Statement.

musical instruments, under the name of the Herr Piano Company. By an agreement of that date made between Jacob Herr, of the first part, Donaldson and Milne of the second part, David Blain of the third part, A. A. Allen, (who was manager of the Central Bank), of the fourth part, and D. Mitchell McDonald, of the fifth part, it was agreed, amongst other things, that the partnership theretofore subsisting between the parties of the first and second parts should be dissolved, and that the assets of the co-partnership, including book accounts, notes, contracts, property, rights, and credits, should be vested in the five parties to the instrument in certain proportions; Herr to have eight parts; Donaldson and Milne jointly, thirteen parts; Blain, Allen, and McDonald jointly, sixty parts. The value of the assets, including machinery, plant, &c., was placed at about $21,000. It was also stated in the agreement that the liabilities of the partnership did not exceed $11,650.28; and it was agreed that the parties of the first and second parts should pay any liabilities in excess of that sum. The parties of the first and second parts, were also to give a note of $2,500 to make the value of their share equal to the value of the thirteen shares assigned to them. The parties of the third, fourth, and fifth parts agreed to pay into a special account, as moneys might from time to time be required, the sum of $5,000 each, to be used in paying off the liabilities of the company to the extent of the said $11,650.28, and for the purpose of carrying on the business. It was also stated in the agreement that the intention of the parties was to carry on business and to incorporate the company, and it was declared that the business should be carried on prior to incorporation under the direction of Donaldson, Blain, Allen, and McDonald, as a board of directors, with Herr as manager and mechanical superintendent. It was also stipulated that Blain, Allen, and McDonald should incur no personal liability; and Allen and McDonald were alone empowered to draw or accept drafts, sign or endorse notes, in the name of the Herr Piano Company, for carrying on

the business. Provision was also made for the opening of Statement. an account with some bank in the name of the Herr Piano Company, to the credit of which all moneys coming in in the ordinary course of business should be paid, and cheques were to be drawn by Allen and McDonald jointly, or in the absence of one, by either of them.

A charter of incorporation was obtained under the Ontario Joint Stock Companies Act on the 8th of June, 1887. The incorporators were David Blain, A. A. Allen, D. Mitchell McDonald, John Donaldson, R. Y. Milne, and Jacob Herr. The charter stated that the capital was $75,000, and that the stock taken by Blain, Allen, and McDonald, was $10,000 each; by Donaldson and Milne jointly, $6,500, all of which amounts were stated to have been paid up in full by transfer of property; and by Jacob Herr $7,000, of which $4,000 was stated to have been paid up by transfer of property. Blain, Allen, McDonald, and Donaldson were stated to be the first directors of the company.

By an agreement, dated the 5th of August, 1887, and made between the several parties to the agreement of the 9th of March, 1887, and the Herr Piano Company, the parties to the agreement of the 9th of March, 1887, transferred all their interest in the business to the Herr Piano Company, together with all assets, &c., and the company assumed all contracts and liabilities entered into or incurred by the parties to the agreement of March, 1887, "for which they have become jointly liable in carrying on the said business since the said agreement;" and there was a covenant on the part of the Herr Piano Company to indemnify and save harmless these parties against all loss, &c. The consideration for the agreement was expressed to be, the allotment of paid up shares to the amounts above mentioned, and these shares were duly allotted.

This agreement, however, was executed only by Herr, Donaldson, and Milne. The day after the execution of the agreement by them Donaldson and Milne sold their stock to D. Mitchell McDonald, who paid them therefor in cash

Statement. $6,350, and the stock was transferred to him and to Blain and Allen.

Blain and McDonald had also put into the business $15,000 as agreed, the moneys being paid to D. Mitchell McDonald, and by him being applied in various cheques from time to time in paying the liabilities and running expenses of the company before the incorporation. All the funds had passed through McDonald's account in the Central Bank of Canada. On the 24th of October, 1887, a cheque for $21,954.64, signed by Blain and McDonald, was deposited to the credit of McDonald's account, and was debited to another account of " D. Blain and D. M. McDonald, special;" This amount, $21,954.64, represented apparently the $15,000 paid by Blain, Allen and McDonald for their interest in the Herr Piano Company, and the $6,350 paid for Donaldson and Milne's stock, with the sum of $604.64 added for interest. The Central Bank failed on the 15th of November, 1887, and at that time McDonald's account was overdrawn $61,421.74, and there were besides promissory notes of his accruing due to the amount of about $40,000 more.

