Supreme Court of Canada
Brown v. Gentleman, [1971] S.C.R. 501
Date: 1971-03-08
Lester A. Brown (Defendant) Appellant;
and
W.J.B. Gentleman, Trustee of the Estate of L.A. Brown Limited, a bankrupt (Plaintiff) Respondent.
1971: January 27, 28; 1971: March 8.
Present: Ritchie, Hall, Spence, Pigeon and Laskin JJ.
ON APPEAL FROM THE SUPREME COURT OF NEW BRUNSWICK, APPEAL DIVISION
Company law—Bankruptcy—Company of which appellant was president and majority shareholder declared bankrupt by receiving order—Action by trustee in bankruptcy against appellant—Status of trustee to bring action—Various amounts allowed against appellant—Compensation to appellant as contractor for service station fixed to equal profit made on sale of land to company—Credit for alleged chattel mortgage indebtedness disallowed.
Evidence—Application to adduce new evidence as to certain deposit slips—Application allowed.
The Supreme Court of New Brunswick (Queen’s Bench Division, in Bankruptcy) made a receiving order in bankruptcy against a company whose president and majority shareholder was the appellant and appointed the respondent as trustee in bankruptcy. Some months later the respondent, as such trustee, sued the appellant. The action was taken in the Queen’s Bench Division and was not a proceeding in bankruptcy. The trial judge found the appellant liable in the amount of $16,558.69. On appeal, the Supreme Court of New Brunswick, Appeal Division, disallowed the appellant’s appeal and allowed the respondent’s cross-appeal increasing the said judgment to $19,432.48. The appellant then appealed to this Court and the respondent cross-appealed. The various amounts allowed as against the appellant in the Court of Appeal’s judgment totalled $34,140.08. Two credits totalling $14,707.60 were allowed to the appellant.
Held: The judgment of the Appeal Division should be varied by fixing the net amount of the judgment in favour of the respondent at $16,127.07.
[Page 502]
There was no substance in any of the grounds of appeal dealing with the status of the trustee to bring the action.
Although the appellant’s application to permit the adducing of new evidence did not meet the test set by this Court in Dormuth et al. v. Untereiner et al., [1964] S.C.R. 122, nevertheless, the application should be allowed. The evidence for which leave to produce was sought was a series of deposit slips as to the deposit of cheques in the account of the bankrupt company in the amounts of $700, $705.41 and $5,000. Those deposits had been made years before the trial of this action and the deposit slips were available to the appellant at any time thereafter. However, it was the duty of the respondent as the trustee in bankruptcy to take possession of all the effects and papers of the bankrupt, and it was the duty of the trustee in bankruptcy as a trustee to produce for the Court all the relevant material.
Counsel for the respondent was unable to advance any reply to the evidence that the cheque for $5,000 which the appellant drew on his own company in favour of himself was for some unexplained reason redeposited to the credit of the company on the same day. Also, counsel for the respondent was unable to give any explanation which would cast any doubt on the evidence that the other two cheques had been deposited to the credit of the company. Accordingly, the appellant was entitled to a credit in reference to and in the amount of each of these three items.
The appellant had made a profit of $6,900 on the sale to the company of certain lands upon which a service station was built. Without questioning the position taken by the Court below that the appellant was trustee for the company and under a duty to account to it for the profit in the sale, the appellant was justified in claiming that he should be allowed compensation for his work and services not as president of the company but as the contractor who carried out the task of building the service station and there was no injustice in fixing the amount of that compensation to equal the amount of his profit on the sale of the lands. Therefore, the claim against the appellant for the $6,900 should be disallowed and that amount credited upon the judgment against the appellant.
There was evidence to contradict the appellant’s submission made in his examination for discovery, but not repeated at trial because he did not choose to give evidence, that there was a chattel mortgage
[Page 503]
indebtedness to him by the company in the amount of $10,000. The credit for that alleged debt should be disallowed.
In the result, the respondent was entitled to judgment for amounts totalling $20,834.67. From this amount the sum of $4,707.60, which the appellant had paid out on behalf of the company, should be deducted.
APPEAL and CROSS-APPEAL from a judgment of the Supreme Court of New Brunswick, Appeal Division[1], dismissing appellant’s appeal from a judgment of Pichette J. Judgment varied.
J.D. Harper, for the defendant, appellant.
D.M. Gillis, Q.C., for the plaintiff, respondent.
