Judgment. January 14th, 1890. OSLER, J. A.:— OSLER J. A. [The learned Judge stated the facts and continued:] The mortgage is attacked on the grounds, (1) that there was no actual loan or advance of money by the defendant to the mortgagor; (2) that even if there was, the mortgage was a scheme on the part of the latter to enable him to continue his business, and by covering his property to set his creditors at defiance, in other words to defeat, delay, or hinder them, and that the defendant had notice through his solicitor of the fraud of the mortgagor; (3) that the intent and effect of the transaction was to give Stuart & Co., creditors of the mortgagor, to whom the proceeds of the loan were paid, and who could not have taken a mortgage directly in order to secure themselves, a preference over the mortgagor's other creditors. As regards the first objection, it was proved beyond question that the mortgage was taken as security for a present actual bona fide advance of $600 by the defendant to the mortgagor, and that so far as he was personally concerned he was innocent and ignorant of any fraud or irregularity, if such existed, in the transaction. The mortgage would therefore come within the saving of the 3rd section of the Act. The other objections are based upon the assumption that Scott, the solicitor of Stuart & Co., and of Clarke, had notice of the latter's intent in making the mortgage, lent himself to carry it out, and concocted the arrangement by which he was to borrow the money from the defendant, and pay Stuart & Co. the debt which the law forbade him to secure by giving them a mortgage; and it is argued that Scott having been also solicitor for the defendant in making the loan, the mortgage is defeated, because notice of the alleged fraud through his solicitor must be imputed to him, in accordance with the well known doctrine. I do not think the doctrine can be pushed so far as to embrace a case like the present, where, upon the plaintiff's view of the facts, the solicitor must have been employed for the J.A. express purpose of doing an act in contravention of the Judgment. statute, and of aiding the debtor and Stuart & Co. in per- OSLER petrating a fraud upon creditors. On this assumption the transaction was an illegal one, even if the facts had been actually disclosed to the lender, that is to say, the solicitor's fraud did not consist merely in concealing the facts from his client, and the case is on this ground quite distinguishable from those in which the solicitor's fraud is in the concealment of an encumbrance or some defect in the title. Spragge, C. J. O., in Brown v. Sweet, 7 A. R. 725, says, (at p. 740,) " In the cases that I have seen on the subject, it has been the necessary effect of what has been done to displace or postpone the position of a prior purchaser or mortgagee. It is clear that it (the doctrine of imputed notice) does not apply to all cases," and he adds his own conclusion "that to carry (it) further than it has been already carried, would lead to mischievous consequences." The tendency of modern decisions is certainly not in that direction. I quote the following passage from the notes to the last edition of White & Tudor's L. C., Vol. ii., p. 70: "The principle laid down in Kennedy v. Green, has been held not to apply unless it be made out that a distinct fraud was intended in the very transaction, so as to make it necessary for the solicitor to conceal the facts from his client in order to defraud him. See Atterbury v. Wallis, 8 D. M. & G. 454; where a solicitor took a mortgage of an equity of redemption and sub-mortgaged it. Soon afterwards he and the first mortgagee and the mortgagor joined in a new mortgage of part of the property, he acting as the solicitor for all the parties to the transaction and suppressing all mention of the sub-mortgage. It was held that the new mortgagee was affected by the solicitor's knowledge of the sub-mortgage (his conduct not excluding the effect. of such notice) and took subject to it. There the submortgage was not of itself a fraud, which it was necessary to conceal from the new mortgagee, who might have been willing to have advanced his money subject thereto, hence it was not sufficient of itself to rebut the ordinary OSLER Judgment. presumption of disclosure by the solicitor so as to affect his client, with notice." Here, that which was known to the solicitor (on the assumption already made) was the fraudulent intent of Clarke, or of Clarke and Stuart & Co., which was necessary to be concealed from the defendant in crder that he might lend his money upon a security which would be utterly worthless if he had notice of it. It may be thought quite as improbable that information of such a fraud would be communicated by the solicitor to the innocent client in a case like the present as in a case where he had been expressly directed by the other client not to communicate a fact, and therefore it would seem quite as unreasonabe to impute notice in the one case as it is in the other; in short, the reason for presuming that the solicitor has discharged his duty in such a case does not exist. The