Board of Review for Manitoba v. The Trust and Loan Co. of Canada / In re McEwen

Board of Review for Manitoba v. The Trust and Loan Co. of Canada / In re McEwen
Collection
Supreme Court Judgments
Date
1941-06-24
Report
[1941] SCR 542
Judges
Duff, Lyman Poore; Rinfret, Thibaudeau; Crocket, Oswald Smith; Davis, Henry Hague; Hudson, Albert Blellock
On appeal from
Manitoba
Subjects
Contract
Decision Content
Supreme Court of Canada
Board of Review for Manitoba v. The Trust and Loan Co. of Canada / In re McEwen, [1941] S.C.R. 542
Date: 1941-06-24
In The Matter of The Farmers' Creditors Arrangement Act, 1934, and Amendments Thereto
and
In Re Jane McEwen
and
The Chief Commissioner and The Commissioners of The Board of Review for Manitoba and Others Appellants;
and
The Trust and Loan Company of Canada Respondent.
1941: April 28, 29, 30; 1941: June 24.
Present: Duff C.J. and Rinfret, Crocket, Davis and Hudson JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR MANITOBA
Debtor and Creditor—Farmers' Creditors Arrangement Act (Bom.) 1934—Jurisdiction of Board of Review to entertain proposal—Party making proposal under the Act—Whether a "debtor"—Whether respondent is a "secured creditor"—Absence of privity—Grounds against proposal raised by way of certiorari—Jurisdiction of the Court of Appeals-Illegal transfer of property in order to bring it within reach of machinery of the Act—Abuse of statutory procedure—Certiorarir—Applicability to Board of Review—Board's confirmation of proposal quashed—Devisee of mortgaged land obtaining title after May, 1935—Effect of section 19 of the Act—When a debt is "incurred" in the sense of that section—Whether creditor should not have raised grounds against proposal before County Court—Farmers' Creditors Arrangement Act (Dom.) 1934—Section 2 (2); section 2 (d) as amended by c. 47 of 1938; sections 5, 7, 12(5) (6) and section 19 as enacted by amending statute of 1938.
In September, 1919, one John McEwen borrowed $4,000 from the respondent and executed a mortgage upon his land in favour of the latter. He died on August 26th, 1934. His will appointed his wife, Jane, executrix and devised all his real and personal estate to her. The will was admitted to probate on August 13th, 1935. At the time of John McE.'s death, the whole of the mortgage debt was owing to the respondent, as well as a large sum for accumulated interest. The respondent, acting under the powers contained in its mortgage, leased the land to Robert J. McE. for terms from November, 1934, to November, 1936, and the widow continued to live on the farm until her death in 1940. In July, 1936, a proposal under the Farmers' Creditors Arrangement Act, 1934, was filed by the latter, in her personal capacity and not as executrix, with the Official Receiver, the only debts disclosed being the amount due to the respondent under its mortgage and a sum of $170 for taxes. Actually, Jane McE. had never assumed payment of the mortgage debt or interest, nor had she in any way obligated herself to the respondent. At the time of filing her proposal, the certificate of title to the land was held by the widow, not as owner but only as executrix. In October, 1936, she, as personal representative, purported to transfer the land to herself personally for an expressed consideration of $1, and a certificate of title was issued to her; but the estate had not yet been fully administered. Immediately upon receipt of notice of the proposal and again in November, 1936, the respondent advised the Official Receiver that it had no claim against Jane McE. and that she was not entitled to the benefit of the Act; and later, in March, 1937, the respondent's solicitors wrote to the Registrar of the Board of Review asserting lack of jurisdiction on the part of the Board. The Board of Review, in October, 1937, formulated its proposal, reducing the amount of the respondent's mortgage, and confirmed it in October, 1938. The respondent, in October, 1939, on its behalf as well as on behalf of all the creditors of the deceased, brought an action against the widow, both as executrix and in her own right, to have her required to administer the estate, to have the transfer of the land to herself as owner set aside and to have the land sold to discharge the respondent's debt. The Board's proposal was pleaded as a bar to the action, such proposal having allegedly operated to extinguish the liability of the estate. Jane McE. died in March, 1940, and probate of her will was granted to the appellants, Robert J. McE. and Edith McE. who obtained registration of the land in their names as personal representatives. On June 19th, 1940, they transferred the land to themselves in their personal capacities, and, on the same day, they both joined in a transfer to Robert J. McE. who became the registered owner. The respondent, in September, 1940, launched before the Court of Appeal for Manitoba an application for certiorari in order to bring the proposal before that Court and have it quashed. The Court of Appeal ordered the issue of the writ and later on made an order declaring the proposal to be beyond the powers of the Board of Review and directing that it be quashed.