The judgment of the Court was delivered by
SPENCE J.—In this matter, there is an appeal by Lester A. Brown, the original defendant, from the judgment of the Appeal Division of the Supreme Court of New Brunswick[2] pronounced on September 4, 1969. By that judgment, that Court varied the judgment at trial and gave an award against the said defendant in the sum of $19,432.48. The appellant asks that the action be dismissed in whole or in part.
There is a cross-appeal by the original plaintiff W.J.B. Gentleman, Trustee of the Estate of L.A. Brown Limited, a bankrupt, in which he asks that the credits of $4,707.60 and $10,000 allowed to the appellant Brown in the judgment of the Appeal Division be disallowed.
Lester A. Brown was an automobile dealer in Chipman, in the Province of New Brunswick, who, until the year 1957, carried on business in his own name. In that year, he caused L.A. Brown Limited to be incorporated under the laws of the Province of New Brunswick and conveyed the assets of the said business to that company which thereafter carried on business in a similar fashion as an automobile dealer. Lester A. Brown caused 97 of the 100 shares of L.A. Brown Limited to be issued to himself. Two shares were held by his wife and one share was held by his father who died in the year 1964 and thereafter
[Page 504]
the said one share was owned by one Smit who acted as the bookkeeper for L.A. Brown Limited. Lester A. Brown was the president of L.A. Brown Limited. Describing his position in his examination for discovery, Lester A. Brown testified:
Q. I see. Now in addition to being shareholder, you say you were President?
A. I was.
Q. Throughout this full period?
A. Yes.
Q. And I take it you would also be a Director?
A. Well I don’t know what a directorship—I was the man that made the decisions, put it that way.
Q. You were the man in charge of the business?
A. That’s correct.
Q. And had control over these operations?
A. Yes.
Ritchie J.A., in giving reasons for the Appeal Division, said:
I, however, am satisfied that, for all practical purposes, the defendant was the managing director of the company.
No other conclusion is possible from the evidence.
In 1963, Lester A. Brown determined to expand the business of L.A. Brown Limited by the operation on the opposite side of the Town of Chipman of a service station for the sale of Texaco products. He had owned one lot for “some time” and he purchased the second lot for the purpose of assembling sufficient land upon which to build the service station. The total cost of the two lots was $3,100. Immediately after the purchase of the second lot he conveyed both of them to L.A. Brown Limited for $10,000 although it does not appear how that amount was paid.
L.A. Brown Limited entered into an agreement with the Texaco Company under which that company was to pay the cost of erection of a service station building on the said property and L.A. Brown Limited was to operate that service station for the sale of Texaco products. Temporary financing was obtained from the Bank of
[Page 505]
Nova Scotia which advanced $32,500 to that end. The Texaco Company learned that under the contract in effect between L.A. Brown Limited and the Irving Oil Company, the former company was bound not to carry on the sale of oil products of any other company within a distance of ten miles of its original premises in Chipman. Upon this discovery, the Texaco Company refused to complete its deal with L.A. Brown Limited or to advance the funds to pay off the Bank of Nova Scotia. From that time on, the business and financial situation of L.A. Brown Limited deteriorated rapidly.
The Bank of Nova Scotia sued L.A. Brown Limited in the amount of the advance for the purpose of erecting the service station building and Lester A. Brown, personally, for misrepresentation. L.A. Brown Limited sued Texaco (Canada) Limited.
In the result, the Bank of Nova Scotia was given judgment for $32,500 against L.A. Brown Limited but the claim against Lester A. Brown, personally, was dismissed. L.A. Brown Limited was given judgment against Texaco (Canada) Limited “for an amount to be assessed if required”.
Again, in his examination for discovery, Lester A. Brown testified that in June 1964, the company, that is, L.A. Brown Limited, being “on the verge of bankruptcy” he “had to do something or to go out of business” and that, therefore, he took a chattel mortgage for $10,000. I shall refer later to the evidence in reference to this alleged taking of security.
On November 20, 1964, less than six months after the alleged taking of the chattel mortgage, Lester A. Brown informed the others present at a meeting of directors of L.A. Brown Limited that the company was indebted to him for the said chattel mortgage of $10,000 and $250 for interest thereon. A motion was passed that the company would execute a bill of sale to Lester A. Brown, personally, for a discharge of the company’s liability on the said chattel mortgage and interest and that, in addition, L.A. Brown Limited would convey to Lester A. Brown the accounts receivable. At this time, Lester A. Brown
[Page 506]
caused to be incorporated another company known as Chipman Motors Limited. This company also had 100 issued shares and Lester A. Brown caused 97 of those shares to be issued to him as the purchase price of the assets of L.A. Brown Limited which that company had purported to convey to him in the above transaction and which he in turn purported to convey to Chipman Motors Limited.
