Fullerton v. Crawford

Fullerton v. Crawford
Collection
Supreme Court Judgments
Date
1919-10-14
Report
(1919) 59 SCR 314
Judges
Davies, Louis Henry; Idington, John; Duff, Lyman Poore; Anglin, Francis Alexander; Brodeur, Louis-Philippe
On appeal from
Ontario
Subjects
Commercial law
Decision Content
Supreme Court of Canada
Fullerton v. Crawford, (1919) 59 S.C.R. 314
Date: 1919-10-14
James S. Fullerton and Others (Defendants) Appellants;
and
Annie Louise Crawford and Others (Plaintiffs) Respondents.
1919: May 28, 30; 1919 October 14.
Present: Sir Louis Davies C.J. and Idington, Duff, Anglin and Brodeur JJ.
ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF ONTARIO.
Company—Director—Secret profit—Ratification—Action by shareholder—Disqualification—Sale of company’s land—Director acting as broker—Commission—Statute—Application—“Companies Act” R.S.O. [1914] c. 178, s. 82.
A company formed to buy land for re-sale purchased a block on which W. held an option. W. made a profit of over $11,000 which he shared equally with F. and D. promoters and directors of the company who did not disclose the fact to the other members for several months.
Held, that F. and D. had received a secret profit to which the company was entitled.
The company passed a resolution purporting to refuse to allow its name to be used and C., a shareholder and former partner of F., brought action, on behalf of himself and all other shareholders except the defendants, to recover this secret profit for the company.
Held, that the capacity of a single shareholder, against the will of the majority, to assert the right of the company to this money is doubtful; Towers v. African Tug Co., ([1904] 1 Ch. 558) referred to; he must succeed on his own merits alone; and, Davies C.J. and Duff J. dissenting, as it was shewn that he was aware of the payment to F. and D. at an early date, and elected to treat F’s portion as an asset of the partnership between them by demanding his share of it he was disqualified from bringing the action in respect to these secret profits.
D., who was a land agent, sold the property purchased from W. at an advantageous price and was paid the usual broker’s commission. At a meeting of the shareholders a resolution was passed sanctioning this payment. C. claimed the return of this money also.
Held, that as D. did not receive the money in his capacity of director, sec. 92 of the Ontario “Companies Act” did not apply and a by-law authorizing the payment was not necessary. Held, also, that there was noting to prevent D. from serving the company as an employee and receiving proper remuneration therefor. In re Matthew Guy Carriage and Automobile Co. (26 Ont. L.R. 377; 4 D.L.R. 764), approved.
Per Davies C.J. and Duff J. The payment of the commission could only be legal if sanctioned by the shareholders. At the meeting when the resolution professing to sanction all the payments attacked was passed the capital of the company had been impaired by payment of a dividend without the funds sufficient therefor. The resolution, therefore, had no effect and the impugned transactions had no sanction. As to C’s right to bring the action it was not pleaded nor raised in the Courts below and cannot be questioned on this appeal.
Judgment of the Appellate Division (42 Ont. L.R. 256; 43 D.L.R. 98), affirming that at the trial (37 Ont. L.R. 611), reversed.
APPEAL from a decision of the Appellate Division of the Supreme Court of Ontario[1], affirming the judgment at the trial[2], in favour of the plaintiff.
The material facts and the questions raised for decision are sufficiently indicated in the above head-note.
Hugh J. Macdonald for the appellants, Fullerton and the Doran Estate, referred to In re Matthew Guy Carriage Co.[3]; Canada Bonded Attorney Co. v. Leonard-Parmiter Co.[4]; and Andreœ v. Zinc Mines of Great Britain[5].
Tilley K.C. and Urquhart for the appellants the other directors.
McMaster and J.H. Fraser for the respondent Crawford. Plaintiff had a right of action: Theatre Amusement Co. v. Stone[6].
As to delay see Hutton v. West Cork Ry. Co.[7]; DeBussche v. Alt[8], at page 315. THE CHIEF JUSTICE (dissenting).—I concur with Mr. Justice Duff.
