Attorney General for Canada v Standard Trust Company of New York
| Jurisdiction | UK Non-devolved |
| Judgment Date | 1911 |
| Date | 1911 |
| Year | 1911 |
| Court | Privy Council |
Sale of Railway to a Company by its Promoters - Purchase authorized by its Incorporating Act - Promoters the only Shareholders - Sale and Purchase upheld as intra vires the Company.
A syndicate of four persons procured a Quebec Act incorporating a railway company which they had promoted and subscribed for $300,000 of the company's shares (being all that were issued), and were with others whom they had qualified elected directors. They then purchased a railway themselves, and the incorporated company, being empowered so to do by their Act, purchased the said railway from them for $648,000, paying for it by taking credit for the said subscription and acknowleding indebtedness to the said four persons of the balance of $348,000 in equal shares. On the insolvency of the said incorporated company and of another company with which it had been amalgamated their railways were sold, and the respondent company, to whom the syndicate's claim had been assigned, claimed to rank as creditors against the proceeds of sale:—
Held, that the claim must be allowed. The incorporating Act authorized the purchase, and whether or not the price was excessive every one interested in the capital of the company concurred in the purchase with full knowledge of all the circumstances.
APPEAL by special leave from a judgment of the Supreme Court (February 15, 1910) affirming a judgment of the Exchequer Court of Canada (October 31, 1908) confirming a report by the referee which admitted the claim of the respondent company to rank as a creditor of the South Shore Railway Company for the sum of $520,779.
On March 7, 1904, the Minister of Railways proceeded under Dominion Act 3 Edw. 7, c. 21, against the Quebec Southern Railway and South Shore Railway Company, which had amalgamated together, for the sale of their railways on the ground that they were insolvent and had failed to work their railways. Under Act 4 & 5 Edw. 7, c. 158, the sale was effected.
On February 24, 1906, the respondent company filed a claim before the referee of the Exchequer Court against the proceeds of the said sale, which so far as is now material was for $348,000, being the balance of the price of the Montreal and Sorel Railway bought by the South Shore Railway Company from a syndicate of four persons to whom the purchasing company acknowledged indebtedness in respect of the said balance with interest at 6 per cent., their claim being subsequently assigned to the respondents.
The referee reported in favour of the claim, but the Bank of St. Hyacinthe and subsequently the appellant, as an unsecured creditor of the Quebec Southern Railway, objected. So far as now material their point was that the authority given by the directors of the South Shore Railway Company to purchase the Montreal and Sorel Railway was illegal and irregular.
They objected that the syndicate of four were promoters of the South Shore Railway Company and occupied a fiduciary position towards it, which prevented them from making any profit on the transaction, and that the price of $648,000 was not duly authorized and was unfair in amount.
The respondents answered that the real value of the railway and its appurtenances was $648,000; that the syndicate did not have any commission or mandate from the South Shore Railway Company to purchase the property of the Montreal and Sorel Railway; that they were hypothecary creditors of this latter property, holding 1453 first mortgate bonds of 100l. each, and had also expended large sums of money in improving and putting the said road in operation long prior to the incorporation of the South Shore Railway Company; that Tourville (one of the syndicate) purchased the road at a sheriff's sale in the interests of himself and his associates, and for the protection of their hypothecary rights; that the sale by...
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