Dominion Salvage and Wrecking Co. v. The Attorney General of Canada

Dominion Salvage and Wrecking Co. v. The Attorney General of Canada
Collection
Supreme Court Judgments
Date
1892-06-28
Report
(1892) 21 SCR 72
Judges
Ritchie, William Johnstone; Strong, Samuel Henry; Taschereau, Henri-Elzéar; Patterson, Christopher Salmon; Gwynne, John Wellington
On appeal from
Quebec
Subjects
Commercial law
Decision Content
Supreme Court of Canada
Leggatt v. Attorney General of Canada, (1892) 21 SCR 72
Date: 1892-06-28
DOMINION SALVAGE & WRECKING COMPANY (LIMITED) (DEFENDANT) AND MATTHEW LEGGATT (INTERVENANT IN THE SUPERIOR COURT)
Appellant;
And
THE ATTORNEY- GENERAL OF CANADA (PLAINTIFF)
Respondent.
1892: Mar 7: 1892: Mar 8; 1892: Mar 9; 1892: June 28
Present:—Sir W. J. Ritchie C.J., and Strong, Taschereau, Gwynne and Patterson JJ.
ON APPEAL FROM THE COURT OF QUEEN'S BENCH FOR LOWER CANADA (APPEAL SIDE).
Public Company—Act of incorporation—Forfeiture of—44 Vic. c. 61 (D.)— Attorney-General of Canada—Information—~R.S.G, c. 21 s. 4—Scire Facias—Form of proceeding—Arts.'997 et seq. C.C.P.—subscription to capital stock—Condition precedent.
The appellant company by its act of incorporation 44 Vie. c. 61 (D.) was authorized to carry on business provided $100,000 of its capital stock were subscribed for. and thirty per cent paid thereon within six months after the passing of the act, and the Attorney -General of Canada having been informed that only $605000 had been bond fide subscribed prior to the commencing of the operations of the company the balance having been subscribed for by G. in trust, who subsequently surrendered a portion of it to the company, and that the thirty per cent had not been truly and in . fact paid thereon, sought at the instance of a relator by proceedings in the Superior Court for Lower Canada to have the company's charter set aside and declared forfeited.
Held, affirming the judgment of the court below:
1. That this being a Dominion statutory charter proceedings to set it aside were properly taken by the Attorney-General of Canada.
2. That such proceedings taken by the Attorney-General of Canada under arts. 997 et seq. C. C. P. if in the form authorized by those articles are sufficient and valid though erroneously designated in the pleadings as a scire facias.
3. That the bond fide subscription of $100 000 within six months from the date of the passing of the act of incorporation, and the payment of the 30 per cent thereon, were conditions precedent to the legal organization of the company with power to carry on business and as these conditions had not been bond fide and in fact complied with within such six months the Attorney-General of Canada was entitled to have the company's charter declared forfeited. Gwynne J. dissenting.
Appeal from a judgment of the Court of Queen's . Bench for Lower Canada (appeal side) reversing a judgment of the Superior Court and declaring forfeited the charter of the Dominion Salvage and Wrecking Company, one of the present appellants.
This was a proceeding in the name of the Attorney-General at the instance of John McDougall, the relator, under arts. 997 et seq. of the Civil Code of Procedure, to set aside and declare forfeited the charter of the Dominion Salvage and Wrecking Company created a corporation by the Dominion Statue 44 Vic. cap. 61. The grounds of complaint were that the company did not in organizing conform to the conditions of their charter which required a bond fide subscription of stock to the amount of $100,000 and a deposit of 30 per cent thereon in a chartered bank within six months after the passing of the act of incorporation before being able to call a meeting of shareholders for the election of directors, it being alleged that only $60,000 had been subscribed and that a fraudulent subscription of the additional $40000 had been made by one of the directors in trust, not for himself but actually for the company, with the understanding that he would not be called upon to pay it; and that the deposit of $30,000 in a chartered bank was not real but only simulated, being borrowed from the bank by three of the directors, and after the deposit was made and notified to the authorities at Ottawa, immediately withdrawn, which it was contended was a fraud on the public justifying the interference of the Attorney-General, and involving the forfeiture of the company's charter, the relator claiming that he Bud. others who had taken stock on the faith of a bond fide subscription of $100,000 being obtained were threatened to be sued and could not make their defence available until the charter should be declared null and forfeited.
The company pleaded:—
1st. By demurrer on the ground that if any such ' cause of complaint existed the prosecution should be by the Attorney-General of the province of Quebec, and not by the Attorney-General of the Dominion.
2nd. That all the proceedings had been in good faith and were valid. The relator had been a promoter of the company, took part in their proceedings and acquiesced therein. The business of the company was for a time prosperous, the relator made no objection to the proceedings for several years, nor until the company were unfortunate, and then, with others in like position, to avoid payment of their subscriptions. The company having become insolvent were put in liquidation and a liquidator appointed, and that the present suit could by reason thereof he of no utility.
3rd. That the Attorney-General had no right or quality to set aside a parliamentary charter.
Matthew Leggatt, one of the appellants, a shareholder, intervened, and he took the same grounds as the company had taken and concluded by praying that the charter should be sustained; that the action of the Attorney-General should be dismissed and the liquidator ordered to proceed with the liquidation.