Held, Davis J. dissenting, that the judgment of the Court of Appeal ([1941] 1 W.W.R. 129) should be affirmed.
Per the Chief Justice: Upon the admitted facts of this case, the land in question, before the transfer of it to herself in October, 1936, was not the property of Jane McE. in the sense of the Farmers' Creditors Arrangement Act. Being beneficially entitled to the residue of her husband's estate, she was entitled to have the land, subject to the rights of the mortgagee, applied in payment of the debts of the estate; and as legal personal representative, it was her duty to see that this was done. As the estate was admittedly insolvent, she had no interest in the land which could lawfully be made available to satisfy her personal debts if she had any. Under such circumstances she could not properly transfer the land to herself. The purpose of such transfer was evidently prompted by the supposition that it might enable her to bring the land and the mortgage debt within reach of the machinery of the Act. With such facts before them, the Board of Review ought to have declined to act on the proposal made by Jane McE. on the ground that they were confronted by a manifest abuse of the statutory procedure; and, if the question had been raised by an application to the Court, it must inevitably have been held that by such devices the creditors of the estate could not be deprived of their rights.—Moreover, even assuming that, the title to the farm being vested in Jane McE. in virtue of the certificate of title or of the transfer to her in October, 1936, it was her property in the sense of the Farmers' Creditors Arrangement Act, 1934, and that the mortgage debt could be deemed to be her debt for the purposes of the Act, the amendments of 1938 to that Act which, it was contended, brought her into privity of contract with the mortgagee, had no application, for the reason that section 19 of that Act, added thereto by statute of 1935, c. 20, provides that the "Act shall not, without the concurrence of the creditor, apply in the case of any debt incurred after May 1, 1935": the essential condition being that the property affected by the security shall have been the property of the debtor in the sense of the amending statute, consequently, the mortgage debt in this case never became (constructively) the debt of Jane McE. until long after that date.—A "debt" (if it be a mortgage debt) cannot be "incurred" in the sense of section 19 before the property or interest on which it is charged has become the "property" of the debtor within the contemplation of section 2 (d) of the statute.
Per Rinfret, Crocket and Hudson JJ.—Under the circumstances of the case, Jane McE. was not entitled to file a proposal under The Farmers' Creditors Arrangement Act, for the reasons that she was not the owner of the land and that there was no privity of contract between her and the respondent company. She was in no way the "debtor" of the respondent within the requirements of the Act, even after the introduction of the amendment of 1938 to section 2(d). The only debt appearing in the proposal formulated by the Board of Review was the respondent's mortgage account; that was not her debt, so much so that the respondent could not have sued her for it; it was not a "debt provable in bankruptcy" against her, or against her estate in bankruptcy: the sole object of the procedure being to obtain a reduction on the debt owing to the respondent by the estate. Therefore, under the circumstances of this case, the Board of Review had no jurisdiction to deal with the respondent's mortgage debt and more particularly to reduce the rate of interest on that mortgage; and the Board could not, consistently with the provisions of the Act, deal with Jane McE.'s request, or formulate a proposal, in complete disregard of the position and interest of the respondent.—Also, the provisions of section 2 (d) of the Act, as amended by c. 47 of 1938, defining the word "creditor" did not confer any greater jurisdiction upon the Board in the present case; the object of the amended definition has apparently enlarged the class of "creditors", but did not alter the status of the "debtor".—Moreover, section 19 of the Act, above referred to, finds application in this case: "the debt incurred," referred to in that section, is necessarily a debt personally incurred by an applicant and does not concern a debt which, though at present owing by the applicant farmer towards the creditor, had been incurred by a previous debtor (who may not have been a farmer) and at a date prior to the first day of May, 1935, as it is in the present case.—Therefore the proposals formulated by the Board of Review were made without authority and jurisdiction and were invalid. It should also be held that the Court of Appeal had power to deal with the matter in controversy in this case on an application for certiorari by the respondent; that the preliminary questions raised by the respondent were of such a nature that, in an ordinary case, they would properly give rise to an inquiry on certiorari by a superior court and that, for the purposes of that inquiry, the facts bearing on the question of jurisdiction could be put before that Court by means of affidavits.