IDINGTON J.—This suit is ostensibly concerned with the rights of a shareholder in a company to keep erring promoters and directors in the path of duty, but in truth is the outcome of an unsavoury squabble between two late partners in a law firm which had been solicitors for the company and could not, on a dissolution of their firm, settle their partnership accounts without adjusting the affairs of the company.
The appellant Fullerton, an elderly practitioner of law in Toronto, took, in January, 1912, as junior partner, one Crawford, a young man who professed to have some knowledge of company law, on the understanding that he was to bear the burden of the office work.
We are not very fully informed as to the exact details of their arrangements, but we are told that they were to divide the results of the office on the basis of five to Fullerton and three to Crawford “but each to have the liberty of having business in which” he might “have a personal interest done in the office without charge.”
Fullerton had a proposition made to him, by a client and personal friend named Wallace, to buy from one Bicknell a hundred and fifty-nine acres in the township of York at $725 an acre. An optional agreement was obtained by Wallace therefor, which was drawn in the said law office. To secure that, the selling agent, and one Doran, and Wallace, each contributed in nearly equal parts to. a deposit of $2,500 which Wallace as buyer was required to pay.
Having in view the ultimate purpose of forming a joint stock company to carry out the speculation, a syndicate agreement was drawn up in the office of Fullerton & Crawford whereby Fullerton was to buy from Wallace at $800 an acre the land which he had thus secured at $725 an acre.
This agreement purports to be made in duplicate, on the 4th March, 1913, between Wallace the vendor of the first part, and Fullerton as trustee thereinafter called the purchaser of the second part, and the subscribers whose names are signed, of the third part; and to provide that a syndicate is thereby formed with a capital of $75,000 divided into $100 shares to carry out said purchase by Fullerton. Doran was to be the manager of the syndicate; Fullerton to be treasurer; and it was declared to be the intention to organize a joint stock company in which each syndicate shareholder was to become a shareholder in proportion to the number of shares held by him in the syndicate.
The trustee Fullerton was then to convey the land to said company. The details were to be decided at any meeting of the syndicate.
Crawford subscribed said syndicate agreement for $5,000. An agreement of sale was entered into on same day for the sale by Wallace to Fullerton at the price of $800 an acre.
Inasmuch as Fullerton is described in both documents as a trustee I see no importance to be attached to this latter, save its being referred to in the syndicate agreement as definitely fixing the terms of purchase.
It was contended by Crawford in this suit, and by his personal representative in this appeal, that he was entitled, a year and seven months later, to bring an action against Fullerton and Doran to recover for the company which was duly formed as projected in said agreement, about six weeks later, the respective sums of $3,877.20, each which Wallace had paid each out of the profits he had thus made of $75 an acre. The learned trial judge and the Appellate Division upheld such contention.
I assume for argument’s sake that the company if suing might have recovered said profits.
Indeed, very early in the argument it was intimated by this court to the counsel for the representative of Crawford, that as to the said amount so received by Fullerton they might so assume also, and direct their attention to the claim made by the respondents, that Crawford had become disqualified and disentitled to bring such an action especially in face of the almost unanimous opposition of his fellow shareholders.
I have sought in vain for any decision in favour of a shareholder coming into court with so many impediments in his way, by reason of honest opposition on the part of his fellow shareholders to any assertion of such right as he claimed and with the evident disqualification attaching to him by reason of his knowledge of and acquiescence in the conduct of those accused until he had failed in an attempt to profit thereby and to extort by virtue thereof a share of such part as Fullerton had got.
The learned trial judge rejected another item of his claim which was to recover for the company moneys paid out by reason of the said payments impairing capital.
That claim was rejected, not because unfounded in law if made by the company or a proper party, but solely by reason of the plaintiff’s disqualifications resulting from his sharing in such illegal payments.
The same principle as thus acted upon and as applied in the case of Towers v. African Tug Co.[9], ought on the evidence of the plaintiff to be applied to the rest of the claims in question. Shortly after the events I have already related in regard to the origin of the claim for recovery of secret profits above referred to, the company became incorporated on the application by petition of Fullerton, Doran, Crawford and others who were named as provisional directors.
The papers connected with this application were all prepared by Crawford and he made the usual affidavit verifying the petition.