The evidence as to the manner in which the $100,° 000 were subscribed, of which $40,000 were subscribed for by one Gregory in trust who subsequently transferred $35,000 of it as paid up stock to one Merritt after the six months had expired and surrendered the balance of $5000 to the company, and the device used to comply with the statutory condition of paying thirty per cent on the $100,000 of subscribed stock, is reviewed at length in the judgments hereinafter given, and also in the report of the case of Brown v. The Dominion Salvage and Wrecking Co. ([1]).
Mr. Justice H. T. Taschereau, in the Superior Court, dismissed the plaintiffs' action and maintained the intervention. The Court of Queen's Bench for Lower Canada (appeal side), reversed the judgment 01 the court below, and declared the company's charter forfeited.
Before the institution of this suit proceedings were taken to wind up the company. The proceedings to wind up were dated 6th June, 1884. The proceedings to annul the act of incorporation at the instance of the Attorney-General were commenced on the 17th June following. On 20th June, 1884, the winding-up order was made.
Christopher Robinson Q.C. and Goldstein for the appellant company.
An act of the parliament of Canada cannot be declared forfeited, annulled, set aside or repealed except by the same parliament which passed it, and the Attorney-General had no right or quality to take the action in question. Grant on Corporations ([2]); Lindley on Partnership ([3]); Stephens on Joint Stock Companies ([4]); Beach on Corporations ([5]); Morawetz on Corporations ([6]); Canada Car and Manufacturing Co. v. Harris ([7]).
With reference to the nature of the present action and proceedings instituted against the company, the petition of John McDougall prayed for the issue of writ of scire facias The fiat of the Attorney-General granted permission to issue a scire facias. The order of the judge was to like effect, the writ is specially termed a scire facias and the conclusions of the declaration pray for the issue of a writ of scire facias. Proceedings concerning suits by scire facias are governed by' arts. 1034 and 1035 of the Code of Civil procedure, and it is the only remedy by scire facias provided by the laws of the province of Quebec, but it will be seen that they only, apply to letters patent, We also submit it is the only case in which scire facias is applicable at common law. Stephen's Commentaries ([8]); Chitty on Prerogatives of the Crown ([9]); Grant on (corporations ([10]). .
This company was incorporated by special act of the parliament of Canada, consequently these provisions of the Code of Procedure are not applicable.
At the argument in the court below the respondent contended that the proceedings were brought under art. 997 et seq. of the Code of Procedure, referring to corporations illegally formed or exceeding their powers. it is questionable whether these articles can be enforced by any officer other than the Attorney-General of Quebec as they are local provisions, but it is clear that the action has not been entered in virtue of these articles, their special provisions not having been complied with, nor can they be interpreted to apply to the annulling of an act of parliament. We have been unable to find any precedent applicable to this case, in the case of Sarazin v. La Banque de St. Hyacinthe ([11]) where the Attorney-General refused to issue his flat. See also Angell & Ames on Corporations ([12]).
But admitting the right exists our next point is that the respondent has wholly failed to establish any such irregularity or violation of the act incorporating the appellant company which would justify a declaration of forfeiture.
The courts do not favour forfeiture and a reasonable and substantial performance of the conditions is all that is required to defeat a claim of forfeiture. Field, ultra vires ([13]); Abbott Digest of Corporation Law Supp. ([14]); Harris v. Mississippi Valley Railroad Go. ([15]); Morawetz on Corporations ([16]); Boone on Corporations' ([17]); McDougall v. Jersey Imperial Hotel Co. ([18]); Cook on Stock Holders ([19]); in re Scottish Petroleum Company ([20]); The Sanitary Commissioners of Gibraltar v. Orfila ([21]).
Then again these proceedings could not he taken after the presenting of a petition for a winding-up order.
D. MACMASTER Q.C. for the intervenant-—appellant, followed.
To admit the remedy by scire facias against a corporation created by act of parliament is to admit that in the Crown lies the right to attack, cancel and repeal an existence created by parliament.
The writ in the present case is a scire facias. But scire facias cannot lie against a company incorporated by act of parliament. The plaintiff cannot elude this issue, as he has. sought to do by means of the contention that it is a proceeding under art. 997 C.C..P.
Whatever may be the rights of the Attorney-General for the province of Quebec to proceed by special information under art. 997 C.C.P. it certainly seems established that the Attorney General of Canada has no right to proceed against this company by scire facias in the face of the fact that the provisions of our Code of Civil Procedure limit that remedy to the cancellation of letters patent. It is for him to show the extraordinary right at common law to take any such proceeding's.
When we find that no such proceeding has ever been taken in England against a corporation created by act of parliament the claim to any such extraordinary common law right disappears.
Nor is this a mere matter of form. In addition to the guarantee which the attacked corporation has, under procedure by information, of having the party who put the Attorney-General in motion joined in the proceedings as a relator, and to the further fact that the right to proceed by special information belongs not to the Attorney-General for the Dominion but to the Attorney-General for the province, it must he remembered that a writ of fscire acias is a Crown writ, issuing not by permission of the legislature but as a part of the royal prerogative.
On the merits we submit that no forfeiture has taken place. By the 7th section of the act of incorporation the provisions of the Canada Joint Stock Companies' Clauses Act, 1869, are made to apply to the company so far as they are not inconsistent with the provisions of this act.
