Tait, Burton B. C.

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Company Law: Conwest Exploration Company Limited et al. v. Letain, (1964) S.C.R. 20

York University, Osgoode Hall Law School

Osgoode Hall Law JournalVolume 3, Number 3 (October 1965) Article 3Company Law: Conwest Exploration CompanyLimited et al. v. Letain, (1964) S.C.R. 20Burton B. C. TaitFollow this and additional works at: http://digitalcommons.osgoode.yorku.ca/ohljCommentaryThis Commentary is brought to you for free and open access by the Journals at Osgoode Digital Commons. It has been accepted for inclusion inOsgoode Hall Law Journal by an authorized editor of Osgoode Digital Commons.Citation InformationTait, Burton B. C.. "Company Law: Conwest Exploration Company Limited et al. v. Letain, (1964) S.C.R. 20." Osgoode Hall LawJournal 3.3 (1965) : 449-455.http://digitalcommons.osgoode.yorku.ca/ohlj/vol3/iss3/3Supreme Court ReviewCOMPANY LAWConwest Exploration Company Limited et al. v. Letain, [1964] S.C.R.20.BURTON B. C. TAnT*COMPANY LAW - DATE OF INCORPORATION - WHETHER DATE ONLETTERS PATENT GOVERNS FULFILLMENT OF CONTRACTUAL OBLIGA-TION TO INCORPORATE BY A CERTAIN DATE.In the present case the Supreme Court of Canada was asked todecide whether, in the circumstances, the incorporation of a company,with letters patent dated September 25, 1958 but which were actuallysealed and issued on October 20, 1958, constituted performance of acondition in a Claims Option agreement requiring Conwest to causesuch company to be incorporated on or before October 1, 1958. On aprevious appeal based on the pleadings' the Supreme Court had heldthat s. 133 of the Companies Act made it clear that in cases involvingthe status and powers of a company, its date of incorporation wasconclusively established by the date of its letters patent (i.e. Septem-ber 25, 1958). But the Court took pains to explain that it had notdecided whether such letters patent satisfied the conditions set outin any contract. In the present appeal the Court was faced withexactly this question of construction and, on a 3 to 2 division, themajority concluded that the contract had been performed.The facts were that Letain had, in 1955, agreed to transfercertain mining claims to Conwest on condition that Conwest cause anew company to be incorporated by October 1, 1958 to hold theclaims. Letain was to receive 50,000 shares of the new company.Letain then transferred his claims to Conwest to be held subject tothe terms of the Claims Option contract. In 1957 Letain signed aShare Option contract transferring 13,000 of his prospective sharesto Conwest in satisfaction of a debt and optioning all the rest toConwest in different sized blocks exercisable on four successive anni-versaries of the signing of this second contract. Conwest exercisedits first option to buy 5,000 of Letain's prospective shares on February15, 1958. In the summer of 1958, Conwest asked Letain for a threeyear extension of time for the incorporation of the new company butthis request was refused. Therefore, Conwest applied for the incorpor-ation of what became Kutcho Creek Asbestos Co. Ltd., and paid thenecessary incorporation fees on September 18, 1958. The Directorof the Companies Division notified Conwest that the letters patentwould be dated September 25, 1958. On September 26, Conwestdecided to ask Letain to allow his name to form part of the name ofthe company and he executed the necessary consent. It was apparentlyaccepted as a fact that, but for the last minute decision to change thename, letters patent would have issued on or before October 1, 1958.Mr. Tait is a third year student at Osgoode Hall Law School.1 Sub nom. Letain v. (onwest Exploration Co. Ltd., [1961] S.C.R. 98.1965]OSGOODE HALL LAW JOURNALRelying on s. 133 of the Companies Act, organizational meetings ofthe new company were held on September 29. Upon the request ofthe Companies Division, Letain executed a declaration of substantialinterest in the company on October 7, 1958. Then, on October 9, hewithdrew consent to the use of his name, alleging that his contractswith Conwest had become null and void. Conwest proceeded to estab-lish Kutcho Creek, whose letters patent were finally issued on October20, 1958, dated September 25, 1958. Shares were tendered to Letainas were payments in exercise of Conwest's rights under the ShareOption contract. All tenders were refused. Letain now sues to recoverhis mining claims, alleging Conwest's failure to perform the incorpor-ation condition in the Claims Option contract. Conwest replied bysuing for specific performance of the Share Option contract. Conwestsucceeded at trial but the decision was reversed by the British Colum-bia Court of Appeal. 