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Preference Shares may be created although not authorized by
Memorandum or original Articles.

ANDREWS v. GAS METER CO , LTD. [1897]
(66 L. J. Ch. 246; (1897) 1 Ch. 361 ; 76 L. T. 132; 45 W. R. 321.)

The company was formed and registered as a limited company.
The company's original capital, as stated in its memorandum,
was 60,000/., divided into 600 shares of 100/. each, with power
to increase the capital as provided by the articles of association.
By the articles power was given to the company to increase the
capital, and it was provided that any new capital should be
considered as part of the original capital. The issue of prefer-
ence shares was not contemplated or authorized.

Subsequently the company desired to acquire additional works,
and passed a special resolution altering the articles, and autho-
rizing the issue of 100 shares of 100/. each fully paid, and
bearing a preferential dividend of 5/. per cent, per annum.

The question to be decided was whether the preference shares
were valid.

Held, the preference shares ivere valid. There is no con-
dition implied, in the absence of anything to the contrary
in a memorandum of association, that all shareholders are



264 COMPANY.



to be on an equal/'///. Therefore a company whose memo-
randum and original articles do not authorize the issue of
preference shares ran alter its articles so as to do so.



A Company is liable for the Wrongs of its Agent, if committed in
its service and for its benefit, to the same extent as though
the Wrong were its own.

BAKWICK v. THE ENGLISH JOINT-STOCK BANK.

[1866]
(36 L. J. Ex. 147 ; L. E. 2 Ex. '259 ; 16 L. T. 461 ; 15 W. K. 877.)

The plaintiff supplied oats to one Davis, a customer of the
defendants' bank, for the purpose of enabling Davis to perform
a contract with the Government for the supply of oats, on the
faith of a guarantee given by the defendants' manager that on
receipt of the money to be paid by the Commissariat Depart-
ment to the defendants for Davis for the price of the oats
supplied to the Government by Davis, the defendants would
pay the plaintiff out of that money the sum due to him
from Davis, subject only to the debt due to the bank from
Davis. Davis was at the time so largely indebted to the bank
that it was practically impossible that there should be any
surplus to come to the plaintiff aiter pa\ ment of the debt due
to the bank, but the manager concealed this from the plaint ill.
The bank having appropriated the whole of the money to the
payment of their own debt —

Hebf, that on proof of these facts there ivas evidence to
go to the jury of a false representation on the part of the
manager of the defendant bank; that the defendants were
answerable for such false represent" I inn • and that the false
representation was properly described in the declaration as
that of the defendants.



COMPANY. 265



A Company issuing a Certificate that Shares are fully paid, is
estopped from denying that Fact.

BLOOMENTHAL v. FOED. [1897]
66 L. J. Ch. 253 ; (1897) A. C. 156 ; 76 L. T. 205 ; 45 W. E. 449.)

Bloomenthal applied to have his name removed from the list
of contributories of Veuve Monnier et ses Fils. In 1894, the
plaintiff was asked to lend the company 1,000/., and was induced
to do so by the statement that he would have lodged with him
as security 10,000 seven per cent, preference shares of the
company, fully paid up, of the nominal value of 1/. each. The
money was lent, and the certificates of the 10,000 shares, which
stated they were fully paid up, were handed to the plaintiff, and
he was eventually registered as a shareholder in respect of these
shares. Nothing had in fact beon paid in respect of any of the
shares, nor had any contract been filed in respect thereof.

Held) Bloomenthal was entitled to have his name removed
from the list of contributories.

Where a man lends money to a company, and by way of
collateral security accepts shares on the certificate of which
it is stated that each of them is fully paid up, the company
and the liquidator in its winding-up are estopped from
denying the truth of the allegation on the faith of which the
money was advanced, and the lender is entitled to have his
name removed from the list of contributories. It is no
answer to the lender's claim that he might by inquiry or
refection have discovered that in fact nothing had been paid
on the shares.



266 COMPANY.

A Company is not liable for Loss sustained by a Purchaser acting
on faith of a Certificate forged by their Secretary for his own
purpose, although delivered by him in the ordinary course of
duty.

KUBEN v. GREAT FINGALL CONSOLIDATED, LIMITED.

