Hughes v. Northern Electric and Manufacturing Co., , 50 S.C.R. 626 (1915)

Extract

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Hughes v. Northern Electric and Manufacturing Co., , 50 S.C.R. 626 (1915)

Supreme Court of Canada

Hughes v. Northern Electric and Manufacturing Co., 50 S.C.R. 626

Date: 1915-02-02

William Hughes and Another (Defendants) Appellants;

and

The Northern Electric and Manufacturing Company and Others (Plaintiffs) Respondents.

1914: November 19, 20; 1915: February 2.

Present: Sir Charles Fitzpatrick C.J. and Davies, Idington, Duff, Anglin and Brodeur JJ.

ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF ONTARIO.

Company law-Powers of company-Sale of shares-Mortgage by company-Subsequent creditor-Status.

Three directors owned all the stock of a mining company to which they had advanced $43,000 for expenses of operating. Two of them were at variance with the third as to the mode of operating and all refused further advances. The company having no other means of procuring money, it was agreed that the two directors should sell their stock to the third for $60,000 secured by mortgage on the company's property, the debt of $43,000 to be discharged and the purchasing director to advance funds for operating and until the first payment had been made on the mortgage no such advances should be a charge on the company's property. Payments were made on the mortgage which afterwards fell into arrears and on action by the mortgagees an order was made for sale and delivery "up of possession." More than a year after the mortgage was made the mining company incurred a debt to the respondent company which brought action for the amount and for a declaration that the mortgage was ultra vires of the company and that the judgment in the mortgage action was void. The action was dismissed at the trial. The Appellate Division held the mortgage void but only as to the excess over the indebtedness of the company at the time it was made.

Held, reversing the judgment appealed from (31 Ont. L.R. 221) and restoring that of the trial judge, Fitzpatrick C.J. and Idington J. dissenting, that the mortgage was valid; that though the expressed consideration was the price of shares sold by one holder to another the real consideration was the discharge of the company's existing indebtedness and securing of financial aid for the future.

Per Davies, Duff and Brodeur JJ.-The judgment in the foreclosure action was a conclusive answer to the attack on the mortgage by the company. The Great North-Western Railway Co. v. Charlebois ((1899) A.C. 114,) distinguished.

Also per Davies, Duff and Brodeur JJ.-The trial judge having in effect decided that he had jurisdiction to pass upon the validity of the mortgage, that decision was binding on all parties until reversed in appeal, and, having regard to what occurred at the trial, the decision on the point of jurisdiction was not appealable.

Per Fitzpatrick C.J. and Idington J., dissenting.-The agreements and records made by the parties concerned in the transaction upon which alone the mortgage in question rests shew it to have been given solely to secure to the mortgagees the price of their sales of shares in the company to another shareholder and that, as such, the mortgage was ultra...

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