2In deciding to restore the trial judgment, the members of theSupreme Court have demonstrated a startling facility for varying theinterpretation of facts in order to support their equally varying con-clusions. Indeed, whatever disparity exists between the judges centresalmost entirely on issues of fact and does not turn upon any disagree-ment as to the content of the law. In some respects, it is surprisingto find the facts to be the major matter of contention in so high atribunal but perhaps this can best be explained as an example ofCorbin's comment that a court oftenstates hard-bitten traditional rules and doctrines and then attains aninstinctively felt justice by an avoidance of them that is only half-con-scious, accompanied by an extended exegesis worthy of a medieval theo-logian.3It may be added that complexity is increased when the judges' in-stincts do not all lead in the same direction.The judgment of Taschereau C.J. and Judson J. is indicative of themultiplicity of reasons used to attain the present result. For conveni-ence, it shall form a framework for comparing the alternative groundsadvanced by the other judges.CoNsTRuCTIoN OF THE CONTRACTClause 7 of the Claims Option specified that Conwest could onlyexercise the option fully bycausing to be incorporated on or before the 1st day of October 1958,under the Companies Act of Canada .... a mining company....4In construing this clause, Judson J. held that the interpretation advan-ced on behalf of Letain, namely that letters patent must have actuallyissued by October 1st, was "unduly narrow".5 He noted that by2 Unreported.3 Corbin on Contracts (1960) Vol. 3, p. 279.4 Conwest Exploration Co. Ltd. v. Letain, [1964J S.C.R. 12.5 Id., at 26.(VOL. 3Supreme Court ReviewSeptember 25th Conwest had applied for the incorporation of KutchoCreek, had paid the incorporation fees and had received the assuranceof the Director of the Companies Division that letters patent wouldissue bearing that date. He then concluded:Nothing more remained for Conwest to do. The rest was departmentalroutine and in my opinion on this basis alone Conwest had, within themeaning of clause 7 of the Claims Option agreement, performed itscontract precisely and exactly. The contract left it open to Conwest toadopt this mode of performance and what the parties meant by perform-ance of this contract is a question of construction for the Court.6However, such a flexible interpretation of the contract did notfind favour with the dissenting judges, particularly Ritchie J. whoadopted a very strict construction. He described the incorporationclause in the language of Kindersley V.C. in Lord Ranelagh v.Melton:* . . as a condition on the performance of which the party who claimsthe benefit of the performance is entitled to certain privileges but inorder to entitle him to them he must perform the condition strictly; andif the time fixed for the performance of the condition passes over by onesingle day that prevents his having the right.7It is difficult to explain two such different approaches except byreference to notions of instinctive justice. Judson J. commented ad-versely on Letain's attempt to escape from a contract whereby hereceived what he came to consider to be "two-bit shares".8 Themajority, in effect, seem to have been motivated by a desire not toallow Letain to avoid a legitimate bargain on technical grounds. Theminority, on the other hand, place little emphasis on these factsbut rather find whatever iniquity is present to be that of Conwest. Thecompany is cited as the cause of the delay in the incorporation whichwas only commenced after Letain flatly refused an extension of timefor its accomplishment. Conwest seemed to prefer to sleep on its rights.Letain insisted on strict compliance and the minority was preparedto reinforce that insistence with a narrow interpretation of what con-stituted performance. There is thus a division of emphasis on thefacts, the impact of which is felt not only in this, but in the two suc-ceeding grounds for the decision.LETAIN's LACK OF INTERESTJudson J. next proceeded to strengthen his initial conclusionthat the contract had been performed by reference to a line of reason-ing which the minority completely ignored. He held that the ShareOption agreement had so fettered Letain's title to shares in the pro-posed company that he:had no interest in the incorporation of the company until Conwestfailed.., to take up any of the instalments of shares under option.96 Id., at 26-7.7 (1864) 34 L.J. Ch. 227 at 229.8 Supra footnote 4 at 28.9 Id., at 25.1965]OSGOODE HALL LAW JOURNALHis Lordship even went so far as to hold that the Share Optionremoved the need for Conwest to show any incorporation of a companyuntil it was thus in default. 