadian Pickles' solicitor.  Canadian Pickles defaulted on the loan.  A demand was eventually made by the appellant for the full amount of the loan plus costs and interest.  When payment was not forthcoming, the appellant commenced action in the Court of Queen's Bench of Manitoba against the O'Donnells and the respondent, as guarantors of the loan.  The trial judge found that the respondent was liable for the full amount of the loan.  The respondent appealed to the Court of Appeal for Manitoba.  His appeal was allowed and the action against him was dismissed.

II.  Statutory Provisions

The Communities Economic Development Fund Act, S.M.  1971, c.  84

2  Communities Economic Development Fund is established as a body corporate and politic and shall consist of the directors from time to time appointed under the provisions of this Act.

The Communities Economic Development Fund Act, R.S.M.  1987, c.  C155

1  In this Act,

                                                                    ...

"remote and isolated communities" means those communities which meet the criteria of remoteness and of isolation established under this Act, either by by‑law of the board or by order of the Lieutenant Governor in Council.

2  The Communities Economic Development Fund is continued as a body corporate and consists of the directors appointed under this Act.

3  The objects of the fund are to encourage the optimum economic development of remote and isolated communities within the province and to that end

(a)  to provide financial or other assistance to

(i)  existing economic enterprises or to economic enterprises to be established; and

(ii)  community development corporations;

(b)  to emphasize and encourage the expansion and strengthening of small to medium‑sized economic enterprises which are locally owned and operated; and

(c)  generally to assist the minister in furthering economic development on behalf of the residents of remote and isolated communities, particularly as regards economically disadvantaged persons.

7  The fund may

                                                                    ...

(c)  generally exercise the powers set out in Part III of The Corporations Act.

9(7)  No loan shall be made under this Act or financial assistance given under this Act if the making or giving thereof contravenes any provision of this Act.

26(2)  The fund and any subsidiary of the fund has [sic] the general capacity and powers of a common law corporation; and no act of the fund or any subsidiary of the fund and no conveyance, transfer or security given to the fund is invalid.

26(5)  Where there is any conflict between any provision of this Act and a provision of The Corporations Act, the provisions of this Act prevail.

The Corporations Act, R.S.M. 1987, c. C225

                                                               Part I

                                  Interpretation and Application

1(1)  In this Act,

                                                                    ...

"articles" means the original or restated articles of incorporation ...  and includes any Act, statute or ordinance by or under which a body corporate has been incorporated ...

                                                                    ...

"corporation" means a body corporate heretofore or hereafter incorporated by or under an Act of the Legislature;

                                                                    ...

"special Act" means an Act of the Legislature other than this Act or any Act for which this Act is substituted;

3(1)  Except where it is otherwise expressly provided,

                                                                    ...

(b)  Parts II, V and VI, Division I of Part X, and Parts XIII to XIX and Parts XXI to XXVI do not apply to a corporation created for government purposes or municipal purposes or to corporations created under The Public Schools Act or The Health Services Act.

                                                              Part III

                                             Capacity and Powers

15(1)  A corporation has the capacity and, subject to this Act, the rights, powers and privileges of a natural person.

16(3)  No act of a corporation, including any transfer of property to or by a corporation, is invalid by reason only that the act or transfer is contrary to its articles or this Act.

                                                            Part XIX

Remedies, Offences and Penalties

231  In this Part,

                                                                    ...

"complainant" means

...

(b)  a director or an officer or a former director or officer of a corporation or of any of its affiliates, or

(c)  the Director, or

(d)  any other person who, in the discretion of a court, is a proper person to make an application under this Part.

240  If a corporation or any director, officer, employee, agent, auditor, trustee, receiver, receiver‑manager or liquidator of a corporation does not comply with this Act, the regulations, articles, by‑laws, or a unanimous shareholder agreement, a complainant or a creditor of the corporation may, in addition to any other right he has, apply to a court for an order directing any such person to comply with, or restraining any such person from acting in breach of, any provisions thereof, and upon such application the court may so order and make any further order it thinks fit.

III.  Judgments of the Courts Below

A.  Manitoba Court of Queen's Bench, [1989] 3 W.W.R. 514

Associate Chief Justice Scott (as he then was) awarded judgment against the respondent Maxwell and dealt extensively with the issue of a possible breach by the appellant of a duty owed to the respondent.  The issue of a breach of duty was not raised on this appeal.  On the ultra vires issue, the Associate Chief Justice concluded that the loan was ultra vires because of the appellant's failure to follow the procedures set out in the Act (at p. 527):

Whatever may have been the policy reasons behind the board's decision to expand the definition of "remote and isolated", as evidenced by the extracts of minutes filed, the fund failed to follow the procedures mandated by the Act for such purpose, and it is therefore my opinion that the loan exceeds the statutory mandate of the fund.

Having found the loan to be ultra vires, the trial judge held that he was bound by the cases of Breckenridge Speedway Ltd. v. The Queen in right of Alberta, [1970] S.C.R. 175, and Alberta (Provincial Treasurer) v. Meadow Rue Holdings Ltd. (1986), 45 Alta.  L.R. (2d) 294 (C.A.).  The Associate Chief Justice found that the respondent was obliged to honour his guarantee even though the principal debt was ultra vires the lender, because the respondent had encouraged the appellant to loan the money, and because he benefitted from the loan as a shareholder and director of Canadian Pickles.  Following Breckenridge, supra, the trial judge found the respondent liable on his guarantee on the principle of moneys had and received.