Per Davis J. dissenting—In view of all the facts and circumstances of this case, on one hand, the conduct of the respondent throughout has been such as to disentitle it to relief in certiorari proceedings and, on the other hand, allowance of the appeal would put the appellants the Board of Review, the Registrar, the executors of Mrs. Jane McE. and her son R. J. McE. to the burden of excessive and unnecessary costs of litigation.—The effect of the lodging by Mrs. Jane McE. with the Official Receiver of a composition, extension or scheme of arrangement, on July 31st, 1936, was to put the subject-matter of the proposal into the exclusive jurisdiction, subject to appeal, of the County Court of Dauphin, which was the judicial district where Mrs. McE. resided and the farm was located; such district being designated by section 5 (1) of The Farmers' Creditors Arrangement Act. And the Act moreover gave to the Board of Review a right to work out a proposal which might involve secured creditors, even in the absence of their concurrence. Although the respondent had the right at its own risk to deliberately ignore the proceedings under the Act, on the alleged grounds that Mrs. Jane McE. was not its debtor and that it was not a secured creditor, a very convenient and speedy remedy was available to the respondent when it got notice of Mrs. Jane McE.'s application with the Official Receiver, by moving at once in the County Court to have the proposal set aside upon any of the grounds alleged by the respondent in its present proceeding by way of certiorari. The county judge would have certainly entertained any such application and would have dealt with the matter at the time in a speedy and inexpensive manner; and, moreover, a statutory right to appeal from any decision so rendered would have been available to the respondent.
APPEAL, by leave of appeal granted by the Court of Appeal for Manitoba from the judgment of that Court[1], allowing a motion in certiorari proceedings to quash an order by the Board of Review for Manitoba under The Farmers' Creditors Arrangement Act, 1934, confirming a proposal thereunder.
The material facts of the case and the questions at issue are stated in the above head-note and in the judgments now reported.
H. A. Bergman K.C. for the appellants, the Board of Review and the Registrar.
A. T. Warnock for the appellants R. J. and I. E. McEwen.
W. C. Hamilton K.C. for the respondent.
H. A. Bergman K.C. and D. W. Mundell for the Attorney-General of Canada. The Chief Justice.—Jane McEwen's right to avail herself of the enactments of The Farmers' Creditors Arrangement Act as amended in 1938 necessarily rested upon two propositions:
first, that the farm which she as the legal personal representative of her husband had transferred to herself and for which she had procured a certificate of title to be issued to herself personally was her "property" within the meaning of sec. 2 (d) of the statute as amended in 1938;
and second, that the respondent company was a "secured creditor" within the meaning of the amending enactments of 1938.
On the admitted facts it is not open to dispute that before the transfer of it to herself in October, 1936, the land was not her property in the sense of the statute. Being beneficially entitled to the residue of her husband's estate, she was of course entitled to have the land, subject to the rights of the mortgagees, applied in payment of the debts of the estate; and as legal personal representative it was her plain duty to see that this was done. As the estate was admittedly insolvent, the assets being insufficient to meet the mortgage debt, she had, of course, no interest in the land which could lawfully be made available to satisfy her personal debts if she had any. She ought to have been advised that in the circumstances she could not properly transfer the land to herself. The purpose of this transfer is plain; it was prompted by the supposition that it might enable her to bring the land and the mortgage debt within reach of the machinery of the Act. With the facts before them, the Board of Review ought to have declined to act on Mrs. McEwen's proposal (of the 31st July, 1936) on the ground that they were confronted by a manifest abuse of the statutory procedure. Had the question been raised by an application to the Court, it must inevitably have been held that by such devices the creditors of the estate could not be deprived of their rights.