Section 12 of this act, is in pari materiâ with section 5 of the act of incorporation, and all their provisions according to the general rules of statutory interpretation should be construed together. Wilberforce on Statute Law ([22]) If so it must be concluded that the provisions as to subscription and payment are merely directory.
Section 5 contains nothing to indicate that non-observance of its terms involves the nullity of the incorporation. On the contrary section one unconditionally constitutes the persons therein named a corporation.
The learned counsel then reviewed the evidence and contended that the conditions precedent had been com-plied with, and that the relief sought by McDougall, the relator, was barred by gross laches in prosecuting his claim, and by acquiescence in the transactions now impugned, by him.
S. H. Blake Q.C. and G. Lajoie for respondent.
As to the status of the Attorney-General of Canada we contend that the law which respondent seeks to enforce is a Dominion law; the charter which it is sought to have declared forfeited a Dominion charter and the proper officer to enforce the same is the Attorney-General for the Dominion ([23]), and once the Attorney-General grants the use of his name, the courts cannot look at the interests of the relator in the proceedings but must decide whether there has been a good use or an abuse of the charter. Com. Dig. on Forfeiture ([24]); Hamilton Road Co. v. Townsend ([25]).
Now is the action brought the proper proceeding in the present case? The plaintiff has taken his proceedings under article 997 and following articles of the Code of Civil Procedure. Those articles provide for the case where a corporation violates any of the provisions of the acts by which it is governed or becomes liable to a forfeiture of its misfits and enact that it is the duty of the Attorney-General to prosecute such violations of the law. Whenever any corporation has forfeited its rights, privileges and franchise the judgment declares it to be dissolved and to be deprived of its rights.
The formalities imposed by the Code of Civil Procedure have been substantially complied with, and if anything were wanting in this respect the appellants, not having filed an exception to the form of the respondent's procedure, are now too late to take advantage of any informality. The declaration annexed to the writ declares facts sufficient in law to justify the forfeiture of the charter. The fact that the writ is called a writ of scire facias, even if this appellation were improper would not nullity the procedure. It is a well established rule of procedure that a wrong name given to a writ or other procedure will not alone have the effect of voiding it. Bourgoin v. Montreal Northern Golonization Railway Co. ([26]).
The writ issued under articles 997 and following is in the nature of a writ of scire facias; it seeks to have the charter of the offending corporation declared forfeited and the corporation deprived of its rights. Under the common law of England such a writ undoubtedly exists under the name of scire facias to cancel the charters of companies incorporated by letters patent but it may be questioned whether the same remedy could be applied in England in the case of companies incorporated by act of parliament. However this may be in England, in the province of Quebec the Attorney-General has the right to ask that the charter of a company incorporated by act of parliament be declared forfeited; and those proceedings being of the same nature as those taken to have letters patent cancelled, it does not seem proper to style the writ one of scire facias. Moreover articles 997 and following are general and include corporations created by act of parliament. It cannot be contended that they only apply to corporations created by letters patent, there being special provisions for the charter of those corporations under articles 1034 and following articles in the same code. The learned counsel then contended on the evidence that the conditions imposed by the charter had not "been complied with, and that the respondent was entitled to a judgment declaring the charter set aside; and cited and relied on Endlich on Interpretation of Statutes ([27]);Maxwell on Statutes ([28]); Morawetz on Corporations ([29]); Angell and Ames on Corporations ([30]); Cass v. Ottawa Agricultural Co. ([31]); The Eastern Archipelago Co. v. The Queen ([32]).
As to the proceedings taken to wind up the company they cannot affect the right of the Crown. Banque Hochelaga v. Murray ([33]); Brice ultra vires ([34]).
The judgment of the majority of the court was delivered by
TASCHEREAU J. The controversy in this case arose before the Superior Court in Montreal, upon proceeding's taken by the Attorney-General of Canada under arts 997 et seq of the Code of Procedure to have the appellants' charter declared forfeited. The information dated the 17th June, 1884, alleges in substance::
That the appellant, the Dominion Salvage Company, was incorporated by act of parliament, 44 Vic. ch. 61, with a capital of $300,000.
That certain provisional directors were appointed by the act to collect subscriptions and organize the company.
That the act provided that as soon as one hundred thousand dollars should have been subscribed and thirty per cent paid thereon, a meeting of shareholders might take place for the election of directors. That it was also provided that the subscription and deposit in question should be made within six months from the passing of the act
That the act was assented to on the 21st March 1881.
That there was not a duly bone tide subscribed capital of one hundred thousand dollars, nor a deposit as required within the six months.
That only $60,000 had been subscribed within that time, and nothing paid thereon.
That certain provisional directors then caused a fraudulent subscription of $40,000 to be made by S. E. Gregory, a man without sufficient means.
That this subscription was not a bond fide subscription and was made in trust for the company.
That a fraud was thus perpetrated upon the public and upon the bond fide subscribers of the company.
That it is the duty of the Attorney-General to protect the public against such frauds.
And the prayer is to the effect that a writ of scire facias issue and that the court declare the charter of the company forfeited, null and void.
The point has been taken in limine by the appellants that no writ of scire tacias lies to annul a charter granted by act of parliament. But it is not necessary here to consider that question.