[1906]

(75 L. J. K. B. 843; (1906) A. C. 439; 95 L. T. 214 ;
13 Manson, 248; 22 T. L. E. 712.)

Rowe, who was the secretary of the defendant company,
applied to the plaintiffs, who were stockbrokers, to procure for
him a loan of 20,000/. in order to enable him to purchase 5,000
shares in the defendant company. The plaintiffs accordingly
arranged with a firm of bankers to advance the money upon a
transfer of the shares to their names. Rowe forged a transfer
in the name of one Story as transferor. The transfer was duly
executed by the bankers as transferees, and then the plaintiffs
delivered it to Rowe in exchange for a certificate. The cer-
tificate purported to state that the bankers were the registered
proprietors of 5,000 shares ; it purported to be signed by two
directors ; the seal was affixed to it ; and it was countersigned
by Rowe himself as secretary. In fact the names of the two
directors were forged by Rowe, and the company's seal was
affixed by Rowe fraudulently, and not for or on behalf of or for
the benefit of the defendant company, but solely for himself
and for his own private purposes and advantage. Upon this
the bankers advanced 20,000/. When the fraud was dis-
covered, the plaintiffs were obliged to repay to the bank the
sum of 20,000/., and brought this action against the defendant
company upon the ground that they were liable for the fraud of
Rowe. Rowe was admittedly a proper person to deliver cer-
tificates on behalf of the company.

Held, the company was not liable for the loss occasioned
to the plaintiffs by the fraud of their secretary.

A company is not liable in damages for loss sustained by



COMPANY. 267

the purchaser for value of a share certificate on which the
names of the directors, whose signatures under the articles of
association is necessary to the validity ', have been forged by
the secretary. The fact that the certificate is in proper
form and delivered by the secretary in the ordinary course
of his duty, does not operate in such a case as a warranty
or representation of genuineness or estop the company from
denying the validity of the certificate.



The Court will not interfere with the internal Administration of
a Company unless there be something Illegal, Oppressive,
Fraudulent, or ultra vires.

MACDOUGALL v. GAEDINEE. [1875]
(45 L. J. Oh. 27 ; L. B, 10 Oh. 606 ; 1 Ch. D. 13 ; 24 W. E. 118.)

The articles of association of a company gave power to the
chairman at any general meeting of the company, with the
consent of the meeting, to adjourn the meeting, and also pro-
vided for taking a poll if demanded by five shareholders. At a
general meeting of the company the adjournment of the meeting
was moved, and on being put was declared by the chairman,
who was one of the directors, to be carried. A poll was duly
demanded, but the chairman ruled that there could not be a
poll on the question of adjournment, and left the room. One
of the shareholders filed a bill on behalf of himself and all other
shareholders except the defendants against the directors of the
company, stating these facts and alleging that the course taken
at the meetiug was taken in collusion with the directors with a
view of stifling discussion, and that the directors were intending
to carry out certain measures injurious to the company without
submitting the terms to a general meeting ; and praying for a
declaration that the conduct of the chairman was illegal and
improper, and asking for an injunction to restrain the directors



268 COMPANY.

from carrying out the proposed arrangements without submitting
them to the shareholders for their approval.

Held, that the bill could not be sustained, for the rule
must be adhered to, that nothing connected with internal
disputes between the shareholders is to be made the subject
of a bill by one shareholder on behalf of himself and "/hers
unless there be something illegal, oppressive, or fraudulent,
or something ultra vires on the pari of the company, or on
the part of the majority of the company, so that they arc
not fit persons to determine it.

Note. — This is known as the rule in Foss v. Harbottle, 2 Hare,
461.



A material Misrepresentation, however innocent, is a ground for
the Rescission of a Contract to take Shares if the application
for Rescission is made within reasonable time.

RE REESE RIVER SILVER MINING CO. LIMITED. [1867]
(36 L. J. Ch. 618 ; L. R, 2 Ch. 604 ; 16 L T. 549 ; 15 W. R. 882.)