No bill of sale was produced at trial. No assignment of accounts receivable was produced at trial. The net effect of the transaction was that L.A. Brown Limited simply withered away to nothing and Lester A. Brown continued to carry on exactly the same business in the same premises with the same stock-in-trade under the name Chipman Motors Limited.
On July 14, 1967, on the application of the Bank of Nova Scotia as petitioning creditor, the Supreme Court of New Brunswick (Queen’s Bench Division, in Bankruptcy) made a receiving order in bankruptcy against L.A. Brown Limited and appointed the plaintiff W.J. B. Gentleman, here respondent, as trustee in bankruptcy. By writ issued on May 21, 1968, W.J.B. Gentleman, as such trustee, sued Lester A. Brown. The statement of claim requested the following relief:
(a) An account of the disbursement and depletion of the Plaintiff’s assets while under the supervision and control of the Defendant as referred to in paragraph 5 together with an account of moneys received by the said Defendant on behalf of the Plaintiff including the moneys referred to in paragraphs 7 and 8 herein.
(b) A declaration that the profit of $6,900.00 earned by the Defendant and described in paragraph 6 herein is moneys received by him as agent of the Plaintiff and payable by the Defendant to the Plaintiff.
(c) Damages by reason of negligence of the Defendant as an officer and director of L.A. Brown Limited in caring for the Plaintiff’s assets.
(d) Recovery from the Defendant of all moneys received by the Defendant from the Plaintiff without consideration and all moneys had and received
[Page 507]
by the Defendant on behalf of the Plaintiff which has not been paid to the Plaintiff and costs of this action.
The action came on for hearing in the Queen’s Bench Division of the Supreme Court of New Brunswick. This trial proved to be somewhat unusual. There were only two witnesses examined for the plaintiff, Norman Sinclair and Roland Bosence, both of whom were employees of the trustee in bankruptcy. The only other evidence adduced at trial consisted of excerpts from the examination for discovery of the defendant Lester A. Brown, here appellant. No evidence was adduced on behalf of the defendant nor did the defendant testify although his counsel at the close of the plaintiff’s case obtained leave to read other excerpts from his cross-examination for discovery submitting that they were necessary in explanation of the answers which had been read in by counsel for the plaintiff. This fragmentary presentation of the evidence caused great difficulty in the consideration of the case both in the Appeal Division of the Supreme Court of New Brunswick and here. Ritchie J.A., giving judgment in that Court, said:
I have considered the advisability of ordering a new trial, limited to determination of the net amount, if any, for which the defendant is indebted to the trustee. As the plaintiff’s cross-appeal, however, does not seek a further accounting, I have decided to follow the example of the learned trial judge and do the best I can with the unsatisfactory evidence upon which both parties were content to rely.
I also have considered such a course and I have come to the same conclusion as did the trial judge and Ritchie J.A. that I should do my best with the unsatisfactory evidence available rather than put this estate to the further costs and delay entailed in a reference as to the quantum.
It is probable that the reason for this fragmentary presentation of the evidence at trial was that the main defence advanced on behalf of Lester A. Brown was not as to the various items claimed by the plaintiff but rather as to the status of the plaintiff. It was alleged that the plaintiff
[Page 508]
had not been duly elected the trustee of L.A. Brown Limited in bankruptcy and that, therefore, the plaintiff had no status to sue the defendant. It was also alleged as a defence “that the plaintiff (if such exists) is a pseudonym for the Bank of Nova Scotia, hereinbefore referred to, and that the said matters referred to therein are res judicata”.
In his reasons for judgment, Pichette J. giving judgment, said:
I overruled Mr. Harper’s objections stating that in my opinion Mr. Gentleman was by the Receiving Order dated the 14th of July, 1967 duly appointed Trustee of the Estate of L.A. Brown Limited and that as far as I was concerned, Mr. Gentleman was, to all intents and purposes in this action, the Trustee of the Estate of L.A. Brown Limited until his removal by a Bankruptcy Court.