The articles of the Code of Procedure under which the Attorney-General took out these proceedings apply by their very terms to all corporations whatsoever, and the fact that he has erroneously called a scire facias what is strictly not a scire facias, or might have called a quo warranto what is not a quo warranto does not invalidate them. The conclusions he takes are those authorized by the code and that is sufficient. Coté v. Morgan ([35]). In the Attorney:-General v The Colonial Building Association ([36]) the charter sought to be annulled, under the same articles of the code, was also a parliamentary charter, yet it was never doubted in the Privy Council, that the Attorney-General had a right to proceed as he had done.
The appellants' other contention that the Attorney-General for the province of Quebec would alone have had the power, in 1884, under the code as it then stood, of taking out such proceedings is also unfounded. By the Revised Statutes of Canada oh. 21 sec. 4 it is enacted that:
The duties of the Attorney-General of Canada shall be as follows:
He shall be entrusted with the duties which belong to the office of the Attorney-General of England by law or usage so far as the same powers and duties are applicable to Canada, and also with the powers and duties which by the laws of the several provinces belonged to the office of Attorney-General of each province up to the time when the British North America Act, 1867, came into effect, and which laws, under the provisions of the said act are to be administered and carried into effect by the Government of Canada ([37]).
It seems to me unquestionable, as held by all the judges in the two courts below, that the Attorney-General of the Dominion has the right to impeach the legality or ask the forfeiture of a Dominion statutory charter. Whether, and in what cases, the Attorney-General for the province could also exercise that right we have not here to consider.
Now as to the merits of the case. The clause of the company's charter upon which the information is based is as follows: —
When and so soon as one hundred thousand dollars of the said capital stock shall have been subscribed as aforesaid, and thirty per cent thereon shall have been paid in to some chartered bank to the credit of the company, such subscription and payment being made within six months after the passing of this act, the said provisional directors may call a general meeting of shareholders, at some place to be named in the city of Montreal, giving at least fifteen days continuous notice thereof in two daily newspapers published in the said city, at which general meeting the shareholders present in person or represented by proxy shall elect seven directors in the manner and qualified as hereinafter provided who shall constitute a board of directors, and shall hold office as hereinafter provided; provided always, that no person shall be eligible to be or continue a director unless he shall hold in his own name and for his own use at least ten shares of the capital stock of the company, and shall have paid all calls thereon, and all liabilities incurred by him to the company; and the shareholders shall have power to increase the number of directors at any general meeting to any number not exceeding nine, or to reduce them to any number not less than five.
It seems to me plain that, under this clause, the company could not be organized and carry on any business unless one hundred thousand dollars were subscribed within six months and thirty per cent thereon paid into some bank, also within the same time. That was a condition subsequent to the incorporation itself; it could not but be so; but it was a condition precedent to the organization of the company, required for the protection of the public and, as such, imperative, and not merely directory.
The provisional directors having failed to get the $1000000 subscribed and the thirty per cent paid in within the six months their powers had lapsed; the provisional incorporation was gone, the conditional charter was effete. By the express terms of section 4 of the act they were appointed for the purpose of organizing, the company, and for that purpose only. The appellants would expunge from the statute the words "such subscription and payment being made within six months " But that cannot be done. Such a construction would have given an unlimited time to organize the company. That was clearly not the intention of the statute.
Statutes creating corporations and granting them powers and privileges, subject to compliance with certain regulations or conditions, are to be construed strictly. The regulative provisions which are imposed in the exercise of the corporate powers for the protection of the public are essential and must be strictly submitted to. There were here those two principal conditions; $1000000 subscribed for within six months, and a deposit thereon of $30,000 within six months.
Now it is in evidence that $60500 only of bond fide subscriptions were taken in during the six months. When the delay was on the point of expiring some of the provisional directors, acting for the company, resorted to the following device to save the charter. They induced one Gregory a man altogether without means, who had already held one thousand dollars of stock to subscribe forty thousand dollars more, in trust for the company, upon the understanding that he would never be called upon to pay anything on that subscription.
This subscription was clearly made for the purpose of saving the charter by a sham compliance with the statutory conditions. Herriman himself, the president, refuses to swear that it was a bonâ fide subscription, It was nothing else but a clumys evasion of the statute.
Some of the witnesses say that this stock was to be subscribed afterwards and Gregory relieved of his shares others and this is the contention of the appellants that these shares were to be applied in part payment of two certain wrecking steamers concerning the purchase of which negotiations were then pending with one Merritt, but which the provisional directors had not the right to conclude. However, it appears from the evidence that only one of these steamers was bought, more than six months later, under terms and conditions totally different from those proposed in September, 1881, and under an entirely new agreement. But this is quite immaterial and could not in any case validate Gregory's subscription.
Of the $40,000 in question it seems that $35,000 were transferred as paid up stock to Merritt in May 1882, and that the remaining $5000 were surrendered to the company.
This subscription was clearly fraudulent, made only for the purpose of misleading the public and those "who had then subscribed upon the faith of the requirements of the charter. In fact it was not a subscription within the six months at all but the simulation of one only. These original subscribers had the right to rely upon the fact that the organization of the company would be made regularly according to its charter and that the conditions concerning the amount of the subscriptions and the deposit would be complied with. It was an implied condition of their contract with the company that if the necessary subscriptions and payment could not be got there was to be no company at all to carry on the business contemplated, as it was also under the implied condition that the company was lawfully organized that the subsequent subscribers consented to Joint it Great care was taken to conceal the circumstances of that Gregory subscription from coming to the knowledge of the directors in good faith of the company. It bears date the 25th August 1881 and had been made with the approbation of Herriman and Henshaw; The latter were present at a meeting of the board of directors held on the 9th of September 1881. Brown Alfred Masson and R. Cowans three of the Montreal promoters were also there. A letter from Gregory was read, dated 25th August, in which he said that he presumed by this time the required amount had been subscribed in Ontario. Not one word from him in that letter of his subscription of forty thousand dollars made on that same date, nor from Herriman and Henshaw, who nevertheless knew all the circumstances.