B.  Manitoba Court of Appeal, [1990] 2 W.W.R. 547

The Manitoba Court of Appeal allowed the respondent's appeal, Monnin C.J.M. dissenting.  The Court of Appeal was unanimous that the loan in question was ultra vires the appellant.  The majority judgment emphasized that because the respondent had received no money from the Fund, he could not be liable for the repayment of the money on the principle of moneys "had and received." Accordingly, Breckenridge, supra, could not be said to apply.  In his dissenting judgment, Monnin C.J.M. agreed with the trial judge's finding that the respondent had received a benefit from the loan as a director and shareholder of Canadian Pickles.  Monnin C.J.M. would accordingly have found the respondent liable on his guarantee.

(1)  Huband J.A. (O'Sullivan J.A. concurring)

Huband J.A. concluded on the basis of the decisions in Brougham v.  Dwyer (1913), 108 L.T. 504 (K.B. Div.), and Breckenridge, supra, that an ultra vires loan is not an illegal contract, it is a nullity.  A guarantor cannot be liable for guaranteeing a loan which is void from the outset.  The loan being a nullity, the guarantee is a "meaningless document upon which no legal action can be founded" (p. 557).

Huband J.A. also rejected the argument that the respondent was liable on the grounds of moneys "had and received", because the respondent had received no money from the appellant (at p. 556):

I can understand how the primary debtor, Canadian Pickles, might be said to have received money or its equivalent, or at least that it is estopped from denying its receipt.  But how can that be said of the guarantor Maxwell?  It is a certainty that he did not receive either money or its equivalent, and I do not see how he could possibly be estopped from so stating.  I do not see how he could be held liable for repayment of moneys "had and received" when the moneys were neither had nor received by him.

Finally, Huband J.A. rejected the position of the Alberta Court of Appeal in Meadow Rue, supra, that the encouragement of the loan could itself create a liability.  Huband J.A. rejected Meadow Rue on the grounds that encouragement of a loan cannot create a liability if the loan is itself a nullity (at p. 557):

With great respect to the Alberta Court of Appeal, I do not see how the encouragement of the loan can create a liability when the loan itself is a nullity.  I do not see how one can guarantee that which ...  did not exist in point of law.  The guarantee itself becomes a meaningless document upon which no legal action can be founded.

(2)  Monnin C.J.M., (dissenting)

Monnin C.J.M. concurred with Huband J.A. in upholding the finding of the trial judge that the loan was ultra vires the appellant.  However, the Chief Justice disagreed with the majority and would have upheld the result at trial, on the grounds that the principle in Breckenridge, supra, should apply to the respondent because the respondent received a benefit from the loan (at p. 551):

In my view it cannot be said that he received no benefit from the loan.  Maxwell was a shareholder, director and officer of Canadian Pickles and its legal representative.  If the business had been successful, he and the other shareholders would have reaped the benefits and advantages of that loan by the accretion of the shares, the possibility of dividends and/or profits, as well as the probable additional legal work which would flow from a prosperous business enterprise.

Following Meadow Rue, supra, the Chief Justice accepted that a guarantor who benefits from an ultra vires loan will be liable to repay the loan.  This is an example of "equity in action": the respondent is liable because it would be unconscionable for him not to be liable (at p. 552):

I accept as sound, good common sense and good law the statement of Kerans J.A. in Meadow Rue Hldg.  It would be unconscionable for Maxwell, the guarantor in this case, and under these circumstances to deny liability to the fund on the basis that he did not receive the cold cash and, further, that the fund exceeded its authority in advancing the moneys to Canadian Pickles.  Maxwell is not in a position to say to the fund, "Tough luck, your document is no good, invalid and I'm under no obligation to repay one red cent."

IV.  Issues

1.  Was the loan by the appellant to Canadian Pickles ultra vires the appellant?

2.  If the loan was ultra vires, is the respondent liable to replay the loan as guarantor?

V.  Is the Loan Ultra Vires?

There can be no doubt that the appellant's loan to Canadian Pickles was contrary to the objects of the appellant as stated in s. 3 of the Act.  Stony Mountain, where Canadian Pickles' operation was located, is not a remote and isolated community.  In this regard, I accept the finding of Monnin C.J.M. (dissenting on other grounds):  "The town of Stony Mountain is a prosperous and viable non‑urban area.  It is not remote nor is it an isolated community" (p.  550).  Indeed, neither the trial judge nor any judge of the Court of Appeal differed on this point.

I would note that the appellant's board of directors is empowered by s. 1 of the Act to establish "criteria of remoteness and of isolation" by passing a by‑law.  I doubt that there are criteria consistent with the objects of the Act that would make Stony Mountain a remote and isolated community.  Be that as it may, as already mentioned, the board of directors of the appellant chose not to attempt to bring the loan to Canadian Pickles within the objects of the Act by passing a by‑law, assuming such a by‑law would have been valid.

The making of a loan contrary to the statutory objects of the appellant is a violation of the prohibition in s. 9(7) of the Act against loans which contravene any provision of the Act.  The question is, what are the consequences of this violation of s. 9(7) of the Act? Must the loan be ultra vires the appellant, or is some less drastic result possible?  To answer these questions, a brief review of the law of ultra vires is warranted following which I shall discuss the relevant legal principles as they apply to the facts of the instant case.