The trial judge then proceeded, in his reasons for judgment, to allow the following amounts:
| 1. Two cheques drawn on the account of L.A. Brown Limited in favour of the defendant Lester A. Brown for no proved consideration in the amounts of.................................................................................................... |
$3,800.00 |
| and |
5,000.00 |
| 2. The amount of the accounts receivable as shown in the last annual statement dated July 31, 1964, i.e............................................................ |
4,127.82 |
| 3. The amount of the machinery and equipment taken by the defendant Lester A. Brown in November 1964 which he had admitted in his examination for discovery was the same machinery and equipment shown on the said annual statement, less an item for depreciation,..... |
2,925.46 |
| 4. The amount of a cheque drawn by Traders Finance Company and made payable to L.A. Brown Limited for which he found the defendant Lester A. Brown had failed to account,..................................................... |
705.41 |
| Total ....................................................................... |
$16,558.69 |
[Page 509]
Pichette J. did not allow the plaintiff certain other claims which were considered in the Appeal Division and to which reference shall be made hereafter.
The reasons for judgment of the Appeal Division of the Supreme Court of New Brunswick were given by Ritchie J.A. In his reasons, the learned justice of appeal cited the six grounds of appeal set out in the appellant’s factum presented to that Court and then continued:
Several detailed examinations of the transcript of the trial proceedings and of the factum filed on behalf of the defendant have revealed no substance in any of the six grounds of appeal. The Queen’s Bench Division is a forum in which it was proper for the plaintiff to institute this action. The appointment of the trustee was made by the Registrar under the terms of the receiving order. No defect in the appointment of the inspector of the estate or of the plaintiff’s solicitor is an answer to the plaintiff’s claim. If the defendant wished to contest the status of the plaintiff as trustee of the estate of the company, or the status of the inspector of the estate, he should have done so by an appropriate application to the Queen’s Bench Division under the additional jurisdiction in bankruptcy conferred upon it by section 140 of the Bankruptcy Act. Suit papers or copies of suit papers pertaining to proceedings other than in this action are not relevant herein. All exhibits received at the trial were admissible evidence and properly identified. The testimony clearly establishes a liability on the part of the defendant to account to the plaintiff for the actual value of any assets of the company he appropriated to his own use. He is, however, as part of such accounting entitled to credits for any amounts owing to him by the company.
I agree with that statement and am able to add but little.
It has been plain, at least since Lemieux v. McCauley[3], that only the Bankruptcy Court has jurisdiction to decide if the appointment of the trustee is legal and specific authority for such an application in the Bankrupcty Court is contained in s. 15 of the Bankruptcy Act.
[Page 510]
I find most persuasive the words of Holmsted, K.C., the first Registrar in Bankruptcy in Ontario, when he said in In re Lincoln Motors Company[4], at p. 481:
It appears to me that the applicants are right in making the application in bankruptcy instead of in the ordinary civil jurisdiction of the Court in which the applicants recovered their judgment against Beemer. The authorized trustee is an officer of the Court and in the same position as a receiver appointed by the Court: The Bankruptcy Act, sec. 17 (2) [1 C.B.R. 27]; and it is the Court in bankruptcy whose officer he is; and it would be an inconvenient practice if applications against him were made elsewhere than in the bankruptcy jurisdiction of the Court.
The action in the present appeal was taken in the Queen’s Bench Division of the Supreme Court of New Brunswick and was not a proceeding in bankruptcy.
Under s. 21(6) of the Bankruptcy Act, R.S.C. 1952, c. 11, it is provided that at the hearing (of a petition for a receiving order) the Court shall require proof of the facts alleged in the petition and of the service of the petition and if satisfied with the service of the petition shall make a receiving order; and subs. (9) provides:
(9) Upon a receiving order being made, the court shall appoint a licensed trustee as trustee of the property of the bankrupt, having regard, as far as the court deems just, to the wishes of the creditors.
In the present case, the Queen’s Bench Division of the Supreme Court of New Brunswick, in Bankruptcy, on July 14, 1967, granted the petition of the Bank of Nova Scotia, made a receiving order against L.A. Brown Limited, and appointed the plaintiff, W.J.B. Gentleman, as trustee. It is true that as to the first meeting of the creditors, it is provided by s. 68(5) of the Bankruptcy Act:
68. (5) The purpose of such meeting shall be to consider the affairs of the bankrupt, to affirm the appointment of the trustee or substitute another in place thereof, to appoint inspectors and to give such directions to the trustee as the creditors may see fit with reference to the administration of the estate.