This alone would be a sufficient ground for dismissing the appeal; because the Court of Appeal having held that the remedy by certiorari is properly applicable, I think with the greatest respect that we are not required, in such a palpable case of abuse of statutory procedure, to hold that their exercise of discretion is vitiated by reason of the grounds relied upon by Mr. Bergman. This appeal, however, may be considered on the assumption that the title to the farm being vested in Mrs. McEwen in virtue of the certificate of title of the 20th October, 1936, or of the transfer to her of the 14th October, 1936, it was her property in the sense of The Farmers' Creditors Arrangement Act, and that it was (from this point of view) sufficient that it should be so at the date when the Board of Review formulated their proposal, in order to give the Board jurisdiction in that behalf. Under the provisions of the amending statute of 1938 the respondent company is to be deemed by construction of law to have been at the date when the proposal was formulated by the Board of Review a secured creditor of Mrs. McEwen and the mortgage debt is deemed to be her debt, for the purposes of the Act.
As Mr. Bergman said in argument, the mortgage debt was, by force of the Act, her debt for the purposes of the Act. It would appear that the amending Statute of 1938 takes effect retrospectively at the date of the formulation of the proposal by the Board (if a proposal has been formulated) otherwise at the filing of the proposal of the debtor. But the essential condition is that the property affected by the security shall have been the property of the debtor in the sense of the amending statute; and consequently the mortgage debt in question here never became (constructively) the debt of Mrs. McEwen until long after the 1st of May, 1935.
Within the intendment of sec. 19 the debt is "incurred" when it is "incurred" by the debtor; the mortgage debt in question was "incurred" in that sense, constructively, by force of the amending Statute (the only sense in which it was ever "incurred"), when that Statute came into force in 1938, and, by relation, at a date not earlier than the date of the certificate of title of the 20th October, 1936, or than that of the transfer of October 14th, 1936.
Debts so constructively "incurred" (in virtue of the amending statute) are in my opinion within the intendment of sec. 19; and, I repeat, such a "debt" (if it be a mortgage debt) cannot be "incurred" in the sense of that section before the property or interest on which it is charged has become the "property" of the debtor within the contemplation of sec. 2 (d) of the statute. On this point, as to the application of sec. 19, I respectfully concur with Mr. Justice Trueman.
The appeal should be dismissed with costs. The judgment of Rinfret, Crocket and Hudson JJ. was delivered by
Rinfret J.—The facts of this case are complicated.
In September, 1919, one John McEwen, then of Dauphin, Manitoba, now deceased, borrowed four thousand dollars ($4,000) from the respondent and executed a mortgage upon his land in favour of the latter. The mortgage provided for repayment instalments of $250 on November 1st in each of the years 1921 to 1923 inclusive, and of the balance on November 1st, 1924, with interest at seven per cent per annum, payable annually.
John McEwen died on August 26th, 1934. Probate of his will was granted to his widow, Jane McEwen, on August 13th, 1935. By the will, the deceased after directing payment of his debts, devised and bequeathed all his real and personal estate to his widow.
At the time of John McEwen's death, the whole of the mortgage debt was owing to the respondent, as well as a large sum for accumulated interest thereon.
The respondent, acting under the powers contained in its mortgage, leased the land to Robert James McEwen for a term from November 7th, 1934, to November 1st, 1935, and for a further term from February 3rd to November 1st, 1936.
On or about July 31st, 1936, Jane McEwen, in her personal capacity, and not as executrix, filed with the Official Receiver of the Dauphin Judicial District a proposal purporting to be made under The Farmers' Creditors Arrangement Act, 1934. The only debts disclosed by the proposal were the amount owing to the respondent under its mortgage, there placed at $6,000, and the further sum of $170 payable to the Rural Municipality of Dauphin in respect of taxes.
Actually, Jane McEwen had never assumed payment of the mortgage debt or interest, nor had she in any way obligated herself to the respondent.