0 The latter view does not seem to bebeyond question since a contract to transfer shares in a non-existentcompany would appear to be a nullity and certainly this second con-tract did not on its face purport to waive or modify the initial ClaimsOption agreement. If that was its effect it, seems oddly paradoxicalsince the non-performance of the Claims Option would frustrate theShare Option contract which, in turn, if His Lordship is correct,would excuse the original non-performance. It seems more than pass-ing strange to interpret a contract in a manner which would justify itsown frustration. Surely such a curious result could not have beenintended. If anything, this line of reasoning demonstrates again theextent of the majority's sympathy for Conwest.EQUITABLE ESTOPPELIt remains to consider what is perhaps the most important aspectof the judgment: estoppel. In all, four judges commented on this aspectof the case and, while their treatment was short and subsidiary to themain reasons above, the result is a concise compendium of the relevantlaw. Once again there is no disagreement on the content of that law.Indeed, Cartwright J., who was with the majority, took great pains toexplain that he differed from Martland J., who joined Ritchie J. in dis-senting, only in his understanding of the facts at issue." Nor is this thelimit of the disagreement on the facts, for within the majority thereseems to be two views as to the factual grounds for the estoppel.The defence itself is historically founded upon the case of Hughesv. Metropolitan Railway Co.'2 and may best be explained by referenceto the passage quoted by Judson J.:It is the first principle upon which all courts of equity proceed, that Ifparties, who have entered into definite and distinct terms,... afterwards. . . enter upon a course of negotiation which has the effect of leadingone of the parties to suppose that the strict rights arising under thecontract will not be enforced, or will be kept in suspense, or held Inabeyance, the person who otherwise might have enforced those rightswill not be allowed to enforce them where it would be inequitable, havingregard to the dealings which have thus taken place between the parties.13In short, the plaintiff is estopped from denying that he misled thedefendant into believing that strict compliance with the terms ofthe contract would not be required.Although this approach was cited by Judson J., he did not applyit exactly. Rather than misleading Conwest as to the necessity of strictperformance, he felt that Letain, by his conduct, had indicated that heregarded Conwest's procedure for incorporation as proper compliance.10 Id., at 27.11 Id., at 29.12 (1877) 2 App. Cas. 439 at 448.13 Supra, footnote 4 at 28.[VOL. 3Supreme Court ReviewLetain's representation was not that performance need not be exactbut that:... he was satisfied with what was being done as performance of thecontract and he knew that Conwest would act and was acting upon hisrepresentation. But for this representation, Conwest could have givenhim the kind of performance to which he now says he is entitled.14Thus His Lordship bases estoppel on a representation by Letain as tohis construction of the contract and, since the contract left this modeof performance open to Conwest, Letain could not be heard to objectto such an interpretation.Only Cartwright J. found the facts to be suitable for the orthodoxuse of the Hughes principle. He held that:It is my opinion that by the dealings between the parties... Letain ledConwest to suppose that he would not exercise his right to insist on per-formance of the condition by the date mentioned. 5That is, there was a representation that strict performance would notbe required. This view hardly seems consistent with His Lordship'sconcurrence with the opinion of Judson J. that the contract had beenfully performed. If this was true, is Lordship's view of the grounds forestoppel are irrelevant. For there can be no estoppel without detrimen-tal reliance by Conwest and there was no detriment if the contract wasfully performed. This same criticism cannot be levelled at Judson J.,since in his hands estoppel became an instrument in the constructionof the contract and therefore was relevant to the primary considerationof whether full performance had been given.Ritchie J. shared the view of Cartwright J. that the estoppel wasbased upon an alleged waiver of strict compliance with the terms ofthe contract but he felt that the facts did not warrant the conclusionthat any waiver had occurred. He rejected the impact which themajority ascribed to Letain's agreement of September 26th to allowthe use of his name by the proposed company. Rather he held that:Whatever their motives may have been, it was the Appellants who ap-proached Letain in the last days of September, 1958 to obtain his consentto the use of his name and although this may have been a friendlygesture which Letain appreciated at the time, his consent given onSeptember 26th cannot, in my opinion, be regarded as a waiver of theterms of the option.16He then went on to hold that the declaration of substantial interestexecuted on October 7th could not assist the company's estoppel argu-ment because the Claims Option had already lapsed when the incor-poration failed to be completed on October 1st, and the declaration:. . . could not serve to reinstate the lapsed option as the law is wellsettled that once it has expired an option cannot be revived without anew agreement for valuable consideration.1 714 Id., at 27.15 Id., at 29-30.16 Id., at 36.17 Id., at 36.19651OSGOODE HALL LAW JOURNALHe then added that, on his view of the facts, Conwest knew that thedeadline had to be met and that the company was not misled because,in fact, it thought it had given due performance. On the latter pointhis Lordship, in effect, subscribed to the criticism above of the estoppelreasoning of Cartwright J. However, it is submitted that his Lordshiphas failed to deal decisively with the reasoning of Judson J. that theestoppel worked to prevent the withdrawal of Letain's representationas to the construction of the contract.One further line of estoppel reasoning remains: that of MartlandJ.. Once again it is the view of the facts which leads to the difference.His Lordship thought that an estoppel was claimed because Conwestwas induced by Letain's conduct:... to believe that he had agreed to extend the time for acceptance andthat [Conwest] acted upon that representation.' 