Turner v. Cowan et al.

NESBITT J.-This is an action brought under sections TuRNER

50 and 51 of the Companies Act, chapter 44 of the Revised Statutes of British Columbia, 1897, which Nesbitt J. sections read as follows

(a.) Any shareholder may plead by way of defence, in whole or in part, any set-off which he could set up against the company except a claim for unpaid dividends, or a salary or allowance as a president or a director of the Company-;

The shareholders of the company shall not as such be held responsible for any act, default, or liability whatsoever of the Company, or for any engagement, claim, payment, loss, injury, transaction, matter or thing whatsoever, relating to or connected with the Company, beyond the unpaid amount of their respective shares in the capital stock thereof.

The plaintiffs are creditors of a company named Cowan Holten Downs Company, Limited, which carried on a liquor and cigar business at Revelstoke, British Columbia for about a year. Prior to the incorporation of the Company, the defendants carried on the business (subsequently carried on by the Company) as a partnership called Cowan Holten Downs Company. The plaintiffs recovered two judgments against the company, and the executions issued thereon were returned nulla bona.

The evidence is very short, and the pith of it is to my mind shown by the following in the examination of the solicitor of the partnership:

106. Q. What took place before the incorporation and transfer of Nesbitt J. the Company?

A. They wished the partnership thrown into a joint stock company, and Cowan or Braithwaite asked me how they could do it, and I told them the proper way would be to incorporate the company, and the company take over the partnership business and pay for it in stock. 107. Q. Explain paying for it in stock ?

A. In shares. I told them they could sign a memorandum of association, that is each one of them, after Braithwaite had figured out how each one stood.

Some had taken out capital from the business. Holten, I believe, had, and that is why the Company was to be formed, to prevent this.

The statute provides a very simple method to carry this out, and I think its provisions are to be strictly adhered to, unless the door is to be opened to the evils spoken of in Leeke's Case (1).

The defendants subsbribed for shares as follows:- William Cowan

.......... .......

Charles Holten.....

...........

T. Downs..............

........

and some months after, at a meeting of the Company, it was moved by J. S. Lawson, seconded by C. Holten, that the Company purchase the assets and good-will, and assume the " liabilities of the Cowan Holten Downs Company, for the sum of eight thousand one hundred and eighty-seven dollars and twenty-one cents ($8,187.21).-Carried."

And thereupon the following document was executed :

"J."

The Cowan Holten Downs Company, Limited, a company incorporated under the laws of British Columbia, with its head office in the city of Revelstoke, in the said Province of British Columbia. Witnessetl, that in consideration of the sum of 88,187.21 (eight Nesbitt J. thousand one hundred and eighty-seven dollars and twenty-one cents) of good and lawful money of Canada to them in hand paid, the receipt whereof is hbreby by them acknowledged, they, the parties of the first part do, and each of them doth by these presents grant, bargain, sell and assign, transfer and set over under the party of the second part, its successors and assigns, all and singular, the goods, wares, chattels, effects and things, together with the stock-in-trade, and trade fixtures of or belonging to the said parties of the first part or any of them used in or pertaining to the business of the said parties of the first part as wholesale liquor merchants (said stock-in-trade consisting of a general stock of wines, liquors, cigars and aerated waters), now being in and about the building and premises now occupied and used by the said parties of the first part for the purposes of their said business in the said city of Reveletoke, said building and premises being situate on Front Street in the said city of Revelstoke: Also, all accounts, bank and other debts and securities which are now owing or payable to the parties of the first part or any of them in respect of or on account of or in connection with the said business.

To have, hold, take, receive and enjoy the said goods, wares, chattels, effects, stock-in-trade, fixtures, accounts, debts and securities unto the party of the second part, its successors and assigns, to the only use and behoof of the party of the second part, its successors and assigns for ever.

And this memorandum further witnesseth that in consideration of the premises the party of the second part for itself, its successors and assigns, covenants, promises and agrees to and with the said parties of the first part, their and each of their executors, administrators and assigns, that the party of the second part, its successors or assigns shall and will well and truly pay or cause to be paid all debts now due, owing or payable or hereafter to become due, owing or payable by the parties of the first part or any of them, their or any of their executors, administrators or assigns, in respect or on account of or in connection with the said business, and shall and will indemnify and save harmless and keep indemnified and saved harmless, the said parties of the first part, and each of them, their and each of their executors, administrators and assigns, from and against all actions, suits, claims and demands for or in respect or on account of the said debts, and free from and against all costs, charges, expenses and damages which they, the parties of the first part may suffer, sustain or be put to for or on account or in respect of the said debts or any of them.

In witness whereof the parties of the first part have hereto set their hands and seals and the party of the second part has caused its corporate seal to be hereto affixed with all the formalities required by law, the day and year first above written.

W. COWAN

(L. S.) Nesbitt J. CHAS. HOLTEN (L. S.) T. DOWNS

(L. S.) Signed, sealed and delivered in the presence of

JAMES MURPHY.

It is to be observed that there is no debt created by the Company to each partner for a specific amount, nor is the document executed by the Company, and it seems to me to fall within the very language of the Lord Chancellor Selborne in Fothergill's case (1). Upon the only principle of construction which I know of as applicable to such a case, it appears to me to be quite clear that there are here two independent agreements.

No connection between them is expressed on the face of any one of the documents.

They take effect at different times, in different events, on different conditions, and between different parties.

By the subscription for the memorandum of association under sections 7, and 23 of the Companies Act, 1862 (and according, if authority were needed, to Evan's case), Mr. Fothergill not merely agreed to take, but actually did take, and immediately on the registration of the Company became the actual and legal holder of 1,000 ordinary shares, in respect of which he was thenceforth liable absolutely and unconditionally to contribute- to the funds of the Company the full sum of £2,000.

By agreement for the sale of the mine three persons jointly (of whom Mr. Fothergill was one), became entitled, not absolutely and immediately, but conditionally on certain events, which afterwards happened, to shares, without liability to pay anything upon them, the land with which the vendors parted by the contract being agreed to be taken by the Company in lieu of the full amount of these shares.

Shares cannot be set off against a money demand.

Any stranger proposing to give credit to the Company, who might have gone to the Registrar or Joint Stock Company, and might have there seen those agreements, must have understood (supposing to simplify the case, that the whole purchase money for the mine had been payable in paid-up shares) that the Company would have to satisfy his claims, the mine itself, free from all liability to creditors, and also the (1) 8 Ch. App. 270.

£2,000 either actually paid or legally payable on Mr. Fothergill's shares. The appellant says he ought, on the contrary, to have understood that one of the assets of the Company was in effect to be set off against the other. Even if the whole had been payable in money, the Nesbitt debt to the three could not, without more, have been set off against the liability of the one. And it appears to me to be a fallacy to speak of Mr. Fothergill's liability on his shares.

The Court below relied on Laroque v. Beauchemin (1) but that case turned on the particular facts. Lord MacNaghton says:

There was not even an attempt in crossexamination to shake the testimony on this point.

Finding here as I do that there never was any real intention to pay for the shares subscribed for in cash but to pay for them in stock, it seems quite clear that the statute has not been complied with, and I -think the clearest case should always be proved before we apply the principle of the cases relied on in the court below, and dispense with the salutary provisions of the statute.

I would allow the appeal with costs in all courts, and direct judgment to be entered for the amount of this subscription against each defendant. KILLAM J. concurred with Nesbitt J.

Appeal allowed with costs.