A.  The Law of Ultra Vires

A review of the law of ultra vires is important to establish the context in which the provisions of the Act should be interpreted.  Of particular relevance is the distinction that has been made in the application of the ultra vires doctrine between common law and statutory corporations.

(1)  Common Law Corporations

Shortly put, the doctrine of ultra vires has been applied to corporations created by statute or pursuant to statutory authority, but has not been applied to corporations created by the exercise of the royal prerogative.  Corporations created by the exercise of the royal prerogative, known as "chartered", "letters patent" or "common law" corporations, are taken to have all the powers of a natural person.  The actions of a common law corporation are not invalid because they are outside the stated objects of a corporation: Sutton's Hospital Case (1613), 10 Co. Rep. 1a, 23a;  77 E.R. 937, 960.  Legal action may be taken against a common law corporation if it acts outside its objects, but the acts are not invalid.

The Judicial Committee of the Privy Council considered the powers of a letters patent corporation in Bonanza Creek Gold Mining Co. v. The King, [1916] 1 A.C. 566.  The appellants were incorporated by letters patent issued by the Lieutenant‑Governor of Ontario, under the authority both of The Ontario Companies Act, R.S.O. 1897, c. 191, and of all other powers and authority vested in the Lieutenant‑Governor.  The objects of the appellants, as stated in the letters patent, were to carry on the business of mining and exploration.  The letters patent did not limit the appellants' area of operation.  The appellants were carrying on mining operations in the Yukon.  As a result of disagreements over certain mining leases, the appellants brought an action for damages against the respondent.  The appeal came to the Judicial Committee of the Privy Council on the bare question of whether the appellants had the power to carry on operations in the Yukon.

The Judicial Committee held that the appellants did have the power to carry on operations in the Yukon, and allowed the appeal.  Writing for the Committee, Viscount Haldane distinguished companies created by charter from those created by statute (at pp. 583‑84):

In the case of a company created by charter the doctrine of ultra vires has no real application in the absence of statutory restriction added to what is written in the charter.  Such a company has the capacity of a natural person to acquire powers and rights.  If by the terms of the charter it is prohibited from doing so, a violation of this prohibition is an act not beyond its capacity, and is therefore not ultra vires, although such a violation may well give ground for proceedings by way of scire facias for the forfeiture of the charter.

Prior to the decision in Bonanza Creek, some Canadian courts had assumed that the doctrine of ultra vires did apply to chartered companies: see Union Bank of Canada v. A. McKillop & Sons, Ltd. (1915), 51 S.C.R. 518.  After the decision, it was clear that restrictions in the charter of the company were not sufficient to make any act ultra vires, although other remedies might be available for breach of the charter: see F. W. Wegenast, The Law of Canadian Companies (1979), at pp. 141‑44.  However, the doctrine of ultra vires remained applicable to chartered companies after Bonanza Creek in the limited sense that an action could still be ultra vires the company if the act were prohibited by statute.  This conclusion follows from the passage just quoted from Bonanza Creek, supra, at p. 583: "In the case of a company created by charter the doctrine of ultra vires has no real application in the absence of statutory restriction added to what is written in the charter" (emphasis added).  For analysis, see Wegenast, supra, at pp. 141‑50, and E. J.  Mockler's helpful article, "The Doctrine of Ultra Vires in Letters Patent Companies", in J. S. Ziegel, ed., Studies in Canadian Company Law (1967). 

(2)  Corporations Created by or Under a Statute

The presumption at common law is that corporations created by or under a statute have only those powers which are expressly or impliedly granted to them.  To the extent that a corporation acts beyond its powers, its actions are ultra vires and invalid.  Assessing the limits of the powers of a corporation created by or under a statute is a question of the interpretation of the statute and corporation's constating documents which give the corporation its powers.

If the appropriate language is used, the powers of a corporation created by or under a statute may be as wide as those of a common law corporation.  The question will turn on the language used in the statute constating documents.  The point is well illustrated by the following passage from Bonanza Creek, supra, at p. 578:

Such a creature, where its entire existence is derived from the statute, will have the incidents which the common law would attach if, but only if, the statute has by its language gone on to attach them.  In the absence of such language they are excluded, and if the corporation attempts to act as though they were not, it is doing what is ultra vires and so prohibited as lying outside its existence in contemplation of law.  The question is simply one of interpretation of the words used.  For the statute may be so framed that executive power to incorporate by charter, independently of the statute itself, which some authority, such as a Lieutenant‑Governor, possessed before it came into operation, has been left intact.  Or the statute may be in such a form that a new power to incorporate by charter has been created, directed to be exercised with a view to the attainment of, for example, merely territorial objects, but not directed in terms which confine the legal personality which the charter creates to existence for the purpose of these objects and within territorial limits.  The language may be such as to show an intention to confer on the corporation the general capacity which the common law ordinarily attaches to corporations created by charter.

(a)  Memorandum Corporations

The doctrine of ultra vires was first applied to memorandum companies incorporated under business corporation statutes in Ashbury Railway Carriage & Iron Co. v. Riche (1875), L.R. 7 H.L. 653.  The appellant was incorporated under the Companies Act, 1862.  The purpose of the company, set out in its memorandum, was to carry on business as mechanical engineers and general contractors.  The directors of the appellant entered into a contract with the respondent Riche.  As part of the contract, the appellant was to purchase a railway concession in Belgium, and to raise money for the construction of the railway.  The House of Lords held that the transaction was ultra vires the appellant because it was beyond the scope of its memorandum.  As a consequence, the contract was null and void, and not capable of ratification by the shareholders of the appellant.  Prior to the statutory abolition in most Canadian jurisdictions of the ultra vires doctrine for companies incorporated under the business corporation statutes, Ashbury Railway and Bonanza Creek, supra, were the law in Canada.