[Page 511]
But that action by the inspectors is only to confirm the appointment already made and the trustee gets his title and status from the appointment by the Court which remains unless and until he is removed as trustee either by the vote of the creditors or by the Court for cause. The trustee, by s. 10(1)(d) is authorized to institute an action with the permission of the inspectors and the failure to obtain the permission of the inspectors cannot be set up as a defence to an action commenced by the trustee, that provision being only for the protection of the estate on matters relating to costs: In re Branson, ex parte Trustee[5]; In re H.O. Kirkham and Company Limited[6]; In re Soucier[7]. Indeed s. 6(7) of the Bankruptcy Act provides:
6. (7) No defect or irregularity in the appointment of a trustee shall vitiate any act done by him in good faith.
I, therefore, share the opinion of Ritchie J.A. that there is no substance in any of the six grounds of appeal urged by the appellant before the Appeal Division in the Supreme Court of New Brunswick and again in this Court dealing with the status of the trustee to bring the action.
Ritchie J.A. then considered the various items in the claim by the plaintiff, respondent before the Appeal Division and in this Court. As I have said, the judgment at trial allowed a claim for one cheque, drawn by the Traders Finance Company in favour of L.A. Brown Limited and deposited to the personal credit of the appellant, in the amount of $705.41. To that cheque, Ritchie J.A. added another cheque, which he found was in a similar situation, in the amount of $700. Ritchie J.A. also added the sum of $6,900, being the difference between the amount for which the appellant had sold the two lots to L.A. Brown Limited and the cost of those two lots to the appellant. Ritchie J.A. also allowed the claim for the accounts receivable in full at $4,127.82, and the value of the machinery and equipment taken by the appellant upon his closing out the business of L.A. Brown Limited at $2,925.46. He also added an item for parts and accessories
[Page 512]
in the amount of $9,981.39 putting the plaintiff’s claim for this amount in exactly the same situation as the claim for accounts receivable and machinery and equipment. Ritchie J.A. also confirmed the allowance of the claim on the two cheques for $5,000 and $3,800 which the appellant had drawn on his company L.A. Brown Limited and it was alleged deposited in his own account. The various amounts allowed as against the appellant Lester A. Brown in Ritchie J.A.’s judgment, therefore, total $34,140.08. Ritchie J.A., however, allowed to the appellant credits in the amount of $14,707.60. Those credits were the total of two amounts, firstly, the amount of $4,707.60, which Ritchie J.A. found that the appellant had paid out on behalf of L.A. Brown Limited, and, secondly, the sum of $10,000. I quote here Ritchie J.A.’s reasons in reference to the latter amount:
In respect of the $10,000 indebtedness for the payment of which the defendant claims he held security in the form of a chattel mortgage, the evidence could be stronger. The origin of the indebtedness was not explained. The chattel mortgage was not produced. No $10,000 debt to the defendant or to any other director of the company is disclosed on the 1964 balance sheet. There is, however, no direct contradiction of the defendant’s evidence respecting the existence of the $10,000 debt. The passages in the minutes of the meetings of the directors which refer to the $10,000 debt and the authorization for execution of a chattel mortgage to secure payment of it have not been questioned. If a chattel mortgage did exist, the plaintiff made no application to have it set aside. On the evidence available, I am of the opinion the defendant is entitled to a credit for the amount of $10,000, the payment of which he maintains was secured by a chattel mortgage charging assets of the company.
The net result of the judgment of the Appeal Division of the Supreme Court of New Brunswick was that the defendant, here appellant, was found indebted to the plaintiff, here respondent, in the amount of $19,432.48.