The papers already referred to, and those others to found this proceeding upon had been all kept in the office vault of Fullerton & Crawford and along therewith the agreement between Wallace and Bicknell which Crawford admitted seeing and handling.
The interest of Crawford evidenced by his subscribing one-fifteenth part of the whole proposed capital in the syndicate, coupled with opportunity and duty alike to know should have led any intelligent man to learn by the time incorporation was completed the fact that there was a profit going to Wallace.
We are not left to rest on these circumstances alone for Crawford in his evidence spoke of the relations between Wallace and Fullerton, as follows:—
Q.—After the 4th of March—prior to that have you any recollection of any conversation with either Doran or Fullerton? A.—Yes, some time prior to that, I think it was before the 4th of March, Mr. Fullerton told me that he was taking this deal in Wallace’s name because he did not want himself to go on any covenant.
Q.—Then he was taking this deal in Wallace’s name as he did not want to go on any covenants—is that the first statement that you recollect as having been made by any person about this matter? A.—So far as I know it is, although I know that I had a number of office conversations with him.
Q.—Probably prior to that time. Then do you want us to understand that Mr. Fullerton was putting Wallace forward as a stool pigeon in this matter and you knew that from the first? A.—Why, of course.
Q.—Just go the limit if you will? A.—Of course, he was putting Wallace forward.
Q.—Pardon? A.—He was taking the deal in Wallace’s name so there was no liability on his part. Q.—So from the first—? A.—If he was not successful in raising a syndicate—
Q.—So you want us to understand the first conversation you had with anybody about this matter you recall is one in which Mr. Fullerton represented to you that he was taking this, which was his, Fullerton’s deal, in Wallace’s name, so as to avoid his, Fullerton’s, personal liability? A.—I would not say that was the first conversation, but that was one of the conversations.”
And again
Q.—Yes? A.—And was considering getting up this syndicate.
Q.—Will you please give me something definite, is it the first conversation you recollect or not? A.—So far as I know it is.
And to his taking an interest:—
Q.—I understand you were very little interested in it at that time—where did it take place? A.—Somewhere in the office.
Q.—In your office or his? A.—I cannot say as to that. He used to walk into my office and talk to me about it and in his office and in Doran’s office, and he would talk about it, it was the talk of the whole office.
Q.—Mr. Fullerton was not hiding anything under a blanket or keeping anything from you? A.—I do not believe he was.
Q.—The matter was discussed pro and con? A.—I thought so.
Q.—You were in Mr. Doran’s office and took it up with him? A.—I think so.
Q.—You went in to Mr. Doran’s office, any conversations about it? A.—Yes, we used to talk about it.
* * *
Q.—Well, you ought to remember it—when did you first make up your mind to take an interest in this proposition? A.—It would be about the 10th of March.
Q.—And you subscribed for how much? A.—$2,500.
Q.—$2,500—was that your original subscription? A.—The original subscription was $5,000 which included $2,500 of Mr. Eatons.
* * *
Q.—Now, tell me, Mr. Crawford, had you any other investments of a similar character to this, at that time? A.—No.
Q.—Had you any other money in any other real estate transactions at or about that time? A.—No.
Q.—Can you suggest any other investment you made in 1913? A.—No.
Q.—Had you any other investments that were of a similar amount, or to any extent in 1912? A.—No.
Q.—Had you any in 1914? A.—No.
Q.—Then so far as this was concerned, this was practically your ewe lamb in the way of investment? A.—Yes.
Q.—Your ewe lamb, and the one, therefore, in which you were particularly interested? A.—-Yes. And again as to Doran’s contribution:—
Q.—When did you have the first interview with Mr. Doran about the matter? A.—Oh, I cannot say.
Q.—Can you recall any interview with Mr. Doran prior to the 10th of March, when you agreed to go in? A.—I can recollect several conversations with Mr. Doran.
Q.—Can you cast your mind back, and having regard to this, your first and most important and practically your only investment at that period of time, can you cast your mind back to any conversation with Mr. Doran, and fix that conversation in your mind with Mr. Doran, and say what took place? A.—Not previous to the signing up of the deal.
Q.—Not previous—what do you mean by signing up of the deal? A.—The agreement of the 4th of March.