Brown suggested that the secretary should write to Gregory, the future assistant manager of the company, in order to ascertain if really all the required subscriptions had been obtained and praying him to send the names and the amount of each subscription.
At the following meeting of the board of directors, held on the 18th September, no report had been received from Gregory and the conversation turned upon the necessity in which the company was to find subscriptions in order to avoid the loss of the charter. The delay was to expire on the twenty-first of that month.
Brown then notified the secretary that, in view of the non-fulfilment of the conditions of the charter within the required delay, he retired from the company and did not consider it regularly organized. .The other promoters from Montreal did the same.
That there has been fraud, fraud against the law, cannot be denied. It is contended by appellants that the fraud was between a certain number of the directors only, and not by the shareholders of the company, and that Gregory's subscription was legal. Assuming, with the appellants, that Gregory would have been bound towards the other shareholders to pay the subscription in question, and could not have invoked the circumstances above related to escape liability, though that is to my mind very doubtful, it seems to me unquestionable that the company itself could not have claimed anything from him under the circumstances.
At all events, towards the promoters in good faith of the company, and the subsequent subscribers, this subscription was deceitful.
By accepting under these circumstances for such a large amount, the subscriptions of a man without means, even if it had not been in trust for the company, the provisional directors have not acted in conformity with the charter.
It is necessary that the required amount of capital be subscribed by persons apparently able to pay the assessments which may be made upon their shares. Fictitious subscriptions, or subscriptions made by persons unable to contribute their proportion of the capital, do not satisfy the requirements that the whole capital of a corporation shall be subscribed before it's members can be assessed.
Says Morawetz on Private Corporations ([38]),
But the fraudulent organization of the company is made still more apparent by the contrivance which was resorted to in order to simulate a deposit of thirty per cent upon the capital subscriber. Not a dollar had been paid by the subscribers though they had bound themselves to pay thirty per cent on demand. In order again to save the charter, Herriman, Henshaw and Harvey three of the directors, entered into the following agreement with Nash, the manager of the Union Bank of Montreal. Two of them Herriman and Henshaw, made their promissory note on the 20th of September, the day before the expiration of the six months, for thirty thousand dollars, in favour of Nash, in his capacity of manager, said note payable on demand.
This note was then discounted for form's sake and a deposit entry dated the same day of thirty thousand dollars was made to the credit of Herriman Henshaw and Harvey in trust for the company with the under-standing that the funds should not be withdrawn.
A certificate of this entry was thereupon given by Nash to Herriman and Henshaw who sent the same to the Government. Then on the 23rd, two days after, they gave their cheque to Nash for that same amount of thirty thousand dollars, and the entry to the credit of Herriman Henshaw and Harvey was thereupon can- celled by the entry of the cheque to their debi t So little importance was attached to the transaction by Herriman and Henshaw that they even forgot to get their note returned. It remained in the bank and was produced at the trial by the manager, in 1888.
It is contended by the appellants that the thirty per cent need not necessarily have been paid by the shareholders upon the amount subscribed, and that the company could borrow the amount for that purpose. The words "thirty per cent thereon" they say, in section 8 of their charter, do not mean "thirty per cent thereof." But that contention is untenable. It was thirty thousand of the one hundred thousand dollars subscribed that must have been paid in within the six months.
The French version of the statute says:
Lorsque et aussitôt que $100,000 du fonds social auront été sons-crites, et qu'il en aura été versé trente pour cent.
"of which 30 per cent shall have been paid." That-makes it still clearer, if possible to make it clearer that 30 per cent thereon in the English version means 80 per cent thereof. The appellants would contend forsooth that a liability for that amount of $80,000 was a compliance with the statute. That is a proposition that a court of justice will not sanction. The case of The Eastern Archipelago Company v. The Queen, in the Exchequer Chamber ([39]) is directly in point. There, a charter incorporating a trading company directed that the sum of £ 100,000 (one hundred thousand pounds) at the least should be subscribed for within twelve calendar months from the date of the charter; that the sum of fifty thousand pounds (£50,000), at the least, should be paid up within such period; and that the said corporation should not begin business until a certificate of such subscription and payment had been given to the President of the Board of Trade. The company had commenced business before the required amount had been paid upon a certificate falsely stating that it had been paid. The court, affirming the judgment of the Court of Queen's Bench ([40]), declared the charter forfeited for a breach of the conditions and a misuser of the franchise
Creswell J. said:
Of these directions, (which in this charter must be treated as conditions) some appear to have been framed with the object of protecting the shareholders, others for the protection of the public. The clause prohibiting the commencement of business until capital to a certain amount had been paid up is of the latter description, and extremely necessary for that purpose inasmuch as the creditors of this incorporated partnership would have no remedy against the members but against the corporate property only. If then the corporation, under colour of their charter, began to trade before they were authorized so to do it was an abuse of their charter which worked a forfeiture, and rendered them liable to have it cancelled by means of a scire facias. And this is a matter in which the subject is interested; the abuse of the franchise is to his prejudice; and he, ex debito justitice. is entitled to a scire facias to procure the cancellation of it. Every franchise granted by the Crown is subject to the implied condition, that it shall he used according to the grant; and if it be used otherwise the franchise is forfeited. Here the franchise of being a corporation, and trading as a corporation was to be exercised when a capital of ₤50,000 had been paid up; without any express condition this would have been subject to an implied condition that they should not trade otherwise; and their trading as a corporation, when not authorized to do so, would be an abuse of their charter.
