Cochrane v. Schetky
- Citation
- (1920) 60 SCR 650
- Status
- Judgment
- Jurisdiction
- Canada
- Court
- Supreme Court of Canada
- Decision
- 8 March 1920
- Posture
- Civil Appeal (contract/rescission) / Final Appeal to Supreme Court of Canada From Court of Appeal for British Columbia; Judgment Affirmed
- Language
- English
More details
- Court
- Supreme Court of Canada
- Decision
- 8 March 1920
- Posture
- Civil Appeal (contract/rescission) / Final Appeal to Supreme Court of Canada From Court of Appeal for British Columbia; Judgment Affirmed
- Language
- English
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
Where related companies under common control transferred assets by an agreement procured by the controlling persons, the transfer was voidable for fraud and the liquidator could rescind the agreement and obtain a declaration that a party who recovered a note connected with that transfer was wrongfully in possession, even though the party paid to recover the note, when the transaction was tainted by fraud.
Court disposition
Appeal dismissed; judgment of the Court of Appeal for British Columbia affirmed.
Orders
- Appeal dismissed with costs
- Judgment of Court of Appeal for British Columbia restoring respondent's action for rescission and declaration of wrongful possession upheld
02
Material facts
Parties
Cochrane
Appellant/defendant Counsel: Hellmuth K.C.Schetky
Respondent/plaintiff Counsel: W.J. BairdAmounts and remedies
- Promissory Note Amount: CAD 7,250
- Amount Paid by Appellant to Recover Note: CAD 1,500
03
Procedural history
Posture
Civil Appeal (contract/rescission) / Final Appeal to Supreme Court of Canada From Court of Appeal for British Columbia; Judgment Affirmed
04
Questions and positions
Legal issues
- 01
Whether the transfer of promissory notes between related companies could be rescinded for fraud
- 02
Whether the liquidator could obtain a declaration that the appellant was in wrongful possession of his note
- 03
Whether recovery of the note upon payment defeated the rescission remedy when the transaction was tainted by fraud
Party arguments
- Applicant
- Appellant argued he legitimately recovered his promissory note by paying $1,500, acted lawfully in recovering his property, and that the transaction should not be set aside as against him.
- Respondent
- Respondent (via the liquidator) argued the agreement transferring notes between the related companies was procured by fraud and was voidable; accordingly the liquidator could rescind the transfer and obtain a declaration that the appellant was wrongfully in possession of the note.
05
Court’s reasoning
Legal principles
- 01
Common law equitable principle as applied by Supreme Court of Canada in Cochrane v. Schetky (1920) 60 S.C.R. 650
A transaction between related companies controlled by the same persons is subject to close scrutiny and may be set aside if procured by fraud.
- 02
Equitable doctrines of rescission and notice as applied in Cochrane v. Schetky (1920) 60 S.C.R. 650
Rescission for fraud can be effected against third parties where the transaction is tainted and the party seeking to retain property has knowledge of the fraud.
06
Ratio, limits and disposition
Ratio decidendi
Where related companies under common control transferred assets by an agreement procured by the controlling persons, the transfer was voidable for fraud and the liquidator could rescind the agreement and obtain a declaration that a party who recovered a note connected with that transfer was wrongfully in possession, even though the party paid to recover the note, when the transaction was tainted by fraud.
Obiter and limits
- Court noted that virtual control of both companies by the same individuals is a factor compelling the setting aside of transactions between them.
- Payment to recover an instrument does not necessarily defeat equitable rescission where the recovery is connected to a fraudulent scheme.
Court disposition
Appeal dismissed; judgment of the Court of Appeal for British Columbia affirmed.
- Appeal dismissed with costs
- Judgment of Court of Appeal for British Columbia restoring respondent's action for rescission and declaration of wrongful possession upheld
Source and reliance status
Supreme Court of Canada · 8 March 1920
This page organises the available record for research. Confirm quotations, current status, and subsequent treatment against the official source before relying on the case.
Judgment reading view
Judgment text
The complete available source text.
Supreme Court of Canada
Judgment· 8 March 1920
Cochrane v. Schetky Collection Supreme Court Judgments Date 1920-03-08 Report (1920) 60 SCR 650 Judges Davies, Louis Henry; Idington, John; Duff, Lyman Poore; Anglin, Francis Alexander; Brodeur, Louis-Philippe; Mignault, Pierre-Basile On appeal from British Columbia Subjects Contract Decision Content Supreme Court of Canada Cochrane v. Schetky, (1920) 60 S.C.R. 650 Date: 1920-03-08 Cochrane v. Schetky. 1920: February 6; 1920: March 8. Present: Sir Louis Davies C.J. and Idington, Duff, Anglin,Brodeur and Mignault JJ. ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA. Debtor—Creditor—Agreement—Rescission—Fraud. APPEAL from the judgment of the Court of Appeal for British Columbia[1], reversing the judgment of the trial judge, Hunter C.J. and maintaining the respondent's, plaintiff's, action. The appellant, a shareholder in the Acadia Limited company, gave a promissory note of $7,250 in part payment of stock; and the company entered into an agreement with one C. who undertook to make the collection of all similar notes, including the above. Then C., with one E., obtained the incorporation of the Union Funding Company. Later on; C. and E. having virtual control of both companies, the companies entered into an agreement whereby the Acadia Limited transferred to the Union Funding Co. all the promissory notes. After the Acadia Limited went into liquidation, the appellant
negotiated with the Union Funding Company and recovered his note on payment of $1,500. An action was taken by the liquidator of the Acadia Limited for rescission of the agreement between the two companies on the ground of fraud and for a declaration that the appellant was in wrongful possession of his note, such fraud being to his knowledge. The trial judge dismissed the action; but this judgment was reversed by the Court of Appeal. On appeal to the Supreme Court of Canada, the judgment of the Court of Appeal was affirmed. Appeal dismissed with costs. Hellmuth K.C. for the appellant. W.J. Baird for the respondent. [1] 26 B.C. Rep. 257.
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