Q.—What? A.—The agreement of the 4th of March.
Q.—But previous to the 4th of March, and after the 4th of March, if you recollect any conversation with Mr. Doran, what was the first you remember? A.—I remember Mr. Doran telling me that he had put up the $2,500.
Q.—The whole $2,500? A.—The whole $2,500.
Q.—Do you remember the time that Doran told you that? A.—No, it was some time shortly afterwards, and he was bragging, he bragged to me of having put one over on Boehm.
Q.—What? A.—He was—
Q.—Don’t characterize it bragging—you know, give us the conversation? A.—He told me in other words that he had got ahead of Mr. Boehm.
Q.—Yes? A.—He succeeded in getting Mr. Boehm to put up a third of the deposit.
Q.—He had succeeded in getting Mr. Boehm? A.—To put up a third of the deposit.
Q.—In addition to them—was that at the same time he was discussing about having to put up the $2,500? A.—Yes.
Q.—So that you understood at that time, that in the $2,500 that was put up, Boehm had contributed one-third of the deposit? A.—Yes. from what he told me.
And again as to Wallace:—
Q.—Now, Mr. Wallace was not in this real estate business for his health, so far as you could see, was he? A.—No, I do not suppose he was.
Q.—You thought it reasonable that Mr. Wallace went into these ventures with a view to make a profit? A.—Apparently so, if he disclosed them.
Q.—I am not asking whether he disclosed them or not, so far as Mr. Wallace was concerned, he transferred by an agreement to Mr. Fullerton, certain rights and interests in that property at $800 an acre—you knew that, you knew that? A.—I knew he had an agreement with Mr. Fullerton. Doran, who had taken an office about the 1st July, 1913, to carry on real estate business in same building and, as I understand the evidence, adjacent to those rooms occupied by the firm of Fullerton & Crawford, would seem thus to have had the opportunity of daily intercourse with Crawford as well as Fullerton in regard to the joint venture in which he put $5,000 for himself and a friend.
I cannot accept the statement he (Crawford) seems to have made that he did not know that there was a profit of $75 an acre to somebody, for it is inconsistent with what he admits in relation thereto and the exercise of ordinary common sense applied to the business he was so deeply interested in for himself and others.
His pretension was that he only became aware of the amount Fullerton got by looking at the papers in the vault in January or February, 1914, after his partnership with Fullerton had ceased, as it did in said January.
Why, or how, he should have, as it were accidentally, discovered it then and not before on the many opportunities equally good for doing so, I am unable to understand.
I prefer to think he obviously had either forgotten or had not felt the same keen interest as this suit indicates in sharing in the profits made by Fullerton.
Indeed, he puts it rather as a realization of the fact in the following evidence:—
Q.—Then you told us yesterday that you had made some discovery about this alleged property, I think you said, in February, 1914? A.—Yes.
Q.—Just tell us what the discovery was that you then made? A.—The discovery was that Mr. Wallace had made this profit of eleven thousand and some hundreds of dollars.
Q.—Yes? A.—That was the first time that I realized that Wallace had made that money.
Q.—Tell me the date on which you discovered it? A.—I cannot tell you that, but the day— Q.—Well, about the day? A.—It would be some time about the latter end of February.
The learned trial judge expressly finds as a fact, notwithstanding Crawford’s denial, that he knew a profit was being made by Wallace.
But for his omission to find also that he knew, or must be held to have known, that Fullerton and Doran were interested therein, I should not have set forth the foregoing evidence so fully as I have done.
Crawford at the trial would have the court believe that, though the facts were plain and palpable to anyone possessed of the documents as he was, he had failed to realize the actual situation in which Fullerton had placed himself by what said documents demonstrated. I do not think this improved his claim to found such a suit as this.
And still less so when we find him immediately attempting to make merchandise of his realization of the fact by the attempt to frighten Fullerton into giving him a share of what he claimed herein to be an illicit profit, as evidenced by the following letter:—
401 Crown Office Building,
Toronto, March 13th, 1914.
James S. Fullerton, Esq. K.C.,
Toronto, Ont.
Re Accounts.