At the time of filing her proposal, Jane McEwen was not the owner of the land, although afterwards, on October 20th, 1936, she, as personal representative, purported to transfer the land to herself in her personal capacity for an expressed consideration of $1. By the proposal, Jane McEwen asked that the respondent's debt be reduced to $2,500, with interest at 6 per cent. spread over a period of fifteen years, and that other accounts be not affected. Outside of the sum due to the municipality of Dauphin for taxes, Jane McEwen apparently was not indebted to any person whomsoever.
By the proposal, she valued the land at $2,500. When applying for probate, she had valued it at $3,000. Afterwards, on August 17th, 1937, she insured the buildings for $4,050.
Immediately upon receipt of notice of the proposal, the respondent advised the Official Receiver that it had no claim against Jane McEwen and that it was not affected by the proposal. On November 28th, 1936, the respondent again wrote the Official Receiver that Jane McEwen was not a debtor and not entitled to the benefit of the Act.
Later, on March 29th, 1937, the respondent's solicitors wrote to the Registrar of the Board of Review, setting forth fully the objections of the respondent and asserting lack of jurisdiction on the part of the Board.
The Board heard the application on March 31st, 1937, and, on October 29th, 1937, purported to formulate a proposal. The respondent's mortgage account was the only obligation attempted to be dealt with. The proposal states that the amount of that debt as of November 1st, 1936, stood at $6,336.65. At the date of the proposal, another year's interest had accrued, so that the actual amount owing at that time would be $6,678.15.
The Board proceeded to direct a reduction to $2,800, with future interest at 6 per cent. The respondent dissented, as appears from a letter from its solicitors to the Registrar, dated November 9th, 1937.
The Board gave no effect to the various protests and objections of the respondent and confirmed the proposal on October 5th, 1938.
The respondent further, on several occasions, advised both Jane McEwen and Robert James McEwen, as well as Mr. A. T. Warnock, the Official Receiver, who was also apparently acting as their solicitor, that it would not be bound by or recognize the proposal. The respondent's attitude was definite and consistent throughout.
On October 10th, 1939, the respondent commenced an administration action in the Court of King's Bench against Jane McEwen, both as executrix of her husband's estate and also in her personal capacity. The action was brought on behalf of the respondent itself, as well as on behalf of all the creditors of the deceased. By its statement of claim, the respondent took the position that the debt of the deceased to the respondent was unaffected by the proposal, that the full amount was still owing and that the conveyance of the land to Jane McEwen as a devisee before satisfying the debts of the deceased constituted a breach of her duties as executrix. The respondent asked that the estate be administered, the conveyance set aside and the land sold to discharge the respondent's debt.
The statement of defence delivered by Jane McEwen as executrix urged that the proposal had operated to extinguish the liability of the estate. The respondent, by its reply, after setting up that the estate was not a party to the proceedings before the Board of Review, contended that the Board was without authority to deal with the matter.
It is stated that, at the request of defendant's solicitor, made because of the illness of his client, the litigation was not pressed for the time being.
Jane McEwen died on March 27th, 1940; and, on May 9th, 1940, probate of her will was granted to the appellants, Robert James McEwen and Isabella Edith McEwen. On April 28th, 1940, the respondent's solicitors wrote the solicitor for the appellant estate asking to be advised of the issue of the grant of probate. The necessary information was given by a letter dated June 29th, 1940.
It then appeared that, following the grant of probate of the will of Jane McEwen, the appellants Robert James McEwen and Isabella Edith McEwen had obtained registration of the land in their names, as personal representatives.
On June 19th, 1940, they transferred the land to themselves in their personal capacities; and, on the same day, they both joined in a transfer to Robert James McEwen, who became the registered owner. The respondent then felt compelled to take some step to have the proposal made by the Board of Review declared to be of no effect. For that purpose, on September 17th, 1940, the respondent issued a notice of motion to be made to the Court of Appeal for Manitoba, in order that the proposal be brought before that Court by way of a writ of certiorari, and so that an application to have it quashed might be proceeded with.
The Court of Appeal ordered the issue of the writ, to which a return was made by the appellants, the Chief Commissioner, the Commissioners and the Registrar of the Board of Review for the province of Manitoba.