(b)  Corporations Created by Special Act

The applicability of the doctrine of ultra vires to corporations created by special act was at issue in Attorney‑General v. Great Eastern Railway Co. (1880), 5 App.  Cas. 473 (H.L.).  The respondent company was incorporated by an Act of Parliament.  The respondent was given a variety of powers by several statutes.  The respondent purported to lease locomotives to another railway company.  The appellant sought an injunction to prevent the respondent from leasing its locomotives or other rolling stock, on the grounds that the directors of the respondent had exceeded their powers.  The House of Lords held that the acts in question were intra vires the company because expressly authorized by the statutory scheme.  In so finding, their Lordships stated emphatically that the principle earlier enunciated in Ashbury Railway, supra, applied also to statutory corporations.  In the words of Lord Watson, at p. 486:

I cannot doubt that the principle by which this House, in the case of the Ashbury Railway Company v. Riche, tested the power of a joint stock company registered (with limited liability) under the Companies Act of 1862, applies with equal force to the case of a railway company incorporated by Act of Parliament.  That principle, in its application to the present case, appears to me to be this, that when a railway company has been created for public purposes, the Legislature must be held to have prohibited every act of the company which its incorporating statutes do not warrant either expressly or by fair implication.

The House of Lords affirmed the applicability of Ashbury Railway to corporations created by special act in Baroness Wenlock v. River Dee Co. (1885), 10 App. Cas. 355 (H.L.).  Lord Watson held that the powers of a statutory corporation are limited by the purposes of the corporation as set out in the special act (at pp. 362‑63):

Whenever a corporation is created by Act of Parliament, with reference to the purposes of the Act, and solely with a view to carrying these purposes into execution, I am of opinion not only that the objects which the corporation may legitimately pursue must be ascertained from the Act itself, but that the powers which the corporation may lawfully use in furtherance of these objects must either be expressly conferred or derived by reasonable implication from its provisions.

The principle that a statutory corporation can do only what it is expressly or impliedly authorized to do by the statute creating it has been repeatedly applied by Canadian courts.  The principle was approved by Locke J. in this Court, in Canadian Pacific Railway Co. v. City of Winnipeg, [1952] 1 S.C.R. 424, at p. 485.  The principle was referred to as "trite law" in Canadian Pacific Ltd. v. Telesat Canada (1982), 133 D.L.R. (3d) 321 (Ont. C.A.), at p. 326.  In Redlin v. Governors of the University of Alberta (1979), 23 A.R. 42 (Dist. Ct.), affirmed unanimously on appeal (1980), 23 A.R. 31, Stevenson Dist. Ct. J. (as he then was), said in reference to the same principle that, "One cannot quarrel with that general proposition" (p. 48).  I would also refer to Alberta Mortgage and Housing Corp. v. Ciereszko, [1986] 2 W.W.R. 57 (Alta. Q.B.).  The principle has been recently affirmed by the House of Lords in Hazell v. Hammersmith and Fulham London Borough Council, [1991] 2 W.L.R. 372 (H.L.).

(c)  Abolition of the Doctrine of Ultra Vires

The doctrine of ultra vires has been abolished by statute for corporations incorporated under the business corporations legislation in most Canadian jurisdictions.  The following jurisdictions have statutory provisions reversing the presumption that corporations have limited capacity: Canada (Canada Business Corporations Act , R.S.C., 1985, c. C‑44, s. 15(1) ), Alberta (Business Corporations Act, S.A. 1981, c. B‑15, s. 15(1)), British Columbia (Company Act, R.S.B.C. 1979, c. 59, s. 21(1)), Manitoba (The Corporations Act, R.S.M. 1987, c. C‑225, s. 15(1)), New Brunswick (Business Corporations Act, S.N.B. 1981, c. B‑9.1, s. 13(1)), Newfoundland (The Corporations Act, S.N. 1986, c. 12, s. 30(1)), Ontario (Business Corporations Act, 1982, S.O. 1982, c. 4, s. 15), Saskatchewan (The Business Corporations Act, R.S.S. 1978, c. B‑10, s. 15(1)), and the Yukon (Business Corporations Act, R.S.Y. 1986, c. 15, s. 18(1)).  The doctrine of ultra vires may still apply in the Northwest Territories, and in Nova Scotia.  Prince Edward Island is a letters patent jurisdiction.

In my view, the general abolition of the doctrine of ultra vires is in accordance with sound policy and common sense.  The original purposes of the doctrine, which were, in the words of the 1967 Interim Report of the Select Committee on Company Law (tabled before the Ontario Legislative Assembly, at p. 25) "to protect creditors by ensuring that the company's funds to which creditors must look for payment were not dissipated in unauthorized activities and to protect investors by allowing them to know the objects for which their money was to be used", have been largely frustrated.  Subsequent statutory and case law developments have made the doctrine a protection to no one and a trap for the unwary.  No less an authority than L. C. B. Gower has recommended, in Gower's Principles of Modern Company Law (4th ed. 1979), at p. 179, "total abolition of the ultra vires rule in so far as it affects the capacity of companies" and indeed referred favourably to the approach taken by the Canada Business Corporations Act  in this respect.  See Gower, supra, at p. 180.