Dear Sir:—
I contend that you received moneys from Mr. Edwin Wallace in connection with the purchase of Bathurst Centre, and must now ask you to account to me for the same under our partnership.
I think my share nearly amounts to $1,500.00.
Yours truly,
(Signed) J.P. Crawford.
This letter admittedly refers to the said secret profits got by Fullerton. I cannot think that a suitor who proposed, as this one in this letter did, to share in that complained of, is entitled, within the doctrine laid down in many cases but latest in the Towers Case[10] cited above, to bring in support of such a claim such an action as this when he failed to intimidate and extort a division of the spoils.
His share therein as a shareholder in the company as the result of success herein in that regard might be $300, but he was willing to take $1500 if the item was brought into the accounts of Fullerton & Crawford.
The suppression of secret profits is most desirable but I submit it will never be accomplished by upholding the claim of one who thus attempted first to make use of such a club to promote his own ends, and then only months afterwards when he failed to so intimidate, resorts to an action ostensibly in the interest of the company.
To recognize such a suitor as well entitled first to attempt such a levy and then entitled, despite his failure therein, would be productive of evils far surpassing those springing from a single successful reaping of secret profits, especially when the latter has been maintained as rightful by nearly all those concerned but himself.
On that ground the appellant Fullerton is entitled, in my opinion, to succeed as to this item of the claim made.
I am, moreover, very far from holding the opinion that a single shareholder can insist, against an over-whelming majority of fellow shareholders who have no interest adverse to the claim for recovery in such a case, save the honest purpose of allowing him who has received such compensation to retain it, though so ill advised as to have kept his doing so secret instead of manfully proclaiming the fact.
In such a case the question of ultra vires or fraud in the sense used in the decision bearing upon such an issue may not arise and the matter be within the competence of a disinterested majority of the shareholders to deal with.
What is clear from the latest decisions such as Alexander v. Automatic Telephone Company[11], is that shareholders in maintaining an advantage for themselves not shared by others, cannot be permitted to accomplish the wrong merely on the pretence that it falls within the internal management of the company.
This decision followed the judgment in the case of Menier v. Hooper’s Telegraph Works[12], wherein, as also in Gray v. Lewis[13] at page 1051, Sir W.M. James L.J. expressed comprehensively what I may be permitted to think is still the law governing such cases as this when the question raised may not present some act merely ultra vires the company and the test have to be applied whether or not a fraudulent use is being made of its powers by the majority of the shareholders or directors as the case may be.
In the case at bar the plaintiff fails, I think, to bring himself within the principles there laid down not only as to the first item but also the other remaining items of his claim when we consider, as I think we must, the action of the shareholders at the September meeting which was called at his instance.
The other items I refer to are Doran’s share of the profits made by Wallace and Doran’s commission on the resale. As to the former, all I have said and set forth, relative to the claim against Fullerton, applies.
It may be observed that though there was no demand made upon Doran for a share, yet the obvious purpose of the litigation was the same improper one in its origin, and suit was taken after long knowledge and acquiescence.
As to Doran’s commission on the resale I think there was beyond a doubt present to Crawford’s mind the knowledge that it was Doran’s effort that produced the resale, that he knew Doran would be expecting a commission and was the only man entitled to commission and whose claim could alone be that referred to in the circular letter of the 22nd of April, 1914, to him and all other shareholders, announcing the sale and referring to the year’s operations and the paying of commissions on sale, could refer to nothing else than Doran’s commission.
Yet in face thereof he not only refrained from objecting thereto but actually participated in the distribution of the moneys as therein suggested, and I hold must be held to have assented thereto.
Inasmuch as he drew the misleading by-law of the company which provided as follows:—
6. Except in so far as the remuneration of the directors shall be fixed by this by-law the directors themselves shall have power to fix their remuneration either as directors or as officers of the company, and also the salaries or remuneration to be paid to all salaried officers of the company, and to vary the same when it may be expedient to do so.
upon which no doubt the directors may well have imagined they had a right to act in fixing the commission, I do not think he was entitled to complain of the result.
Under all the foregoing circumstances I am of the opinion that he had no right to complain of this commission and was not entitled to override the action of the shareholders by the bringing of this action though other shareholders may have had such right by virtue of the statute. I think the appeal should be allowed with costs throughout.