In a case from Ontario, Niagara Falls Road Co. v. Benson ([41]) where, as here, the directors had evaded the prepayment required of a part of the capital by the discounting of notes, Robinson C.J. for the court said:
We consider that it is only when these conditions have been truly and it fact complied with, that the persons associated can become incorporated, and that their setting up a delusive appearance only of their having been complied with will avail nothing, because fraud vitiates everything. They had no right to assume those powers till six per cent had been paid up, for, in that case, the public would have no security that the whole was not a scheme of adventurers possessing no real capital.
Upon these considerations there is, in my opinion, no error in the judgment of the Court of Appeal which granted the Attorney-General's conclusions, and declared this charter forfeited
I can see nothing in the contention that this company, being now in liquidation under a winding-up order, the Attorney-General is thereby debarred from asking the forfeiture of its charter. The winding-up order itself, it is to be noticed, was subsequent to the service of the information, and its legality is in many respects doubtful. Imperial Anglo-German Bank ([42]). Then in La Banque de Hochelaga v. Murray ([43]), though the company whose charter was impeached was in liquidation under a winding-up order anterior to the Attorney-General’s information, yet the Privy Council granted its conclusions.
As to Leggatt's intervention it was rightly dismissed. His allegations are no answer to the Attorney-General's information. No ratification, waiver or acquiescence by any of the shareholders can validate, as against the crown, what is void, or he invoked against nullities of public order, or abuses of franchise to hinder or defeat such an action by the Attorney-General taken in the public interest. Compare Ashbury Railway Go. v. Riche ([44]); Coppell. Hall ([45]). The Attorney-General, in such proceedings under the code, whether he requires security to be given or not by the party applying for his fiat, is the plaintiff acting in lieu of the crown, and the only plaintiff. It is wholly immaterial whether such proceedings have been taken with or without a relator. The assent of the Attorney-General to the prosecution, in his name, by a private prosecutor is of the same effect as if he had. himself on behalf of the crown, initiated the proceedings. Per Ld. Campbell, C.J., and Wightman J in The Queen v. Eastern Archipelago Co. ([46]). I refer also to Attorney. General v. Mayor of Galway ([47]); Attorney-General v. The Iron Mongers Co- ([48]) Attorney-General v. wright ([49]); Attorney-General v. Haberdashers Go. ([50]).
If he had the right, at the expiration of the six months to have this charter declared forfeited, as I think it clear he had, I do not see upon what grounds it can be contended that he has now lost that right. "With the consequences of such a forfeiture we have nothing to do. The court has not the power to inquire whether the Attorney-General has been well or ill advised in granting his fiat. Per Coleridge J. in The Queen v. Eastern Archipelago (1).
In view, however, of the assertion made by counsel at the bar that such contrivances, as have been proved to have been concocted in this case by the directors of this company to simulate a compliance with the conditions of their charter, are frequently resorted to, under similar circumstances, by those intrusted with the organization of similar companies, I deem it but right to say that, in my opinion, the Attorney-General, in duty bound as he is to check as much as it is in his power to do it such infractions of the laws of the country, could hardly have been expected, in the present instance to withhold his fiat. The beneficial effect of these proceedings upon those who may in the future assume such organizations cannot but prove to be a powerful protection to the public. And were it for that consideration alone his intervention in the matter was clearly in the public interest. When, in such cases, the promoters find it impossible to get the required amount subscribed and the de-posit made within the time allotted by their charter their only remedy, if they do not intend to desist from the undertaking", is to apply to the legislative authority for an extension of that time. In the grantor alone vests the power to modify, alter or enlarge the conditions of the grant.
I wish to add that when I used in the foregoing' remarks the words fraud" or " fraudulently, " I meant " fraud or fraudulently" against the law, in fraudem Iegis, as a well recognized expression in legal parlance, and not fraud with the intention to cheat. There is no evidence whatever, on the record, of such indention, or of wrongful motives, against any of the parties connected with this company.
I am of opinion that we should dismiss the appeal with costs distraits to Lacoste, Bisaillon, Brousseau and Lajoie jointly and severally against the appellants.