However, in spite of the general trend towards abolition of the doctrine of ultra vires, the limited aspects of the doctrine, as seen from the above review, may be present with respect to corporations created by special act for public purposes.  Not only is there a long line of cases supporting the principle, but one may argue that this protects the public interest because a company created for a specific purpose by an act of a legislature ought not to have the power to do things not in furtherance of that purpose.  Of course, it is open to the legislature to rebut this presumption because, for example, the legislature may provide for other remedies short of invalidity for acts contrary to the statute.  But this takes us to discussing the application of the general principles of law on ultra vires to the facts of this case.

B.  Application of the Law to the Facts of This Case

The appellant is a statutory corporation, created by The Communities Economic Development Fund Act.  The appellant was created for a public purpose, namely to encourage economic development in remote and isolated regions of Manitoba.  As  a statutory corporation created for a public purpose, the appellant has only those powers which are expressly or impliedly granted to it by statute.  Acts of the appellant which exceed those powers will be ultra vires.  The issue is therefore: was the appellant expressly or impliedly granted the power to act outside its statutory objects?

In determining the scope of the appellant's powers, reference must be made not only to The Communities Economic Development Fund Act, but also to The Corporations Act, R.S.M. 1987, c. C225.  "Corporation" is defined in s. 1(1) of The Corporations Act so as to include the appellant; "articles" is defined in the same section to include the statute by which the appellant was incorporated, that is The Communities Economic Development Fund Act.  The application of The Corporations Act to the appellant is however limited by s. 3(1) of The Corporations Act, which provides that some parts, including Part XIX, of The Corporations Act (dealing with remedies, offences and penalties) do not apply to a corporation, such as the appellant, created for government purposes.

(1)  Section 26(2) of The Communities Economic Development Fund Act

On its face, s. 26(2) grants the appellant the capacity and powers of a common law corporation.  A common law corporation is a corporation with the powers of a natural person: Canadian Pacific Railway Co. v. City of Winnipeg and Bonanza Creek, supra.  The language used in s. 26(2) shows what Viscount Haldane referred to in Bonanza Creek as an "intention to confer on the corporation the general capacity which the common law ordinarily attaches to corporations created by charter" (p. 578).  I find support for this position not only in the explicit grant of the "general capacity and powers of a common law corporation" to the appellant, but also in the second part of s. 26(2), which provides that no act of the appellant is invalid taken by itself.  Section 26(2) is a clear indication of the legislative intention to give the appellant all the powers of a natural person, and to abolish the doctrine of ultra vires with respect to the appellant.  However, s. 26(2) must be considered together with other sections of the Act, including s. 9(7).

(2)  Section 9(7) of The Communities Economic Development Fund Act

Section 9(7) prohibits, using mandatory language, the making of loans in contravention of the Act.  In my opinion, the section can only be interpreted as evidence of the intention of the legislature to limit the wide grant of powers made in s. 26(2) of the Act.  I am bolstered in my conclusion by the fact that the Act provides no sanction or remedy for a loan made in contravention of the Act and in violation of s. 9(7).  If section 9(7) were interpreted to mean only that the appellant should not make loans in contravention of the Act, the section would be superfluous: the conclusion that the appellant should not make loans in contravention of the Act follows from the most basic of interpretive law principles.  It is a principle of statutory interpretation that every word of a statute must be given meaning: "A construction which would leave without effect any part of the language of a statute will normally be rejected" (Maxwell on the Interpretation of Statutes (12th ed. 1969), at p. 36).  Accordingly, the prohibition in s. 9(7) of the Act should be interpreted so as to create a limit on the powers of the appellant.

With many Manitoba corporations, the remedial provisions in Part XIX of The Corporations Act and in particular the provisions in s. 240 for obtaining a restraining order, would be available for a breach of the constating statute.  However, s. 3(1)(b) of The Corporations Act provides that Part XIX is inapplicable to the appellant.  Hence, not only is no remedy provided within the statutory scheme for a breach of s. 9(7), but the remedy which would otherwise have been available has been expressly removed.  I conclude that there is not only no evidence of a legislative intention to rebut the presumption that acts of a company which contravene the constating statute of the company are ultra vires, but on the contrary that the evidence indicates that the legislature positively intended that acts of the appellant violating the prohibition in s. 9(7) should be ultra vires.

I would also refer for further support for my interpretation of the effect of ss. 9(7) and 26(2) of the Act to the decision of this Court in Canadian Bank of Commerce v. Cudworth Rural Telephone Co., [1923] S.C.R. 618.  The respondent in that case had originally been incorporated under The Rural Telephone Act of Saskatchewan.  It was later incorporated under The Companies Act of that province.  The respondent was contesting its indebtedness on a promissory note on the grounds that the note was ultra vires.  The Rural Telephone Act explicitly set out the means by which the respondent could raise money.  These means did not include issuing promissory notes.  However, s. 14(b) of The Companies Act of Saskatchewan provided, inter alia, that:

Every company ...  shall, ...  unless the contrary intention is expressed in a special Act or ordinance incorporating the company or in a memorandum of association thereof, ... so far as the capacities of such companies are concerned, have and be deemed to have had the same effect as if the company were or had been incorporated by letters patent under the great seal.