Following the return, an order declaring the proposal to be beyond the powers of the Board, and directing that it be quashed, was made by the Court of Appeal. That order is now appealed from, leave to appeal having been granted by the Court of Appeal of Manitoba.
Before this Court, the appellant Board of Review and the appellants Robert James McEwen and Isabella Edith McEwen appeared separately; but their grounds of appeal are substantially the same. They contend that the court a quo should have refused the motion for a writ of certiorari because it had no power to deal with such a matter under the Act and the rules as well as under the procedure set up by the King's Bench Act; that the proposal returned into court pursuant to the writ of certiorari constituted the only and entire record before the court on the motion to quash and it was not open to the court to go behind the return and to consider extraneous material; that the majority of the court, in effect, dealt with the case as if it were an appeal from the decision of the Board of Review and failed to keep within the limits of its jurisdiction on certiorari; that the application for certiorari was, in any event, barred by delay, prejudice and estoppel; that the court erred in holding that Jane McEwen did not properly administer the estate and, therefore, improperly conveyed title to herself, or in holding that, at the date of the filing of the proposal (July 31st, 1936), she was not the owner of the land; and finally that there was error in the holding of the court that the proposal of the Board of Review was a nullity, owing to absence of privity of contract between Jane McEwen and the company, as a consequence of the wrong interpretation of The Farmers' Creditors Arrangement Act as amended in 1938. The grounds of appeal may, in reality, be grouped under two heads:
(1) The Court of Appeal erred in deciding that Jane McEwen was not entitled to file a proposal under the Act, because she was not the owner of the land, and because there was no privity of contract between her and the respondent company;
(2) The Court of Appeal had no jurisdiction to deal with these matters through a writ of certiorari; and it could not, pursuant to that writ, go behind the proposal of the Board of Review, whose jurisdiction, on the only record before the Court, was on its face conclusive.
Dealing first with head no. 1: In order that the Board of Review may have power and jurisdiction to formulate or confirm the proposal it did, on the application of Jane McEwen, it was necessary that she should be a farmer unable to meet her liabilities as they became due, and also that she should be the debtor of the respondent company which, in effect, in the premises, was her only alleged creditor. Otherwise, it stands to reason that the respondent could not be brought in the scheme of arrangement under the Act; and the Board of Review, in formulating its proposal, and subsequently in confirming it, exceeded its powers, authority and jurisdiction.
I think the recent decision in Diewold v. Diewold[2] is conclusive on that point, so far at least as this Court is concerned.
The mortgage debt owing to the respondent, and which the proposal purported to reduce, was incurred by the deceased John McEwen. No other person ever assumed or personally became responsible for it before any application was made for a proposal. Following the death of John McEwen, the respondent had the right to look to his estate for payment of its debt.
The application which resulted in the proposal now under consideration was an application made by Jane McEwen in her personal capacity.
At that time (July 31st, 1936), Jane McEwen was not the debtor of the respondent and, moreover, was not insolvent. She was not, therefore, entitled to invoke the benefits of the Act, not to speak of the disputed question whether she could be classed as a farmer.
Had she come within that class, the only proposal which she could file with the Official Receiver was a proposal in respect of her actual personal obligations.
On the face of the proposal formulated by the Board, the only debt disclosed, for which she was liable, was the sum of $91 owing to The International Harvester Company of Canada, Limited, incurred in 1936 and which could not be the subject of a personal proposal.
The only other debt appearing in the proposal is the respondent's mortgage account. That was not her debt. The respondent could not have sued her for it. It was not a "debt provable in bankruptcy" against her, or against her estate in bankruptcy.
As it turned out, it seemed pretty clear that the sole object of the proceeding was to obtain a reduction in the debt owing to the respondent by the John McEwen Estate. Jane McEwen herself apparently was not indebted to any person whomsoever.
In order to bring the debt of the estate first before the Official Receiver, and then before the Board, the Act, at that time, contained no provision under which its benefits could be invoked. It was only in 1938, by the amendment adding sec. 6 (A) to the Act (sec. 4 of C. 47 of the statutes of Canada, 1938), that provision was made for proposals by legal representatives of farmers who died after the 3rd day of July, 1934, upon satisfying certain conditions there mentioned and obtaining leave of the court. This procedure was never resorted to in the present case.