A limited company was established for carrying on the
business of a mining, smelting, and crushing company in
Nevada, and acquiring any lands and effects for those purposes.
The prospectus contained a statement that specified lands which
had been contracted for by the company contained several very
valuable claims, some of which were in full operation and
making large daily returns, such statements having been made
by the directors, not as hearsay, but as a fact within their own
knowledge. This was the only property at that time contracted
for. It having appeared subsequently that this description was
quite incorrect, and that the property was worthless, the com-
pany refused to complete the purchase, and contracted to buy
other mines in Nevada.

Mr. Smith, who had become a shareholder on the faith of the



COMPANY. 269

prospectus, received authentic notice of the misrepresentation
on the 19th of January, and on the (>th of February applied to
be taken off the list of contributories.

Held, that a material misrepresentation having been made,
it was perfectly immaterial whether the directors when they
made the representation in the prospectus believed it to be
true, or did not believe it to be true, and that Smith,
having come to the Court within reasonable time, was
entitled to have his name taken off the list of contributories.



A Contract induced by Fraud or Misrepresentation is Voidable, not
Void. Shareholders cannot rescind after Winding-up.

OAKES v. TUEQUAND. [1867]
(36 L. J. Ch. 949 ; L. E. 2 H. L. 325 ; 16 L. T. 808.]

Mr. Oakes had been induced to apply for shares to be allotted
to him in Overend, Gurney & Co. (Limited), by a prospectus
which was false and fraudulent.

The prospectus which was put forth by the seven directors of
the new company, five of whom were connected with the old
firm, was so framed as to lead the public to believe that the old
concern was flourishing and profitable, whereas the five directors
knew that it was insolvent to the amount of upwards of
3,000,000/., and that no profits, but a loss, had been the annual
result of their trading for nearly ten years immediately pre-
ceding their publishing the prospectus.

The plaintiff applied to have his name removed from the list
of contributories to the liabilities of the company in the wind-
ing up.

Held, a contributory under the Companies Act, 1862, is
a person who has agreed to become a member of a company



270 COMPANY.

and ivhose name is on the register. Tt matters not that his
consent tvas obtained by fraud.

The contract between a shareholder who has been deceived
by a fraudulent prospectus and the company is voidable,
not void, and cannot be avoided after the commencement of
the winding up.



A Floating- Debenture on the Property of a Company both Pressnt
and Future is a good Charge.

RE PANAMA MAIL CO. [1870]

(39 L. J. Oh. 482 ; (1870) L. E. 5 Ch. 318 ; 22 L. T. 424 ;
18 W. R. 441.)

The question was whether a debenture holder having a deben-
ture bond by which the company charged " the said undertaking
and all sums of money arising therefrom, and all the estate,
right, title, and interest of the company therein, with the pay-
ment " of the bond debt could, on the company being wound
up, claim the benefit of a lien upon all the assets of the com-
pany in priority to general unsecured creditors.

The bond was duly issued under the provisions of the articles
of association of the company.

Held, per Giffard, L. J., that a valid charge had been
created over the property of the company, both present and
future, against unsecured creditors.

That the tvord "undertaking" had reference to all the
property of the company, not only that which zvas in
possession, but to all that which might be acquired after the
date of the debenture. The word " undertaking" implied
that the company ivould go on, and the contract of the deben-



COMPANY. 271

ture holder ?vas that if he received his interest he should,
until the period of the payment of his principal arrived, not
interfere with the business of the company, and should not
be entitled to any account of past profits or dealings of the
company. But the moment the company stops working and
is wound up, the rights of the parties become clear ; and
the debenture holders are in as good a position as if they
had a specific charge upon the property of the company.
If the company had not stopped, the debenture holders
would, if unpaid, have a right to file a bill to realise their
security. I hold that they have a charge upon all the
property of the company, present and future, as against
ordinary unsecured creditors.



Where Shares are issued as fully-paid Shares in consideration of
the transfer of Property, the Court will not, unless the
Contract is impeached, inquire into the Value of the Con-
sideration.

PELL'S CASE. [1869]
(39 L. J. Oh. 120; 5 Ch. 11; 21 L. T. 412; 18 W. E. 31.)