The Supreme Court of Canada held, Idington J.  dissenting, that the promissory note was ultra vires the respondent, under both the Saskatchewan Rural Telephone Act and Companies Act.

I find the reasons of Duff J. particularly helpful.  Duff J. first finds that the effect of s. 14 of the Saskatchewan Companies Act is to rebut the normal presumption that a corporation created by or under a statute has limited powers.  In other words, s. 14 confers on the respondent the general capacity of a common law corporation.  He goes on to consider the effect of the provisions in The Rural Telephone Act in the context of the grant of the general capacity of a common law corporation by s. 14 of the Saskatchewan Companies Act, at pp.  628‑29:

The effect, then, of section 14 upon the companies to which it applies is not to abrogate entirely the doctrine of ultra vires but to establish a rule of construction which in effect is that such companies are to be deemed to have the capacities of a common law corporation, subject to such restrictions as the legislature has evidenced an intention of imposing upon it.  In declaring in section 14 that the companies referred to are to have the capacities of a common law corporation, the legislature cannot be supposed to have intended to abrogate the restrictions and prohibitions which the legislature itself has shewn an intention to impose upon such companies.  A company created by charter ...  is necessarily subject to the restrictions imposed upon it by the legislature, and where the enactment imposing such restrictions evinces an intention that a given transaction shall not be entered into, then any attempt on the part of the company to enter into such a transaction must be inoperative in law.  [Emphasis added.]

In the case at bar, the Act by s. 26(2) gives the Fund the attributes of a company created by charter, but the Act, by s. 9(7), clearly evinces an intention that a given transaction, namely a loan contrary to the Act, shall not be entered into.

(3)  Section 7(c) of The Communities Economic Development Fund Act

Section 7(c) of the Act allows the Fund to exercise the "powers" set out in Part III of The Corporations Act which is entitled, "Capacity and Powers".  The present provisions in Part III have the effect of statutorily abolishing the ultra vires doctrine with respect to corporations covered by The Corporations Act.  In interpreting s. 7(c) of the Act it is helpful to refer to the legislative history of Part III of The Corporations Act.  Previous versions of Part III, enacted under The Companies Act, R.S.M.  1970, c.  C160, granted a wide range of incidental and ancillary powers to incorporated companies, as did many other companies' acts of the period.

The Act was first enacted in 1971, as The Communities Economic Development Fund Act, S.M. 1971, c.  84.  At that time, Manitoba companies were incorporated by letters patent under The Companies Act.  The provision now found in s. 7(c) of the Act was then found in s. 9(c) of the 1971 Act.  Section 9(c) provided that: "The fund may ...  generally exercise the powers set out in subsection (1) of section 26 of The Companies Act." Section 26(1) of The Companies Act gave a company the power "as incidental and ancillary to the objects set out in its charter" to perform a wide range of acts.  The necessary link between these acts and the objects of the company is emphasized by the wording of the residual clause in s. 26(1)(cc), which provided that a company might "do all such other things as are incidental or conducive to the attainment of the objects and the exercise of the powers of the company."

In 1976, The Companies Act was repealed, and the present Corporations Act was enacted as S.M. 1976, c. 40.  Two years later, changes to the 1971 Communities Economic Development Fund Act made necessary by the introduction of the 1976 Corporations Act were introduced in The Statute Law Amendment Act (1978), S.M.  1978, c.  49.  The necessary change to s. 9(c) of the 1971 Communities Economic Development Fund Act was made by s. 18(2) of The Statute Law Amendment Act (1978):

18(2)  Clause 9(c) of the Act is amended by striking out the words and figures "subsection (1) of section 26 of The Companies Act" thereof and substituting therefor the words and figures "Part III of The Corporations Act".

In my opinion, the legislative history of s. 7(c) of the Act, when interpreted in conjunction with the legislative history of Part III of The Corporations Act, indicates that s. 7(c) of the Act is intended only to give the appellant the incidental and ancillary powers necessary to further its statutory objects.

However, there remains the question of s. 16(3) of Part III of The Corporations Act.  Like similar provisions in other corporations acts, s. 16(3) provides that no act of a corporation is invalid only because the act is contrary to its articles or to The Corporations Act.  However, s. 16(3) of The Corporations Act must be read together with s. 3(1)(b) of The Corporations Act, and ss. 9(7) and 26(5) of The Communities Economic Development Fund Act.  In my view, s. 16(3) of The Corporations Act is part of a legislative scheme to abolish the doctrine of ultra vires.  The remedial provisions in Part XIX of The Corporations Act are an integral part of that scheme.  The abolition of the doctrine of ultra vires goes together with the creation of new statutory remedies.  The fact that Part XIX is expressly made inapplicable to the Fund by s. 3(1)(b) of The Corporations Act is an indication of a legislative intention to retain the doctrine of ultra vires for the Fund, with respect to loans that contravene the Act.

I find support for this conclusion in the legislative history of s. 7(c) of the Act, which indicates a legislative intention to give the Fund only powers necessarily incidental to its objects.  Furthermore, I think that s. 9(7) of the Act clearly indicates a legislative intention to prohibit actions by the Fund beyond its powers.  In addition, if there is any conflict between s. 9(7) of the Act and s. 16(3) of The Corporations Act, it must be resolved in favour of s. 9(7) of the Act, because s. 26(5) of the Act provides that where there is a conflict between the Act and The Corporations Act, the Act prevails.