language of Page Wood, V. C., in Sharpe v. Foy, L. R. 4 Ch. 35, is appropriate: "It would be an encouragement of fraud to apply the rules of notice, which were established for the safety of mankind, to a transaction like this. It would be sanctioning a scheme to rob a man by colluding with his solicitor." I refer also to Eyre v. Burmester, 10 H. L. C. at p. 114; Wyllie v. Pollen, 32 L. J. Ch., 782; Re Marseilles Extension R. W. Co., L. R. 7 Ch. 161; In re Colemere, L. R. 1 Ch. 128; Hewitt v. Loosemore, 9 Hare at p. 455; Cave v. Cave, 15 Ch. D. 639; Driffill v. Goodwin, 23 Gr. 431; Saffron Walden Society v. Rayner, 14 Ch. D. 406. We cannot, at all events, allow this appeal without reversing the trial Judge's findings of fact, that the solicitor who acted for the defendant, and through whom it is sought to affect the defendant with notice of some fraudulent intent on the part of Clarke, had himself no such notice. The evidence is extremely meagre; neither the solicitor nor any member of the firm of Stuart & Co., was called, and whatever suspicions may be excited by the circumstances, I think the learned Judge was quite justified in holding that the evidence fell short of the clear proof of notice which should be required in order to affect the defendant and destroy his security for money actually and Judgment. in good faith advanced by him. I have no doubt that we should dismiss the appeal; but there is another aspect of the case which ought not to be overlooked. It must always be remembered that a preference of one creditor to another is not unlawful except so far as the statute makes it so, and that payment of money to a creditor in discharge of his debt, though a preference of the strongest and plainest kind, is expressly excepted from the operation of section 2 of the R. S. O. ch. 124, and further, that section 3 as it originally stood in the Act of 1885, 48 Vic. ch. 26, was amended apparently with the view of making it clear that payment to a creditor was not intended to be affected. See 50 Vic. ch. 19, sec. 2 (0.) Moreover, an insolvent remains at perfect liberty to borrow money upon the security of his property so long as it is a present, actual, bona fide advance to him. If payment of a debt is not forbidden by the Act, can it, under any circumstances, be the lender's concern that the borrower intends to pay a debt with the borrowed money? It may be said that this is a mere evasion of the Act, and that the creditor is more effectually preferred than if he had taken a mortgage; but the question is, whether the thing done comes within the prohibition. The Act has been held not to be an insolvent Act; and in principle, therefore, there is no reason for construing it differently from the way in which its predecessor, R. S. O. (1877), ch. 118, was construed, except in so far as its provisions are an extension of the provisions of that Act. I refer to Macdonald v. Crombie, 10 A. R. 92, and that class of cases, and Ramsden v. Lupton, L. R. 9 Q. B. 17. I think that the appeal should be dismissed. HAGARTY, C. J. O., and BURTON, J. A., concurred. OSLER Judgment. MACLENNAN, J. A. :— MACLENNAN J.A. I have hesitated a good deal over this case, finding it difficult to agree with the learned trial Judge that a case was not proved within the statute 13 Eliz., ch. 5, of actual fraudulent intent to hinder and delay creditors on the part of the mortgagor, Clarke, and of notice to the defendant of the fraud. But upon the whole, I do not see my way to differ. [The learned Judge discussed the evidence, and continued:] If I had been able to come to the conclusion that the mortgagor had told the solicitor who acted for the mortgagee the fraudulent purpose for which he desired to effect the mortgage, I think it clear that the mortgagee would have been affected by that information, and that he could not have upheld his security. It was argued that on the principle of Kennedy v. Green, 3 M. & K. 699, and the cases which have followed it, the defendant would not be affected by the notice to his solicitor because it cannot be supposed that the solicitor would communicate to his client that the mortgage was made for a fraudulent purpose. In my judgment the class of cases referred to does not at all govern the present. What was there to prevent the solicitor telling his client that the mortgagor wanted to make the mortgage to hinder and delay his creditors? In doing so he would not be disclosing or exposing his own fraud or misconduct. In a case like the present the fraud is that of the mortgagor. It is his intent to hinder and delay his creditors which makes the transaction fraudulent and void, and it is notice of the fraudulent intent which affects the mortgagee. Why should the solicitor in this case not have gone to the client, and have told him about this man's application for a loan, and the purpose for which he wished to effect it, and have laid it before him and have explained it just as fully as it had been made known to himself? There was no reason for his keeping anything back. He had not defrauded any body, or done anything to be ashamed of, or which he would natur |