GWYNNE J.—On the 17th March, 1881, four days before the royal assent was given to the act of incorporation of the Dominion Salvage and Wrecking Company, a meeting of the gentlemen named in the act as provisional directors of the company was held in the city of Montreal, which meeting was presided over by Mr. Alfred Brown, one of such provisional directors, and was attended by seven others of such directors including Mr. S. E. Gregory. The bill of incorporation had then already passed both Houses of Parliament and awaited only the assent of the Governor-General to become law. -At this meeting a discussion took place as to the necessary vessels and plant which the company would require to enable them to commence operations and a stock subscription book was opened in which four of the provisional directors then present subscribed, for stock, which they agreed, to take to the amount of $25,000; and another of such stock subscription books was placed in the hands of Mr. S. E. Gregory, who undertook to get subscriptions therein in the province of Ontario. In the book subscribed by the four provisional directors Mr. McDougall, the relator in the present proceedings, on the 19th March, 1881, subscribed his name whereby he agreed to take $6,000 stock. On the 80th July, 1881, a Mr. Merritt, one of the provisional directors who resided at New York engaged in wrecking operations, addressed a letter to Mr. Henshaw at Montreal, who was acting as secretary of the provisional directors of whom he also was himself one wherein Mr. Marriott offered to furnish the company with steamers necessary for their operations as follows'.—
Steamer Rescue with wrecking material complete in good order and ready for sea. There pumps, two cables, two anchors, two sets of blocks and falls one hoister two surf boats, two boilers, one diving apparatus, and sundry tools for the sum of $40,000, $25,000 cash, $15000 stock. Steamer Relief same outfit as above mentioned for the sum of $50,000, $300000 cash, $20,000 in stock. Both steamers with outfits as above mentioned for the sum of $90,000, $50,000 cash, $40,000 stock.
If both these vessels should be purchased by the company on the above terms it will be seen that Mr. Merritt had undertaken to become a subscriber of stock to the amount of $40,000. On the 17th August, 1881, a meeting of the provisional directors was held at Montreal to consider the above proposition which was attended by the relator, McDougall, and it was resolved that two of the provisional directors, namely Captains Donnelly and Herriman:—
Should proceed to New York and examine thoroughly the vessels and their equipment and report back to a meeting to be called by the secretary pro tern, after receiving the report of the gentleman named.
Mr. Gregory attended this meeting, and upon the 25th August, 1881, entertaining a conviction that an arrangement would be arrived at by the company for the purchase of the vessels on the basis of Mr. Merritt's proposition, and after consultation with Mr. Herriman he signed the stock subscription book for $440,000 on trust," upon the understanding that the stock to be transferred to Mr. Merritt in the event of an arrangement being made with him for the purchase of his vessels or either of them should be taken from the stock so subscribed for by Mr. Gregory in trust. This transaction took place in the most perfect good faith and in the belief that it was quite regular and in point of fact the transaction, after continued negotiations carried on from the first offer in July 1880 was completed by an agreement dated the 21st day of March, 1882, whereby Mr. Merritt sold to the company the steamer Relief, together with all her machinery, tackle and apparel complete for $50,000, of which $25,000 should be accepted in paid up stock of the company, and which was transferred to him by Mr. Gregory out of the said $400000 subscribed by him in trust, and by the said agreement the said Merritt also sold extra plant to the company, at and for the further sum of $10,000 which he agreed to take also in paid up stock of the company, and which sum was also transferred to him by Mr. Gregory out of the said $40000 stock subscribed by him in trust. Now on the said 25th day of August, 1881, when Mr. Gregory signed the book for the said sum of $40,000 in trust there were actual subscriptions in the stock subscription books of the company to the further amount of $60,500. On the 2nd November, 1881, the provisional directors in the belief that the $40000 subscribed for in trust by Mr. Gregory was well subscribed so as to form part of the $1000000 required by the act to be subscribed before the company should commence operations, and that a note for $30,000 made by two of the provisional directors to the cashier of the Union Bank and deposited in that bank and discounted by that bank, and the amount deposited to the credit of the two upon the note and a third of said provisional directors “in trust" was a sufficient compliance with the act of incorporation, proceeded to organize the company by the election of directors. On that same day another of the provisional directors, Capt. Donnelly, signed the stock subscription book for $1,000. However irregular this proceeding was the evidence leaves no doubt, I think, that the parties thought all was right; and they were acting in the most perfect good faith and in accordance with a practice which appears to have been prevalent in Montreal and believed to be a compliance with the provisions of the act. From the nature of the operations contemplated by the act of incorporation it is apparent that wrecking operations were not intended by the company in November, 1881, to commence before the opening of navigation in the following spring and in the interim between the 2nd November, 1881, including Donnelly's subscription of that date and the 3rd May, 1882, when the company had acquired plant to enable them to commence operations, subscriptions were made in the stock subscription books to the further amount of $43,500, or including the paid up stock transferred to Merritt as part of the purchase money of the necessary plant purchased from him, about $140,000. Between the 3rd May, 1882 and 25th March, 1883 further stock was sub-scribed for to the amount of $5,500. Upon this capital the company have' been carrying on the operations for which they were incorporated until the month of May, 1884, when proceedings were taken against them under the Winding-up Act. Now of the stock so subscribed including the $35,000 transferred 'to Merritt for which the company received full value, $92,600 have been paid in full, leaving the only sum remaining unpaid, to be $52,400. It is under these circumstances, and while the company is in liquidation under the Winding-Up Act where the rights of all persons having a just claim to exemption from liability to contribute to payment of the debts incurred by the company during the two years that it was in actual operation can be protected, that we are asked to declare or to maintain an adjudication declaring that the company never had any legal existence, or that there was no legal sanction for any contract they may have entered into, or for any debt they may have incurred with persons dealing with them in the bonâ fide belief that they were a company having legal existence and subject in case of insolvency to the provisions of the Winding-Up Act.