The Herr Piano Company went into liquidation on the 11th of February, 1888, and the liquidators of the bank filed their claim on the 25th of April, 188. It was conceded subsequently that as to the $6,350 paid to Donaldson and Milne for their stock, no recovery could be had against the Herr Piano Company, but as to the $15,000 and interest, a lien was claimed on 60-81 of the assets of the Herr Piano Company, that is to the extent of the interest of Blain, Allen and McDonald in these assets, the ground taken being that in obtaining funds from the Central Bank to acquire their interests in the Herr Piano Company, Álain, Allen and McDonald had been guilty of a breach of trust towards the bank, and that this money could therefore be followed into the property acquired with these funds, the company having full notice of the breach of trust, the trustees guilty of the breach of trust and the controlling officers of the company being the same persons.

An issue was directed and was tried before MACDOUGALL, Statement. Co. J., on the 6th of February, 1889, and several subsequent days, and it was clearly proved that the moneys obtained by McDonald from the Central Bank were so obtained by him without the knowledge of the directors, and by means of a private arrangement between himself, and Blain, and Allen.

It was also proved that to a large extent the assets of the piano company existing at the time of the agreement of March, 1887, were still in existence at the time of the winding-up order, and passed into possession of the liquidator.

The learned Judge held that the liquidators of the Central Bank had a preferred claim up to $15,000 on 60-81 of the original assets of the piano company ascertained to be in existence and in the possession of the piano company at the date of the winding up order, and that they were entitled to rank on the estate of the piano company as ordinary creditors for the amount of the notes above referred to.

The liquidator of the piano company appealed from this judgment, and the appeal came on to be heard before. this Court (HAGARTY, C. J. O., BURTON, OSLER, and MACLENNAN, JJ.A.) on the 20th of March, 1890.

J. K. Kerr, Q. C., and R. S. Neville, for the appellant. The learned County Judge had no jurisdiction to try the question whether the liquidators of the Central Bank were entitled to a lien or charge on the assets of the piano company, or any part thereof, but only whether they were. entitled to rank on the estate as creditors: R. S. O. (1887) ch. 183, sec. 23. Assuming, however, that the Judge had jurisdiction to entertain the question at all, still his decision is erroneous. The bank never were creditors of the company; and never had any dealings with the company. The company were bond fide purchasers for value of the assets in question, and such assets could not be followed into their hands, or be impressed with any trust, lien, or charge

Argument.

as against them, on account of any breach of trust which may have been committed by their vendors, or any of themThe finding of the learned Judge that the company had notice of such breach of trust by reason of the knowledge of their president and managing director, is erroneous. Such knowledge, if any, was not obtained while they were officers of the company, but before the company came into existence, and at the time the company acquired the assets, none of its officers knew that the breach of trust, if any, had been committed, except those who had themselves committed it while they were officers of the bank, and before the company was incorporated. Notice to the officer of one company in that capacity, is not notice to him. as an officer of another company, and there was no notice here, and no right to follow these moneys: Culhane v. Stuart, 6 O. R. 97; Taylor v. Blakelock, 32 Ch. D. 560; In re Marseilles Extension R. W. Co., L. R. 7 Ch. 161; In re Carew's Estate Act, 31 Beav. 39; Lindley's Company Law, pp. 204, 205; In re Hennessy, 2 Dr. & W. 555; Denton v. Davies, 18 Ves. 499. The bank's remedy, if any, is against its own directors: In re European Bank, L. R. 5 Ch. 358.

W. R. Meredith, Q.C., and F. A. Hilton, for the respondents. There was here clearly a breach of trust on the part of Blain, Allen and McDonald, and the persons injured by that breach of trust had a right to follow the moneys into the hands of those who took with notice of it. The breach of trust was committed before the incorporation of the company, and the partners in that company who got the benefit of the breach of trust must be held to have had notice of it. Clearly then before incorporation the bank would have been entitled to make a claim against the assets of the partnership, and against each partner individually, and these individuals could not by simply incorporating themselves, and assuming to transfer their assets to themselves as an incorporated body escape this liability: In re Hallett's Estate, 13 Ch. D. 696; Harris v. Truman, 7 Q. B. D. 240; S. C., 9 Q. B. D. 264; Francis