(4)  Conclusion

I would conclude that loans made by the appellant in contravention of s. 9(7) of the Act are ultra vires.  The loan to Canadian Pickles is ultra vires the appellant because it was made in contravention of s. 9(7) of the Act.

VI.  Is the Respondent Liable to Repay the Loan as Guarantor?

It is the contention of the appellant that the decision of the Alberta Court of Appeal in Meadow Rue, supra, was a correct application of Breckenridge, supra.  Where the principal debt is ultra vires the lender, the appellant submitted, the guarantor should nonetheless be liable to repay the loan.  In my respectful opinion, the court in Meadow Rue misapplied Breckenridge in that it did not distinguish the borrower's obligations to the lender from the guarantor's obligations to the lender.  However, before turning to the circumstances of this case, it will be useful to make some general comments about the nature of a guarantee, and about the decision of this Court in Breckenridge.

A.  The Nature of a Guarantee

A guarantee is generally a contract between a guarantor and a lender.  The subject of the guarantee is a debt owed to the lender by a debtor.  In the contract of guarantee, the guarantor agrees to repay the lender if the debtor defaults.  The exact nature of the obligation owed by the guarantor to the lender depends on the construction of the contract of guarantee, but the liability of the guarantor is usually made coterminous with that of the principal debtor.  Generally speaking, if the principal debt is void or unenforceable, the contract of guarantee will likewise be void or unenforceable.  See generally, J. O'Donovan and J. C.  Phillips, The Modern Contract of Guarantee (1985), at pp. 183‑93.

Contracts of guarantee are sometimes distinguished from contracts of indemnity.  In a contract of indemnity, the indemnifier assumes a primary obligation to repay the debt, and is liable regardless of the liability of the principal debtor.  An indemnifier will accordingly be liable even if the principal debt is void or otherwise unenforceable.  The distinction between contracts of guarantee and of indemnity ought not to be overemphasized.  The resolution of a given case will turn on the correct interpretation of the contract and of the intention of the parties; attempts to label the contract as one of guarantee or of indemnity may be less than helpful.  In Yeoman Credit, Ltd. v.  Latter, [1961] 2 All E.R.  294 (C.A.), at p. 299, Harman L.J.  had this to say about the distinction: "[i]t seems to me a most barren controversy [which] has raised many hair‑splitting distinctions of exactly that kind which brings the law into hatred, ridicule and contempt by the public".

B.  The Principle in Breckenridge

In Breckenridge, supra, the Treasurer of Alberta agreed to lend money to the plaintiffs.  The plaintiffs had transferred certain interests in real property to the Treasurer as security for the loan.  The plaintiffs sought rescission of the entire agreement.  The Treasurer counterclaimed for the money owing, and the plaintiffs defended the counterclaim on the grounds that the loan was ultra vires the Treasurer.  Writing for the majority, Martland J.  found that regardless of whether or not the loan was ultra vires, the plaintiffs could have no answer to an action for money had and received.  The plaintiffs had a legal obligation to repay the funds they had received.

On the question of the security held by the Treasurer,  he held that property in the security had passed to the Treasurer.  Martland J. held that property had passed not only because there were no other creditors, but also because the security had been given as part of an arrangement by which the plaintiffs sought to discharge their lawful obligation to make restitution of the money they had borrowed.

The question of the liability of a guarantor of an ultra vires loan did not arise in Breckenridge.

C.  Application of the Law to the Facts of This Case

There are two questions to be answered here.  First, is the respondent liable on the basis of the principles in Breckenridge?  Second, even if Breckenridge does not apply, is the respondent nonetheless liable by the terms of the contract of guarantee?

I cannot accept the appellant's argument that the respondent is liable on the basis of Breckenridge.  Rather, I accept the reasons on this point of the majority of the Court of Appeal below.  In Breckenridge, the principal debtor was obliged to repay money had and received from the lender, even though the principal debt was a nullity.  In this case, the respondent received no money from the lender, and consequently the respondent cannot be liable on the basis of money had and received. 

With respect, I must disagree with the position of the Alberta Court of Appeal in Meadow Rue, supra, at p. 295, that the rule in Breckenridge is "a simple example of equity in action" that applies to the guarantor of a loan.  The essence of an action for moneys had and received is that the defendant has actually received the money sued for; where the defendant has received no money the action does not lie.  See G. B. Klippert, Unjust Enrichment (1983), at pp. 5‑7; Lord Goff and G. Jones, The Law of Restitution (3rd ed. 1986), at pp. 3‑5.  I would add that an action for moneys had and received does not lie in equity: Klippert, supra, at pp. 13‑19.

The appellant also argued that the respondent's guarantee was a security, and that property in the security should accordingly pass to the appellant, again following Breckenridge.  This argument is without merit.  Even accepting the dubious proposition that a guarantee is the equivalent of real property to which the lender has acquired title, the respondent's guarantee was not given to discharge a lawful obligation owed by the respondent to the appellant.  The lawful obligation was owed to the appellant by Canadian Pickles, not by the respondent.