8Such an argument he rightly rejected as untenable. He pointed outthat:.. such an extension would involve making a new contract and for sucha contract there was no consideration.19In support of this conclusion he cited the English case of Combe v.Combe20 which modified the earlier case of Central London PropertyTrust Ltd. v. High Trees House Ltd.21 by making it clear that estoppelcould be used only as a shield and not as a sword and certainly consti-tuted no substitute for common law consideration. In overruling atrial judge who had held to the contrary, Denning L. J. declared that:The principle stated in the High Trees case does not create new causesof action where none existed before ... it can never do away with thenecessity of consideration when that is an essential part of the cause ofaction.Such a conclusion in law is now well established and Cartwright J. wascareful to declare that he would agree with Martland's view if hecould view the facts as did the latter judge. But in fact no other judgesuggested that there had been any agreement to extend the time limit.Certainly there was no deliberate consensus to that end.On balance, it may be wondered whether the manner in whichthe present five judges reached different views of the facts and hencedifferent legal results, does not constitute a threat to the developingrule expressed in Combe v. Combe against using equitable estoppel asa sword. For, if the rule can be eluded by varying the facts, howeversubconsciously, there seems to be no limit to the new legal horizonsto which estoppel may lead. It may in the end become a rule honouredin the breach.In conclusion it may be said of the judge's disparity on all threegrounds for the decision that the case shows one thing that is fre-18 Id., at 30.19 Id., at 31.20 [1951] 2 K.B. 215.21 [1947] K.B. 130.(VOL. 3Supreme Court Reviewquently overlooked or even denied by orthodox jurisprudence. Thefacts are the variables upon which success and failure depend. Judgeswill say that facts are not open to dispute on appeal, but when regardis had to the judicial ingenuity in ascribing different legal effects torigid facts, this immutable principle serves as no fetter on their con-tinuing search for instinctive justice.CONFLICT OF LAWSMontano v. Sanchez [1964] S.C.R. 317.PAUL A. C. CARROLL*CONFLICT OF LAWS - SUCCESSION TO MOVEABLES - LEGITImACY ANDLEGITIMATION - STATUS AND INCIDENTS OF STATUS.In Montano v. Sanchez,' on an appeal from the Ontario Court ofAppeal,2 the Supreme Court of Canada considered the very confusingfield of legitimacy as related to the problem of succession to moveablesunder the will of an Ontario domiciliary. In a concise judgment, ineffect approving unanimously the decision of the Court below, theSupreme Court held that, for the purposes of succession, legitimacywas a question of status to be governed by the ex domicilii and not amatter of construction of the will to be determined by the lex succes-sionis. However, in so holding, they assumed what appears to be arather novel approach to what is in fact a very old problem, anapproach which was inherited from the Court below.1. THE FACTUAL BACKGROUNDA testator domiciled in Ontario bequeathed certain personalty tothe "issue" of a grandson. The grandson, John Macdonald Wardrope,died domiciled in the State of Michoacan in the Republic of Mexico.He left two daughters surviving him, Elizabeth Macdonald Ward-rope Montano, born in lawful wedlock, and Maria Sanchez, born eightyears later, out of wedlock. At the time of the birth of Maria Sanchez,John Wardrope was domiciled in Mexico. He later married her motherin a religious ceremony but not in a civil ceremony which is requiredfor legitimation by subsequent marriage under the Mexican Civil Code.The testator having been an Ontario domiciliary the Zex succes-sionis was Ontario law. The will in question had provided for such aneventuality as here ensued by leaving the residue to his grandchildren*Mr. Carroll is a third year student at Osgoode Hall Law School.1 [1964] S.C.R. 317.2 Sub nom., Re Macdonald, [1962] O.R. 762.3 Consisting of Taschereau C. J. and Cartwright, Judson, Ritchie andSpence JJ.19651

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Company Law: Conwest Exploration Company Limited et al. v. Letain, (1964) S.C.R. 20

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