Up to that amendment, it had been consistently held that an executor could only proceed as such, and not as a farmer; and, as a Board of Review could only deal with debts of farmers in order to keep them on the land, the necessary jurisdiction was lacking.
The form of the proposal herein and of everything connected therewith was, throughout, essentially a proceeding on behalf and for the benefit of the John McEwen estate ; and the only personal interest of Jane McEwen shewn therein was that her name appeared in it and purported to be signed, not by her, but "per Robert J. McEwen, her agent". It was the latter who verified the statement of affairs and who signed the statutory declaration before the Official Receiver.
The first duty of Jane McEwen as executrix of the estate of her deceased husband was to administer properly the estate and to apply the assets in reduction of the debts before any conveyance to a beneficiary. I need not here discuss the point whether, when attempting to transfer the land to herself, she committed a breach of trust, and, notwithstanding such transfer, she should be treated as a trustee for the creditors of the John McEwen's estate. It is sufficient to state that the security given by John McEwen for the respondent's loan could not be released, reduced or affected, so long as the liability of the estate existed, by means of a proposal made and filed by Jane McEwen personally.
Under the circumstances, the Board of Review had no jurisdiction to deal with the respondent's mortgage debt. More particularly, it had no authority to reduce the rate of interest on that mortgage; and the Board of Review could not, consistently with the provisions of The Farmers' Creditors Arrangement Act, deal with her request, or formulate a proposal, in complete disregard of the position and interest of the respondent.
It need not be said that, so that the Act may be validly invoked, it is not sufficient that there should be a debt; it is necessary that the applicant farmer should be the debtor of such a debt. Here, there was undoubtedly a debt, but the applicant for relief was not the debtor. The debtor was the John McEwen estate, which refrained from making an application, although it might have done so after the amending legislation of 1938.
On behalf of the appellants, it was argued that another amendment introduced by that legislation (1938), and to which reference has not yet been made, has had the effect of doing away with the necessity of some privity of contract between the applicant for a proposal and the creditor.
Up till then, the Court of Appeal for Ontario, in Gofton v. Shantz[3] and in Nesbitt v. Hogg[4] had held that the Act did not apply where the relation of debtor and creditor did not exist, as here. It was claimed, however, by the appellants that sec. 2(d) of the Act, as amended by ch. 47 of the statutes of 1938, conferred jurisdiction upon the Board in this instance.
The subsection just referred to provides:
(d) "Creditor" includes a secured creditor and, notwithstanding the absence of privity of contract between the debtor and any of the persons hereinafter mentioned, a person holding a mortgage, hypothec, pledge, charge, lien or privilege on or against the property of the debtor or any part thereof and, in case the debtor holds real property under an agreement of sale or under an assignment of an agreement of sale, the vendor of such property or any person entitled under an assignment by such vendor.
I do not think this new section helps the appellants.
The object of the amended definition appears to have been to enlarge the class of "creditors"; but it does not alter the status of the "debtor". This was pointed out by Masten, J. A., in Swaffield v. Baycroft[5]. In that case, neither the holder of the mortgage, nor the owner of the land, was an original party to the mortgage; but the owner of the land had by an extension agreement specifically covenanted to pay the debt. Having become a "debtor", he would have come within the purview of the Act but for the fact that the extension agreement was entered into after May 1st, 1935, and that, by force of sec. 19, the Act "does not, without the consent of the creditor, apply in the case of any debt incurred after" that date.
Masten J.A., in my view, properly set forth the limits of the new definition:
But there is nothing in the Act of 1938 which brings the situation within the principal Act if the farmer who is in possession does not owe the debt secured by the mortgage. By the statute of 1938 a limitation on this right additional to that created by the original Act is imposed on the holder for the time being of a security against the farm of the debtor; that is all. The rights and liabilities of the debtor are not referred to in the Act of 1938, and, in my view, are not affected.