DUFF J. (dissenting).—The liability of the appellants in respect of three sums at the suit of the respondent in a representation on behalf of the shareholders is to be determined on this appeal: The sum of $3,867.36 for which the appellant Fullerton has been adjudged responsible and the like sum for which the Doran estate has been adjudged responsible and the sum of $8,121.22 for which all the appellants have been adjudged responsible.
The question raised, whether Crawford, the original plaintiff, was entitled to maintain the action, whether, that is to say, he had not lost any right he might otherwise have had by acquiescence or estoppel, would naturally come first in order of consideration but the discussion of it may conveniently be postponed until after the discussion of the substantive question of responsibility.
The learned trial judge, Masten J. gave judgment against the appellants and the Doran estate respectively for the sums first above mentioned and against all the appellants in respect of the sum of $8,121.22. This judgment was sustained by the Appellate Division and that court was unanimous as regards all points except in respect of the liability of the defendants Murray, Gibson and Brian, in relation to which there was some difference of opinion.
The first two sums were paid to Fullerton and Doran respectively by Wallace out of the purchase money, which, on the same day, had been paid to Wallace by Fullerton on behalf of the syndicate, and constituted in each case one-third of Wallace’s profit by the sale, which amounted in all to $11,601.75. It seems to be unnecessary in regard to this transaction to say more than that Fullerton and Doran were both in the position of promoters of and consequently of trustees for the syndicate, and in that character incapable of retaining any profit derived in this way from the transaction. These moneys, therefore, which they received from Wallace remained the property of the syndicate and later of the company in their hands. In passing it may be noted that these moneys were, of course, part of the proceeds of the original subscriptions, that is to say, of the original capital of the syndicate.
The substantive defence of the appellants in respect of these sums rests upon certain resolutions, which were passed on the 4th November, 1914, by the shareholders of the company, professing to take effect as a release of the company’s claim to them. I concur with the view of the learned trial judge that, in the situation in which the company found itself on the date mentioned, it was not competent to the shareholders to transfer without consideration a title to these moneys to Fullerton and Doran.
The company made a sale of its lands in the spring of 1914 and, at the end of May, the directors, after paying a commission of $8,000 odd to Doran, proceeded to distribute $36,000 odd in dividends; and the resolutions of the 4th November already alluded to professed to ratify this payment to Doran and to secure a title to Doran in respect of this sum as well as to deal with the sums distributed by Wallace already referred to.
In May, 1914, the profits arising from the company’s transactions (treating Doran’s claim for commission as a liability of the company) had reached $25,000 odd on the assumption, and this is rather important, that a third mortgage of $50,000 odd given by the purchasers of the land sold in the spring of 1914 was worth its face value, and on the further assumption that in respect of the two mortgages, one assumed and the other given by Wallace, the company was under no contingent responsibility. Thus the directors in paying the dividend mentioned as well as the Doran claim had disposed of at least $11,000 in excess of the moneys available for distribution among the shareholders.
On the 4th November, therefore, the capital of the company had actually been diminished by a considerable sum and the principle of Newman’s Case[14], forbade any further distribution of its assets among the shareholders until the statutory proceedings had been taken. In re Newman & Co.14; Paton’s Case[15], at page 406; Hutton v. West Cork[16]; Flitcroft’s Case[17], at pages 534-5.
Now the sums in the hands of Fullerton and Doran which had been paid to them by Wallace were assets of the company, just as the moneys standing to the credit of the company in the bank were; and the attempt on the 4th November, to hand this property over to Fullerton and Doran was just as illegal, and inoperative in point of legal effect, as would have been a resolution authorizing the directors to transfer any asset, e.g., the mortgage above mentioned into the name of any one of them and to sell and dispose of it for the benefit of the directors.
As to the Doran commission. I am disposed to agree with the view of section 92 of the Ontario “Companies Act” advanced on behalf of the appellants; I am inclined to concur in the view that this section does not contemplate special payments of the character here in question which are not made by way of remuner- ation for services of a director as director, but a special allowance made on some other ground.