[Page 513]
The appellant appealed to this Court and, at the opening of the appeal, presented two notices of motion. The first notice of motion was to be allowed to adduce new evidence which consisted of many documents in the bankruptcy proceedings. For the reasons I have already outlined, those documents were irrelevant and the motion was dismissed. The second motion was for leave to produce affidavits which showed the deposit of three different cheques which were the subject of three of the items in the judgment awarded against the appellant by the Appeal Division of the Supreme Court of New Brunswick. It is, of course, quite plain that the application to produce this material does not meet the test set by this Court in Dormuth et al. v. Untereiner et al.[8], where it was said that the special grounds required in an application made under the provisions of s. 67 of the Supreme Court Act as to the production of new evidence required that the evidence could not have been discovered by reasonable diligence before the hearing in the cross-appeal and that the evidence, if accepted, would be practically conclusive. The evidence for which leave to produce was sought by this notice of motion was the series of deposit slips in the banks as to the deposit of cheques in the account of L.A. Brown Limited in the amounts of $700, $705.41 and $5,000. Those deposits had been made years before the trial of this action and the deposit slips were available to the appellant at any time thereafter. It must, however, be noted that the respondent here is the trustee in bankruptcy and it is the duty of the trustee in bankruptcy to take possession of all the effects and papers of the bankrupt, and it is the duty of the trustee in bankruptcy as a trustee to produce for the Court all the relevant material. The respondent adduced the evidence of one Norman Sinclair, an employee of the respondent, who produced a cheque for $5,000 signed “L.A. Brown Limited, per L.A. Brown” and payable to L.A. Brown, the cheque being numbered 10176. This cheque dated August 24, 1964, was endorsed “L.A. Brown” and is stamped on its face “Paid August 24, 1964”.
[Page 514]
Counsel for the respondent read, as part of the respondent’s evidence at trial, the appellant’s examination for discovery in reference to this $5,000 cheque as follows:
Q. Showing you document purporting to be a cheque dated August 24th 1964 marked for identification “I”—do you recognize that?
A. Yes, I recognize that signature all right.
Q. That is your signature?
A. Yes, my writing.
Q. A cheque payable L.A. Brown yourself?
A. Yes.
Q. And was issued by—
A. L.A. Brown Limited.
Q. By you as President of L.A. Brown Limited?
A. That’s correct.
Q. And the endorsement on the back of that cheque is?
A. L.A. Brown.
Counsel for the respondent failed to read the following material which comes after the portion which I have just quoted:
Q. Now what—tell us what you did with the—I take it you negotiated that cheque?
A. Yes. For the life of me, I can’t tell you why that cheque was written. It was deposited the same day in L.A. Brown Limited account.
Q. The cheque or cash?
A. The cheque. The cheque was deposited on the deposit slip of L.A. Brown Limited the same day it was issued.
Q. My question is as to why this was done. A. Now I can’t tell you. I don’t really, honestly know why.
Q. Witness, you have indicated that this was deposited to what account?
A. L.A. Brown Limited.
It is, therefore, apparent, that it was the appellant’s defence as to this $5,000 item that he had deposited it to the credit of the company in the Bank of Nova Scotia on the same day on which the cheque was drawn. The additional evidence presented upon application to adduce new evidence included a facsimile of a deposit slip of the Bank of Nova Scotia dated August 24,
[Page 515]
1964, where L.A. Brown Limited was credited with the total amount of $5,271.85 made up of the following items. I quote from the deposit slip:
| Government of Canada............................................................... |
28.00 |
| Bank of Nova Scotia.................................................................... |
100.00 |
| Bank of Nova Scotia.................................................................... |
12.00 |
| Bank of Nova Scotia.................................................................... |
5,000.00 |
| Bank of Nova Scotia.................................................................... |
12.00 |
| Bank of Nova Scotia.................................................................... |
120.00 |
|
|
$5,272.00 |
| less exchange |
.15 |
|
|
$5,271.85 |
Counsel for the respondent was quite unable to advance any reply to this most convincing evidence that the $5,000 cheque which the appellant drew on his own company in favour of himself was for some unexplained, and well nigh inexplicable, reason redeposited to the credit of the company on the same day. There can be no doubt that the appellant is entitled to a credit of $5,000 in reference to this item, and for the reasons which I have already outlined the appellant’s application to permit the adducing of new evidence should be allowed.
As I have said, the learned trial judge allowed a claim against the appellant in the amount of $705.41, being the amount of a cheque signed by Traders Finance Company payable to L.A. Brown Limited but which the respondent’s witness, Sinclair, said he could not trace into the account of L.A. Brown Limited in the Canadian Bank of Commerce. The witness Sinclair gave the same evidence as to the amount of another cheque for $700 similarly drawn and payable. The learned trial judge seemed to have omitted that latter cheque in his calculation of the amount for which he would allow the plaintiff judgment. As I have said, in the reasons for judgment in the Appeal Division, the plaintiff there, here respondent, was allowed the amounts of both of these cheques.