***
And I should only add that, in my view, it is impossible to conceive that the statutory alteration in the definition of "creditor" carries with it by implication a corresponding alteration in the common law meaning of "debtor". That would, in my view, be legislation by the Court.
Independently of the language of section 2(d), which does not purport to enlarge the class of "debtors," it should be noticed that the new definition therein contained still requires, notwithstanding the absence of privity of contract between the applicant and the "person holding a mortgage, hypothec, pledge, charge, lien or privilege," that the mortgage or hypothec, etc., must be a mortgage or hypothec "on or against the property of the debtor or any part thereof." This requirement would make it impossible to include Jane McEwen within the meaning of the definition, as, at the time of the proposal, she was not the owner of the property mortgaged.
The reasoning of Masten J.A. is further strengthened by reference to the other sections of the Act, which assume throughout that the applicant must also be the debtor. An example of this may be found in sec. 11 (1), whereby
on the filing with the Official Receiver of a proposal, no creditor * * * shall have any remedy against the property or person of the debtor, or shall commence or continue any proceeding under the Bankruptcy Act, or any action, execution, or other proceeding for the recovery of a debt provable in bankruptcy * * * unless with leave of the court and on such terms as the court may impose.
There can be no debt "provable in bankruptcy" unless the applicant for the proposal is the debtor of the "creditor, whether secured or unsecured."
I fail to see how the respondent could validly be brought in a scheme of arrangement with Jane McEwen, who was not its personal debtor and who did not own the land upon which it held its mortgage. Jane McEwen was in no way the "debtor" of the respondent within the requirements of the Act, even after the introduction of the amendment of 1938 to section 2 (d).
And section 19 of the Act does not improve the appellants' situation. It has already been referred to. It enacts that the
Act shall not, without the concurrence of the creditor, apply in the case of any debt incurred after the first day of May, 1935.
The appellants rely on that section and claim that, as the mortgage debt was incurred by John McEwen on September 29th, 1919, and as John McEwen died August 26th, 1924, the Act applies to the debt so incurred.
I do not overlook the respondent's contention that it cannot be so, since the will of John McEwen was probated only on August 13th, 1935, the transfer of the land to Jane McEwen made by her as personal representative to herself in personal capacity took place only on October 20th, 1936, and that, moreover, such a transfer was, in effect, a breach of trust which must be held ineffective, in so far as it may affect the interests and rights of the respondent. But it is sufficient to say that sec. 19 can have no other meaning than that the first day of May, 1935, therein mentioned, is referable and can be referable only to the date when the debt was incurred by the applicant farmer himself. The whole Act deals with the liabilities of the farmer who files a proposal with the Official Receiver and his "present and prospective capability * * * to perform the obligations prescribed", as well as "the productive value of his farm." The "composition, extension of time, or scheme of arrangement" for which he is authorized to file a proposal, or the Board of Review may formulate a proposal, concern only the applicant farmer, whom the Dominion Parliament has declared essential, in the interest of the country, to retain on the land as an efficient producer (See preamble of the Act). It follows that "the debt incurred", referred to in sec. 19, is necessarily the debt personally incurred by the applicant and does not concern a debt which, though at present owing by the applicant farmer, towards the creditor, was incurred by a previous debtor (who may not have been a farmer) and at a date prior to the first day of May, 1935, as is the case here.
As a consequence of the foregoing, the point raised by the respondent that if the Act, and more particularly sec. 2 (d), should be construed otherwise than was contended by it, the Act would be unconstitutional, need not be considered.
On that point, we have heard argument on behalf of the Attorney-General of Canada; and it is sufficient to say that as, in my view, the Act and the amendments of 1938 ought to be construed as submitted by the respondent, the latter has no interest to raise the question of constitutionality and it need not be gone into in the present case.
But the fact remains that the respondent has succeeded to establish that the Act did not apply to Jane McEwen at the time when she filed her proposal, or at the time when the Board of Review pretended to formulate or to confirm a proposal in respect of her liabilities; and that, accordingly these proposals were made without authority and jurisdiction and they were invalid, as held by the majority of the Court of Appeal of Manitoba. There remains to discuss whether, as contended by the ap