Pell subscribed the memorandum of association for 1,350
shares of the company. He, shortly after the incorporation of
the company, sold property to the company in consideration of
1,350 fully paid-up shares, the agreement for which sale had
been adopted by the articles of association. The sale had not
been impeached. On a summons to strike Pell's name off the
list of contributories —

Held, that the shares issued to Pell ivere issued in respect
of the agreement for purchase of the business. That agree-
ment had never been impeached nor had any evidence been



272 COMPANY.

furnished in /his or any proceedings against the agreement.
The Court, therefore, cannot go behind the agreement and
enquire into the value of the property given for the shares ;
and as Pell, who subscribed for 1,350 shares, paid for them
in money's worth, his name must be struck off the list of
conlributories.



BANKRUPTCY. 273



BANKRUPTCY.



Whether a Bankrupt is the " reputed Owner " of Goods in his
" order and disposition " by the Consent and Permission of
the Owner is a question of fact.

IN EE WATSON & CO. ; EX PARTE ATKIN. [1904]

(73 L. J. K. B. 854; (1904) 2 K. B. 753; 11 Ma. 256;

20 T. L. E. 727— C. A.)

At the commencement of the bankruptcy of Messrs. Watson
& Co., they had on their premises certain goods belonging to
Messrs. Atkin Brothers which had been sent to them as
samples. These the trustee in bankruptcy claimed on the
ground that they were in the possession, order, or disposition of
the bankrupts, in their trade or business, by the consent and
permission of the true owners, under such circumstances that the
bankrupts were the reputed owners thereof, and the goods were
consequently property divisible among the creditors of the
bankrupts under sect. 44, sub-sect. 2 (iii) of the Bankruptcy
Act, 1883.

Held, that the question of reputed ownership is a question
of fact in each case. Before a Court can hold that one
maris goods are to be taken to pay another maris debts
because of the reputation of ownership of the bankrupt, it
is essential that the true owner of the goods should have
consented to a state of things from ivhich he must have
known, if he had considered the matter, flint the inference
of ownership by the bankrupt must arise.

J. T



274 BANKRUPTCY.

That Messrs. A I kin Brothers had not acquiesced in the
bankrupts so dealing ivith the goods as to allow them to
/mid themselves out as owners of the goods or to induce
customer* to presume such ownership ; and the articles
tvere, therefore, not in the order and disposition of the bank-
rupts under such circumstances that they were the reputed
owners thereof within the meaning of sub-sect. 2 (Hi) of
sect. 44 of the Bankruptcy Act, 1883.



Where Goods of another in the "order and disposition" of the
Bankrupt pass to his Trustee, the true Owner is entitled to
Damages for Breach of Bailment.

IN EE HAVISIDE [1907]

(76 L. J. K. B. 83b ; (1907) 2 K. B. 180; 97 L. T. 71 ; 14 Ma. 180;

23 T. L. E. 422— C. A.)

The debtor was adjudicated a bankrupt. on his own petition,
and certain goods which had been left with him by one of his
customers, Haviside, to be sold, or returned if not sold, were, by
order of the Court, adjudged to be goods in the order and dis-
position of the bankrupt with the consent of the true owner,
and to pass to the trustee as property divisible amongst the
creditors under sect, 44, sub-sect. 2 (iii) of the Bankruptcy
Art, 1883. Haviside lodged a proof against the bankrupt's
estate for 758/. 16*. 6d., which he claimed as the value of the
goods, or, alternatively, as damages for the breach of an implied
contract by the bankrupt that he would either sell the goods and
account for the proceeds or would return them.

Held, Haviside was entitled to prove in the bankruptcy for

the damage he had sustained by reason of his goods not
having been returned to him according to the terms of the
bailment.



BANKRUPTCY. 275

Mutual Credits between a Creditor and a Bankrupt may be set
off even though the Debt only ripens into such after the
Bankruptcy.

WATKINS v. LINDSAY & CO. [1898]
(67 L. J. Q. B. 362; 5 Mans. 25.)