[Page 516]
Again, the additional materials which the appellant sought leave to produce on this appeal included deposit slips in favour of L.A. Brown Limited, one dated February 17, 1967, in the amount of $705.41 in the Bank of Nova Scotia and another dated December 18, 1964, in the Canadian Bank of Commerce including, inter alia, an item identified as “Traders Fin. $700.00”. Counsel for the respondent was quite unable to give any explanation which would cast any doubt on this strong evidence that both of those cheques had been deposited to the credit of L.A. Brown Limited and the amounts thereof must be credited against the judgment now standing against the appellant.
I turn next to the item of $6,900 allowed against the appellant in the judgment of the Appeal Division. I have previously alluded to the make-up of this amount. The appellant had purchased two lots at a total cost of $3,100. He had purchased these lands so that they could be used by L.A. Brown Limited for the erection of a service station thereon the operation of which would become part of the corporate business. Immediately after the purchase of the second lot, the appellant conveyed those lots to L.A. Brown Limited, which he controlled absolutely, for the purchase price of $10,000. The difference is $6,900. L.A. Brown Limited, under the direction of the appellant, proceeded to erect on the two lots a service station at the cost of $32,500. L.A. Brown Limited did not retain the services of a contractor but Brown himself acted as the contractor and devoted a great deal of energy and effort to the construction of the service station. The appellant, in his examination for discovery, has sworn that during the period when he was engaged in the construction of the service station he received no salary or wages whatsoever. The learned trial judge dealt with this claim as follows:
As to the profit of $6,900 claimed by the plaintiff in paragraph 3 above, on the sale of two lots of land, in my opinion the plaintiff cannot succeed. The defendant paid $3,100 for these two lots of land and resold them shortly thereafter to L.A. Brown
[Page 517]
Limited for $10,000 (transcript, p. 128). It is to be noted here the plaintiff put in evidence part of the discovery evidence of the defendant and in doing so is again bound by this evidence. At page 128, line 16 of the transcript, which is part of this discovery evidence the defendant was asked:
“Q. You conveyed them to L.A. Brown Limited, you say, for a consideration of $10,000—but part of this $10,000 was to pay for what?
A. Well pay me to act as contractor.”
The defendant built a two-bay service station on these lots of land at a cost of approximately $30,000. Surely he was entitled to some remuneration for this work even if, as is alleged by the plaintiff’s counsel in his brief, the defendant was in a fiduciary relationship to the company and had to account to his principal for personal profits made when acting on behalf of the company.
Therefore, the learned trial judge disallowed the claim for $6,900. On the other hand, Ritchie J.A., in his reasons for the Appeal Division, characterized the appellant’s explanation as too vague to merit acceptance noting that the contract was not produced and that there was no reference to it in the minutes of any meeting of the directors of the company and that, therefore, when the appellant took title to the land he did so as an agent for the company and for the express purpose of having the company operate a service station on that land. The learned justice in appeal, therefore, held that the appellant became the trustee for the company and was liable to the company for profits.
Without questioning the position that the appellant was trustee for L.A. Brown Limited and under a duty to account to it for the profit made in the sale, I am of the opinion that the appellant is justified in claiming that he should be allowed compensation for his work and services not as president of the company but as the contractor who carried out the task of building the service station and I can see no injustice in fixing the
[Page 518]
amount of that compensation to equal the amount of his profit on the sale of the lands and therefore I would disallow the claim against the appellant for the $6,900 and credit that amount upon the judgment against the appellant.
I turn next to the credits which the Appeal Division allowed to the appellant, i.e., those totalling $14,707.60. As to the $4,707.60, the counsel for the respondent submitted no argument; the credit for that amount would seem to be well founded. In my view, the situation is very different regarding the $10,000. The appellant claimed that in June of 1964 he was owed $10,000 by his company L.A. Brown Limited and that he, therefore, determined that he should have a chattel mortgage to cover this indebtedness. The appellant admitted there was no present advance whatsoever.