The question which remains is whether, on the correct interpretation of the contract, the respondent is liable to repay the loan made by the appellant to Canadian Pickles.  The relevant part of the contract is clause "(b)":

(b)  That as between the Fund and the Guarantors, the Guarantors are and shall continue to be jointly and severally liable as principal debtors under all the covenants contained in the Security, notwithstanding the bankruptcy, insolvency or going into liquidation of the Borrower, voluntarily or otherwise, and notwithstanding any transaction which may take place between the Fund and Borrower or any neglect or default of the Fund which may otherwise operate as a discharge, whether partial or absolute, of the Guarantors if they were sureties only of the Borrower and, without restricting the generality of the foregoing, notwithstanding the releasing in whole or in part of the properties and assets mortgaged or charged in the Security, and notwithstanding the granting of time or other indulgences to the Borrower;

As a preliminary matter, there was, in my opinion, a valid contract between the respondent and the appellant.  The validity of the contract was not questioned by the respondent.  On the face of the contract, there was the necessary consideration:

...  in consideration of the advance to the Borrower by the Fund of the said sum of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000.00), or such portion thereof as may be advanced or re‑advanced, (hereinafter called the "Principal Sum") and in consideration of the sum of ONE DOLLAR ($1.00) now paid by the Fund to each of the Guarantors, the receipt and sufficiency whereof is hereby acknowledged, the Guarantors do joint and severally COVENANT, PROMISE AND AGREE ...

It was the appellant's argument that the contract makes the respondent a principal debtor, regardless of the status of the obligation owed by Canadian Pickles to the appellant.  In making this argument, the appellant relied principally on two phrases from clause "(b)".  The phrases are "the Guarantors are and shall continue to be jointly and severally liable as principal debtors", and "which may otherwise operate as a discharge, whether partial or absolute, of the Guarantors if they were sureties only of the Borrower".

Taking the two phrases in turn, I find that the plain meaning of the first phrase read in the context of the entire clause is that the guarantors, including the respondent, will be liable as principal debtors only in the enumerated circumstances.  I cannot see that the listed circumstances include the invalidity of the principal debt.  A similar clause was at issue in General Produce v. United Bank, [1979] 2 Lloyd's Rep. 255 (Q.B. (Com. Ct.)).  In that case, Lloyd J. concluded that the effect of a clause providing that the guarantor's liability would continue in spite of the release of the principal's debtor's liability by operation of law was that the creditor could treat the guarantor as a principal debtor only in the specified situation.  Likewise, in Heald v.  O'Connor, [1971] 1 W.L.R.  497 (Q.B.D.), Fisher J.  interpreted a clause making the guarantor "a primary obligor" in light of the entire agreement and concluded that it did not convert what was really a guarantee into an indemnity.

The second phrase which the appellant argued takes the appellant's case no further.  The phrase only provides added support for the interpretation just articulated: the guarantors are liable as principal debtors only in the circumstances enumerated.

I would conclude that the correct interpretation of the contract is that the respondent is not liable to repay the money advanced in the event the principal debt is ultra vires.  It was open to the appellant to insist upon a contract with the respondent that would have made the respondent liable in the circumstances of the case at bar.  As the appellant did not do so, its claim must fail.

VII.  Recent Amendments to The Communities Economic Development Fund Act

After the hearing of this appeal, it came to the attention of the Court that several amendments to the Act were recently passed which materially altered many of the provisions discussed above.  One amendment, which appears in The Statute Law Amendment Act, 1990‑91, S.M. 1990‑91, c. 12, s. 3, amends the Act to add a new s. 26(6) which provides, inter alia, that no loan, guarantee or financial assistance granted by the Fund before the coming into force of the new subsection is invalid or unenforceable by reason only that the recipient economic enterprise is not located in a remote and isolated community.  This amendment came into force on December 14, 1990, some six months before the appeal was argued on June 3, 1991.  In addition, a series of amendments to the Act were made by The Communities Economic Development Fund Amendment Act, S.M. 1991‑92, c. 38.  This amending statute, inter alia, deletes the definition of "remote and isolated communities" in the Act, amends s. 9(7) referred to above, and significantly amends the newly added s. 26(6) and expressly makes this amendment retroactive to December 14, 1990.  This latter group of amendments was introduced on May 27, 1991 and given Royal Assent on July 26, 1991.

On October 18, 1991, the Court, through the Registrar, formally asked for the views of the parties as to the effect of the legislative amendments on the issues in the appeal and why the amendments were not put before the Court during argument.  In their respective replies, counsel for the parties agree, in essence, that the amendments do not affect the issues before the Court because the amendments do not specifically address pending litigation.  Counsel pointed to s. 9 of The Interpretation Act, R.S.M. 1987, c. I80; see also Upper Canada College v. Smith (1920), 61 S.C.R. 413, Garnham v. Tessier (1959), 27 W.W.R. 682 (Man. C.A.), and Penner v. Hutlet (1984), 33 Man. R. (2d) 168 (Q.B.); see also Manufacturers Life Insurance Co. v. Hauser, [1945] 3 W.W.R. 740 (Alta. S.C.), and Minchau v. Busse, [1940] 2 D.L.R. 282 (S.C.C.).  Counsel also candidly admitted they were unaware of the legislative changes when the appeal was argued. Accordingly, as the parties agree that the recently made amendments do not affect the outcome of this appeal, they need not under the circumstances be considered further.

VIII.  Disposition

For these reasons, I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellant:  McJannet Rich, Winnipeg.

Solicitor for the respondent:  Sidney Green, Winnipeg.