Our attention has not been called to any other provision of the Ontario “Companies Act,” and I assume that if there had been such a provision our attention would have been called to it, that in any way weakens the force of the rule by which directors, trustees of their powers for the shareholders, are incapacitated from retaining as against the company any profit arising from a contract made between themselves and the body of directors of which they are members, unless the company knows and assents. Imperial Mercantile Credit Association v. Coleman[18], at page 566; James v. Eve[19], at page 348; Gluckstein v. Barnes[20]; Boston Deep Sea Fishing Co. v. Ansell[21]. The application of the principle does not appear to be affected by the provisions of by-law 6 of the company’s general by-laws. The power given thereby to the directors is a power to fix their own remuneration as directors or as officers of the company; and, no doubt, it would have been competent to the directors acting thereunder to attach a salary to the office of director or to the office of vice-president, or to the office of general manager, but it is impossible to suggest that what is alleged to have been done here in order to support the payment to Doran, is or bears any kind of resemblance to any of these things. What is alleged is a contract between the company and Doran through the instrumentality of the board of directors of which he was a member, allowing him a specific fee for a specific service—a service given in the ordinary course of prosecuting his calling as land agent. That would be a transaction which could not be brought within the authority given by this by-law. Doran, it may be noted, on the 4th November was still vice-president, director, general manager. The fee which had been illegally paid to him was the property of the company in his hands. It is quite true it required only the assent of the company to give him a title and the resolution of the 4th November is relied upon as furnishing adequate evidence of that assent.
The first objection which is taken to the proceedings on the 4th November is based on the fact already mentioned, namely, that in paying the dividend of the 29th May the company had more than disposed of all its available distributable assets, and that objection seems to be fatal.
It is quite true that if the company had possessed itself of the moneys in Fullerton and Doran’s hands, amounting to $15,000 odd, then, assuming always that the third mortgage on the lands disposed of should be counted at its face value, it would appear that there would be a small surplus, $4,000 odd; but on the closest calculation the retention of neither the Wallace donations nor the Doran fee could be sanctioned without obliterating this surplus and there is, I think, no escape from the conclusion that these proceedings of the 4th November, which were virtually simultaneous, must on this account be held to be without legal effect.
There is another grave objection, moreover, to these proceedings which I should have preferred not to mention and which I should have passed over in silence had it not been that it has material weight in considering the important question of the right of the plaintiff to maintain the proceedings.
It is unfortunately too clear that knowledge of the participation in the Wallace profit was industriously withheld by Fullerton and Doran from the shareholders —until in the autumn of 1914 the curiosity excited by Crawford’s activities, left them no other choice than disclosure. At the trial Fullerton still maintained the attitude that these payments were bonuses and any suggestion of impropriety in the non-disclosure of them was treated rather contemptuously as a quibble. I am referring, of course, to Fullerton’s own attitude, not to that of his counsel. In view of this state of mind, one is not surprised to discover in a letter written on the 11th September to Mr. Ruckle, for the information of persons from whom proxies were to be obtained, the statement that Wallace came to him, Fullerton, as any other client would have come, and told him that he had an option on this property at $800, that no other price was ever mentioned and that “the deal was put through” at that price; and again in a letter of the 6th of July, addressed to the shareholders generally, this statement: “Edwin Wallace’s option was at the price of $725 per acre and he offered it to the syndicate at $800 per acre, whereby Mr. Wallace made a profit of the balance.” Mr. Fullerton’s attitude is perhaps best brought out in some parts of his own evidence:—
Q.—Then you say that you first knew that you were going to get something on what date? A.—Oh, my recollection now is that it was on the 14th day of March.
Q.—On the 14th day of March? A.—Yes.
Q.—That you first knew that you were going to get something? A.—Yes—or rather I did not know that I was going to get something until I got it, but on the 14th day of March Wallace spoke to me about it.
Q.—Wallace spoke to you about it and then you did not know what amount you were going to get then? A.—I did not.
Q.—And when did you find out what amount you were going to get? A.—When I got the cheque.
Q.—When was that? A.—I cannot say whether it was the afternoon of the 14th or the morning of the 15th. I can only state that I deposited it on the 15th or that it was deposited for me on the 15th. In my examination I was speaking from the deposit, and I thought it was on the 15th I got it, but further recollection the 14th or 15th— Q.—The 14th or 15th—now up to that date you did not know yourself you were going to get anything? A—I did not.
