McCraken vs. McIntyre.

there insisted on by the Defendant was not set off, but that the liability on the shares had been extinguished and satisfied by the compensation of a debt due by the Company to the shareholder prior to the bringing of the action; a very different question from that of set off. For had the debts by and to the Company been mutually exigible at the same time, by the operation of the law of Lower Canada, as to compensation, they would have extinguished each other ipso jure, and there would have been no more a liability remaining which the creditor could enforce against the shareholder than in the case of payment to the Company by the shareholder of the full amount of his shares before the bringing of the creditor's action.

No calls having, however, ever been made by the Company, it was held in Ryland v. Delisle that the debt of the shareholder to the Company had never been payable, and that consequently no compensation had been operated.

This case, whilst it recognizes the right of the creditor to sue as an original right conferred by the statute, not one derived through the Company, also concedes the right of the debtor to discharge himself from liability to the creditor by paying or satisfying the Company.

The conclusion to which I have come that the judg ment of the Court of Appeals is erroneous, and ought to be reversed, is founded on two distinct propositions. First I am of opinion that if this had been an action against Thomas Griffith, the original allottee of these shares, the Plaintiff would not have been entitled to recover. Secondly: That the Defendant having purchased the shares for value and in good faith as fully

McCraken vs. McIntyre.

paid up, is not liable in this action, even if the original allottee would have been. I will take up these two grounds seriatim.

The allotment of the remaining shares of the Company, pursuant to the resolution passed at the general meeting of the shareholders of the 15th March, 1872, at a discount of 40 per cent deducted from the nominal value of the shares, though beyond all question ultra vires of the Company, illegal and void, as being in effect a reduction of the share capital prescribed by the charter, has been nevertheless found by all the Courts who have had to deal with this case, to have been a measure adopted without any taint of a fraudulent object, but in perfect honesty and good faith. It is equally a fact beyond all controversy, that these shares were not subscribed for eagerly as a matter of speculation, but were purchased to assist the Company, and to enable it to carry on its business, and that Mr. Griffith and the other subscribers would not have taken the shares on any other condition than that they were not to be called upon to pay for them more than 60 per cent. of their nominal amount; that this discount on the price was not a condition collateral to a contract to purchase shares at all events, but was an essential part of the contract entered into by each subscriber for shares allotted under the resolution of the 15th March, 1872, and that the payment of the 60 per cent. was a condition precedent to the vesting of the shares.

Then the contract being to pay sixty cents in the dollar and no more, could the Company in an action on the contract for the price, after making a call for the whole value of the shares, have sued Mr. Griffith for the whole amount? Certainly not. Why? Because when an obligation arising ex-contractu is sought to be enforced,

McCraken vs. McIntyre.

the measure of the Defendant's liability is to be found in the terms of the contract itself. Then Mr. Griffith had paid for these shares all he ever agreed to pay, and satisfied all the liability he ever contracted for in respect of them. It is, however, said that although as between Griffith and the Company, he might not have been liable beyond his contract, yet the statute makes him liable to the creditors beyond his contract. That it makes him liable to the creditors of the Company for the full amount of the shares in money, although he may have guarded himself by the most positive contract not to pay the full amount or to pay the full amount not in cash but in money's worth, work or goods. This is assumed to be warranted by the words "until the whole amount of his stock has been paid up." The question is then brought to this, did the Legislature intend by these words to impose, beyond the express agreement of a party taking shares, an obligation to pay the whole nominal value of the shares in cash, for,if in spite of his express agreement, a party who contracts to purchase shares at a discount for less than their nominal value is liable to make good a residue of the price which he expressly contracted not to pay, so also if he contracts to pay for his shares not in cash but in goods or money's worth he is equally liable to lose the benefit of his latter contract if he is sued by a creditor. Now, a priori, putting the authority of decided cases aside altogether for the present, I am of opinion that the statute contains decisive internal evidence that the proper construction of these words is that the shareholder shall be liable for the unpaid residue of what he contracted to pay and for that alone.

The words "not paid up" imply an obligation existing before the right of the creditor attaches

McCraken vs. McIntyre.

by the return of the writ of execution nulla bona. Then in whose favor could an obligation to pay the nominal value of the shares exist? Not certainly in favor of the Company upon a contract which the shareholder never entered into with them, or rather in contradiction of the express contract which he did enter into, that he was only to pay a reduced price or money's worth, (this is the expression used in the English cases) instead of money; and, of course, the price remaining unpaid which the statute gives the creditor the right to avail himself of cannot mean any unpaid liability to any other person or body than the Company.

That there is nothing to prevent a Company such as this from agreeing to take payment for its shares not in money but in money's worth, work or goods, at agreed on rates according to calls, is shewn by numerous English cases. The nice question which has arisen in these cases, and which has no application here, is whether the agreement to take shares is separate and distinct from that to receive payment otherwise than in cash; for, if the exceptional mode of payment is a condition or essential term of the contract, there can be no question but that the Company and its creditors are bound by it (1). The distinction I have adverted to is well defined by two well known. cases which have arisen in England, Simpson's case (2) and Elkington's case (3). Lord Cairns, in Elkington's case, puts it thus: "The question for determination is, did "the Applicants intend and agree to become sharehol"ders in præsenti with a collateral agreement as to what should be the effect of their so becoming shareholders?

66

(1) Brice Ultra Vires, 2 Ed. p. 357. and cases there collected ; (2) L. R.5 Ch. App., 306 ; (3) L. R. 2 Ch. App.,522, see also Currie's case, 2 De G., J. & S., 367.

McCraken vs. McIntyre.

"or, on the other hand, did they agree, that if, and "when, a certain preliminary condition should be performed, and not otherwise, they would become members "and shareholders? In the first case they are contri"butories, in the second case they are not." This still remains the law in England, subject to this, that a contract to pay for shares otherwise than in cash now requires registration. No similar provision requiring registration has been enacted here.

If, therefore, the interpretation the Respondent contends for is to be given to this section when applied to a case like the present, of an illegal purchase of shares as paid-up shares at less than their nominal value, it must equally apply to a case of a perfectly good legal contract for the purchase of shares in consideration, not of money, but of the equivalent for money, of value to be paid in goods or work. If in the one case the contract of the parties is overridden by the statute, so equally must it be in the other. If in the case where the shares have been issued at a discount and the party taking them has expressly contracted that he shall not pay more than the cash price which he has handed over, so equally in the case, where he has agreed not to pay any cash at all but to pay with his goods or his work-a contract not ultra vires like the other but perfectly legal-he can be made by the creditor, in spite of his bargain, by force of this section of the statute to pay in cash. In other words, in every case, beyond the contract which the shareholder enters into with the Company, the law invariably annexes another in favor of the creditor, which may vary, even contradict the express terms of the actual contract, and that this is an effect of the statute which it is beyond the power of a shareholder to con