There can be no doubt that immediately upon the passing of the act the company's corporate existence commenced, and there is nothing in the act which declares that it shall cease at the expiration of six months from the passing of the act unless the one hundred thousand dollars of capital stock mentioned in the 5th section shall have then been subscribed for in the books opened under the fourth section of the act
There is nothing in the act which, in my opinion, would. justify a court of justice in pronouncing a judgment that for such default the act becomes forfeited in a case where, subsequently to the six months and before the company commenced the operations for carrying on which they were incorporated, the necessary amount was subscribed and the company carried on the business for which they were incorporated without interruption for years in the course of which they incurred debts. Now in the present case the company having, although not within the six months but before entering upon the operations for which they were incorporated, obtained subscriptions in their stock subscription books mentioned in the fourth section to an amount in excess of one hundred thousand dollars of which more than $90,000 was paid in full, and having for two years actually carried on as a company the business for carrying on which they were incorporated, and having in the course of such business entered into contracts with divers persons by which they incurred debts which they have been unable to pay and for non-payment of which they have been put into liquidation under the Winding-up Act, a judgment now rendered to the effect that by reason of non-compliance with the provisions of the fifth section within six months from the passing, of the act the act of incorporation ceased to have any effect and became and is forfeited, cannot, in my opinion be maintained. Such a judgment would be fraught with such infinite mischief and such injustice to parties who (during the two years that the company did de facto carry on the operations for which they were incorporated) became creditors of the company in the bouâ tide belief that they had de jure the existence of which de facto they appeared to have, that in my opinion the appeal in this case should be allowed with costs and the relator at whose instance the present proceeding was instituted, and all parties interested, should be remitted to the proceedings in liquidation instituted under the Winding-up Act where the rights of all parties having a just claim to exemption from liability to contribute to the payment of the debts of the company can be protected. The present case is very different from that of La Banque d'Hochelaga v. Murray et al. ([51]). There letters patent issued under the great seal of the province of Quebec which had been obtained upon a false and fraudulent representation that the defendants and others had petitioned for the same, were for that reason declared to be fraudulent, null and void. The application in the present case is not to avoid letters patent as fraudulently obtained, but to declare an act of parliament, not to have been fraudulently obtained but to have lapsed and become forfeited for non-subscription within the limited period of six months from the passing" of the act of the amount required by the act to authorize the provisional directors to organize the company, and the proceeding is instituted upon the relation of and for the benefit of a gentleman, himself a provisional director and subscriber for stock in the books opened under authority of the act, and whose duty as such provisional director it was to prevent the organization of the company if the necessary amount had not been subscribed for, and the object of the proceeding is to relieve such relator from liability in the winding-up proceedings to payment upon the stock so subscribed for by him towards liquidation of debts due to divers persons who became creditors of the company in the bond fide belief that the company in which the relator was a subscriber for stock and of which he was a provisional director, was legally organized, thus doing injustice also to divers persons who, some before and some since the expiration of the six months, had become subscribers for stock and had paid up in full upon the faith of the relator's position as a subscriber for stock and a provisional director, and in the bond fide belief that the company was legally organised.
Appeal dismissed with costs.
Solicitors for appellant company : Carter & Goldstein.
Solicitors for intervenant : Macmaster & McGibbon.
Solicitors for respondent: Bisaillon Brosseau & Lajoie.
[1] 20 Rev. Leg. 557.
[2] P. 42 and note, and pp.
[3] 3 ed. vol. 1 p. 246.
[4] Pp. 374-391.
[5] Sees. 45-46. 307-8.
[6] Sees. 113, 402, 408.
[7] 24 U. C. C. P. 380.
[8] 10 ed. 3 vol. p. 700. 1 vol.
[9] P. 330.
[10] P. 42 and note p. 307. p. 625.
[11] 20 Rev. Ug. 580.
[12] 11 ed. sec. 83.
[13] P. 337.
[14] Forfeiture no. 2,
[15] 51 Miss. 602.
[16] Par. 1028.
[17] Pp. 292-3.
[18] 34 L. J. (N, S.) Eq . 28.
[19] Sec. 154.
[20] 23 Ch. D. 413.
[21] 15 App. Cas. 400.
[22] P. 260.
[23] R. S. C. ch. 21 sec. 4.
[24] P. 886.
[25] 13 Ont. App. R. 534.
[26] 19 L. C. Jur. 57.
[27] Nos. 354 355.
[28] Pp. 333, 334.
[29] 2 ed. par 140.
[30] No. 146.
[31] 22 Grant 512.
[32] 2 El. & B. 856.
[33] 15 App. Cas. 414.
[34] 2 ed. p. 907.
[35] 7 Can. S C.R. 1.
[36] 9 App. Cas. 157.
[37] See also secs. 129, 130, 135 British North America Act
[38] 2nd ed. par. 141,. 1023.
[39] 2 E & B. 856
[40] 1 E. &B. 310.
[41] 8 U.C.Q.B. 307.
[42] 25 L. T. 895 26 L.T. 229.
[43] 15 App. Cas. 414.
[44] L.R. 7 H.L. 653.
[45] 7 Wallace 542
[46] 1 E. &. B. 310.
[47] 1 Molloy 97.
[48] 2 Beav. 328.
[49] Beav.447.
[50] 15 Beav. 401.
[51] 15 App. Cas. 414.