Q.—And any knowledge Mr. Crawford could have acquired up to that date could not have conveyed that information to him? A.—No.
Q.—Is that right? A.—That is right.
Q.—He could not have found it out if he had known all about Wallace’s profit? A.—Yes.
Q.—He could not have told you were getting anything and he could not have told Doran was getting anything? A.—I cannot tell you.
Q.—You cannot tell that then when you did get something, Mr. Fullerton, why did you not disclose it to your friends and associates? A.—I am not much in the habit of disclosing to my friends and associates what my deals are or what was done.
Q.—I mean your associates in this particular deal—why did you not disclose it? A.—I did not disclose it but I have no particular reason except that I am rather reticent about my business and I did not intend to disclose it at that time.
Q.—Now, Mr. Fullerton, on the 18th Sept. when all the checks were spread out before you and when apparently Mr. Crawford had all this time information for the $11,000 cheque was there, now why—come to the time when he knew about the $11,000 odd cheque—it was there before you? A.—Yes.
Q.—And Mr. Crawford said “Mr. Fullerton and Mr. Doran are you getting any share of that?” A.—Yes.
Q.—And you heard Mr. Wallace say that he would not say how he had distributed it, that that was his own business, do you remember that? A.—Yes.
Q.—Why did you not then say you got a part of it? A.—Because I was calling a meeting of the company I intended calling a meeting of the company and intended to make disclosure there in regard to the whole matter and I knew that Mr. Crawford was seeking information at that time for the purpose of his suit, and I did not intend to give it until I called my own meeting.
Q.—You did not intend to give it? A.—Until I called my own meeting. That was absolutely the reason why. Mr. Crawford had written me a letter in which he had demanded $1,500 on the belief and sole belief that he was considering whether to bring an action against me in the partnership or on the other, and I did not propose to assist him at that meeting if I could avoid it.
Fullerton and Doran, as directors and officials of the company, were under a duty to the company and to the shareholders as a body to see that the fullest information was laid before the shareholders regarding the transactions under review at the meeting of the 4th November Cook v. Deeks[22]. It is regrettable that no effort was made to perform this duty; that these gentlemen considered themselves entitled to act within the spirit of the communications and the evidence just set out; and that the members represented by proxy at the meeting of November 4th seem to have remained in ignorance of the facts to the very end. In these circumstances I think the resolution of the 4th November cannot be treated as satisfactory evidence that a majority of the shareholders with knowledge of the facts approved these transactions of which Fullerton and Doran were the beneficiaries: Cook v. Deeks[23]; Pacific Coast Coal Mines v. Arbuthnot[24].
As to Crawford’s right to maintain these proceedings. The status of a single shareholder to attack an ultra vires proceeding is, as a rule, unquestionable, in the absence of evidence disclosing conduct making it unjust that he should be permitted to go forward with his attack.
As regards the Doran commission: It is not, I think, seriously argued that Crawford did anything to preclude him from impeaching that payment.
As regards the sum given by Wallace to Doran I have heard no suggestion requiring discussion pointing to any conduct of Crawford’s precluding him from taking steps to impeach that.
As to the sum received by Fullerton from Wallace. It is now said, 1st, that Crawford knew of the distribution of the Wallace profit from the beginning, and 2nd, that in March, 1914, he wrote a letter to Fullerton calling upon him to account for the sum received from Wallace as part of the partnership proceeds and that this last mentioned act constituted such a participation in the conduct of Fullerton as to make it inequitable and contrary to justice to permit Crawford now to complain of it.
It is necessary to keep clearly in view two things, 1st, that the moneys in question, as I have already said, in Fullerton’s hands constituted an asset of the company; 2nd, that the general rule is that a single shareholder is entitled to impeach an ultra vires or illegal act of a company without using the name of the company subject to the qualification that the right of a single shareholder to proceed where the majority refuse to allow the name of the company to be used, in such case rests upon the proposition that justice requires the sanction of the proceeding. Russell v. Wakefield Waterworks Co.[2