The appellant produced what purported to be the minute book of shareholders’ meetings of L.A. Brown Limited. This unusual record is of a very informal nature, as indeed would appear to be most of the corporate records in reference to matters concerned in this litigation. The minute book is an ordinary hard covered notebook of a type used by students. All the pages of that notebook are perfectly blank but affixed to the various pages in all but two cases by adhesive, and in those two cases by stapling machine, are short, typed sheets which purport to be the minutes of various meetings. The pages which are affixed by stapling are the last two minutes which appear in the so-called minute book. To take the last four minutes appearing in the book in order, there is a minute which purports to be that of a meeting of shareholders and directors held on November 24, 1963, which merely recites the review of the financial statement. That minute purports to be signed by L.A. Brown, Chairman, and Vera V. Brown, Secretary. The next minute purports to be that of a meeting of shareholders and directors held on October 22, 1964, which recites the death of Mr. Arthur W. Brown, the Vice‑President, and the election in his place of one Tom H. Smit. This minute purports to be signed by the same officers. Both of these minutes were fastened to the sheets of the notebook by ad-
[Page 519]
hesive. The next minute purports to be a meeting of directors held on June 15, 1964. I quote that minute in full:
Minutes of meeting of the Directors of L.A. Brown Limited held at the office of the Company at Chip-man, New Brunswick on June 15, 1964.
Present: Lester A. Brown, President
Vera V. Brown, Secretary
Arthur W. Brown, Vice-President
All the Directors being present the meeting was declared to be regularly constituted. The President acted as Chairman of the meeting and Vera V. Brown acted as Secretary.
The President stated that the Company was indebted to him in the sum of $10,000 and that he was desirous of obtaining security from the Company by way of Chattel Mortgage on the Office Equipment, garage equipment and stock in trade, and by an assignment of the Company’s book debts.
It was duly moved, seconded and unanimously carried that the Company give to Mr. L.A. Brown a Chattel Mortgage on its office furniture and equipment, garage equipment and its stock in trade to secure payment of the sum of $10,000 and interest thereon at the rate of 6% per annum from June 17 for a period of one year and that the officers of the Company be authorized to execute the said Chattel Mortgage on behalf of the Company. Carried.
There being no further business, the meeting then adjourned.
L.A. Brown
President.
.........................................................
Secretary
It should be noted that in the book that minute follows that of October 22, 1964, although it purports to deal with a meeting held months before. It is also noteworthy that at the bottom of that minute there is only the signature “L.A. Brown, President”, and also that that minute is stapled in the book. The final minute appear-
[Page 520]
ing in the book purports to be of a meeting of directors held on November 20, the year not specified, but I shall presume that it was 1964. That minute shows as present, in typing: Lester A. Brown, President; Vera V. Brown, Secretary, and Arthur W. Brown, as Vice‑President, then the latter name is stricken out in ink and written beneath it in ink is the name “Tom H. Smit”. This minute is signed only by “L.A. Brown, President”. It also is stapled in the book.
No chattel mortgage was filed or registered. There is no evidence of anyone having been instructed to take proceedings on the chattel mortgage. There is no evidence as to how the debt said to be for $10,000 arose. It must be remembered that the appellant was not only the President of that company but he also held 97 of the 100 shares. Counsel for the appellant has himself repeatedly emphasized in his argument that Tom Smit was present in Court during the trial and available to the respondent to call as a witness. He was equally available to the appellant.
Under these circumstances, I am of the opinion that there was evidence, the evidence which I have recited, to contradict the appellant’s submission in his examination for discovery, not repeated at trial because he did not choose to give evidence, that there was a chattel mortgage indebtedness to him by his company in the amount of $10,000. I cannot see how any credit can be allowed on account of that alleged debt to the appellant and I would, therefore, disallow the credit.
In the result, therefore, I would hold that the respondent was entitled to judgment in the following amounts:
| Accounts receivable............................................................ |
$ 4,127.82 |
| Machinery and equipment.................................................. |
2,925.46 |
| Parts and accessories........................................................ |
9,981.39 |
| Cheque of Traders Finance............................................... |
3,800.00 |
| A total of |
$ 20,834.67 |
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I would allow as a deduction from that amount the sum of $4,707.60 so that I would fix the net judgment in favour of the respondent at $16,127.07.
The respondent should have the costs of the action at trial. In view of the fact that the items have been adjusted both in the judgment of the Appeal Division and in this Court, I would not allow any costs in either the Appeal Division or in this Court. The respondent should also be entitled to the costs of the appellant’s motion to adduce the evidence of the various proceedings in the Bankruptcy Court.
Since, in my view, both parties were at fault in reference to the production of the evidence as to deposit slips, there should be no costs of the motion to adduce further evidence in reference thereto.
Judgment varied, no order as to costs. Application to adduce new evidence granted.
Solicitor for the defendant, appellant: James D. Harper, Fredericton.
Solicitors for the plaintiff, respondent: Gilbert, McGloan & Gillis, Saint John.