JEAN MACKENZIE Vs. ROYAL BANK OF CANADA

JUDGEMENT

(1.) This is an appeal from a judgment of the appellate Division of the Supreme Court of Ontario, reversing a judgment of McEvoy, J., who at the trial had given judgment for Mrs. MacKenzie the plaintiff, the present appellant. The action was brought to recover certain shares in Borden Company, Inc., which by an amalgamation represented 187 shares in Ottawa Dairy Co., Ltd. These shares the plaintiff by a letter of hypothecation in November, 1921, had deposited with the defendant bank as security for advances made and to be made to the MacKenzie Manufacturing Co. Ltd., in which her husband was the principal share-holder. The transaction was attacked on the ground of undue influence of the husband and of misrepresentation.

(2.) The facts appear to be that Mrs. MacKenzie, then a girl of 20, was married in 1901 to Mr. John Angus MacKenzie, who was then in business as a salesman. He appears to have been energetic and successful, and in 19l3 he formed a company, MacKenzie, Ltd., to carry on the business of manufactures of lumbermen's and railway contractor's supplies. In 1907 Mrs. MacKenzie's father had died, leaving her the dairy shares in question, worth at the material times about $10,000, together with a house in Ottawa and some $2,000. Mrs. MacKeznie in 1913 had hypothecated the shares at the bank to secure an advance either to the company or to her husband, for the benefit of the company. With the advent of the war the company prospered. Husband and wife lived in affluence in Ottawa and in a, country house. In 1918 her shares were released to her. She had no money invested in the company which represented her husband alone. In 1920 the fortunes of the company changed. The Government ceased to require its goods, and the company tied by forward contracts was unable to sell its goods to advantage. At the end of the year the bank advances amounted to about $200,000, and the bank was pressing for reduction and for further cover. On 31 December, 1920 the plaintiff, at the request of her husband, and after interviews with Mr. Gray, the Bank Manager, signed the bank form of general hypothecation making her' 187 Ottawa Dairy Co. shares general and continuing collateral security for payment of the present and future indebtedness and liability of MacKeznie, Ltd." By the document she agreed "that the bank may grant extension, take and give up securities, accept compositions, grant releases and discharges and otherwise deal with the customer and with other parties and securities as the bank may see fit without prejudice to the liability of the undersigned."

(3.) There was some question at the trial as to the circumstances in which this document was signed, Mrs. MacKenzie stating that her husband gave her to understand that the security was required to enable him to obtain a further advance from the bank of $20,000 to $25,000. Mr. Gray apparently expressed to her a favourable view of the prospects of the company. Unfortunately business continued to diminish and in May 1921, an order in bankruptcy was made against the company. In Canada companies are subject to the ordinary bankruptcy law. The bank, in pursuance of S. 88 of the general Banking Act, held security over the stock in-trade and book debts of the company. The firs proof of the bank showed a substantial surplus in the value of their securities over the debt Proposals were discussed for something in the nature of a reconstruction whereby the business should be carried on by a new company. On 13 September 1921 the bank riled another affidavit of proof valuing their securities at $3,000 or $4,000 in excess of the debt and about the same time served notice on the trustee in bankruptcy to redeem the securities at that figure. The effect of the notice, according to the Bankruptcy Act, is that if the trustee elects not to redeem the security, the equity of redemption vests in the creditor and "the amount of his debt shall be reduced by the amount at which the security has been valued."