Cronmire, on April 15th, 1897, had a speculative account open
with his brokers, the defendants, which might result on the
next account day in a profit or a loss to him. "Wanting money
on the 15th April, he ordered the defendants to sell some
securities for cash, and received the proceeds in the form of a
cheque for 161/. the same day. This cheque Cronmire put in
his safe, meaning to cash it the next day. But the next day
he died, and nothing was done with the cheque until after a
creditors' administration order was made on April 24th for the
administration of Cronmire's estate. On the 27th April the
cheque was presented to the defendants' bank for payment, but
was returned dishonoured, the defendants having in the mean-
time stopped payment of it. On April 28th a sum became
due to the defendants in respect of Cronrnire's speculative
account, and the defendants claimed under the mutual debts
and credits section of the Bankruptcy Act, 1883 (sect. 38), to
set off against the plaintiff's claim an amount equal to the debt
as due to them.

Held, where there have been mutual dealings between a
creditor and a debtor, the creditor is entitled as against the
trustee in the administration of the insolvent debtor's estate,
under sect. 125 of the Bankruptcy Act, 1883, to set off
against his indebtedness a debt due to him from the insol-
vent, although it has only ripened into a debt after the
insolvent's death.



t2



276 BANKRUPTCY,



Trustee in Bankruptcy may disclaim an Onerous Lease. The
Court may vest such disclaimed Lease in any person to whom
it may seem just to vest it by way of Compensation for such
Disclaimer.

HOLMES, IN EE ASHWORTH. [1908]
(77 L. J. K. B. 1129 ; (1908) 2 K. B. 812.)

The lessee of land, subject to a rent of 150/., mortgaged by
sub-demise four portions of it to four mortgagees. He did not
mortgage the remaining portion nor deal with it in any way.
He became bankrupt, and his trustee in bankruptcy disclaimed
the lease. The four mortgagees applied for a vesting order of
the whole land.

Held, in the ordinary course of things, leasehold property
belonging to the bankrupt would pass to his trustee in bank-
ruptcy, but it might be a damnosa hereditas. The legis-
lature, therefore, invented the plan of giving the trustee in
bankruptcy an opportunity of divesting himself of the lease-
hold property by disclaiming it. If there are no sub-leases
no difficulty arises, and the lease would simply be surrendered
to the landlord by operation of law. But in many cases sidt-
leases have been granted, in which case a hardship may be
created by such a surrender. Sect. 55 of the Bankruptcy
Act protects these sub-lessees by giving the Court power to
make an order for the vesting of the disclaimed property in
or delivery /hereof to any person entitled thereto, or to whom
it may seem jus I that the same should be delivered by way
of compensation for such hardship. The mortgagees ivere,
therefore, in this case, entitled to a vesting order of the
whole of the land by way of compensation for their liability
to pay the zvhole of the ground rent.



BANKRUPTCY. 277

Where a Conveyance by a Bankrupt to a Third Party is Fraudu-
lent and therefore Void, such person cannot prove for the
Consideration.

EX PARTE MYERS. [1908]
(77 L. J. K. B. 386 ; (1908) I K. B. 941 ; 15 Ma. 85.)

By an agreement in writing dated August 17th, 1905,
Joseph Myers sold his business to his brother, Abel Myers.
Later in the same month Joseph Myers was adjudicated bank-
rupt. The trustee in bankruptcy brought an action to set this
transaction aside on the ground that it was a fraud and a sham,
and as such was void. Abel Myers consented to a judgment
against him in this action on the grounds that the agreement of
17th August, 1905, was fraudulent against creditors, and void
and of no effect.

Abel Myers claimed to prove for the amount paid by him to
his brother for the business. The proof was rejected by the
trustee in bankruptcy.

Held, per Divisional Court, that a person cannot prove
for money paid by him in order to defraud creditors. So
in this case, although Abel Myers had in fact paid the
amount of 7501., and the bankrupt 1 s estate had had the
benefit of that payment, yet he cannot prove in the bank-
ruptcy for it, as it has been paid in the course of carrying
out a transaction devised in fraud of the general body of
creditors.



A Payment by a Bankrupt in respect of a Breach of Trust to a
co-Trustee or under a threat of criminal proceedings is not a
fraudulent preference.

IN RE TAYLOR. [1887]
(56 L. J. Q. B. 195 ; (1887) 18 Q. B. D. 295 ; 35 W. R. 148.)

The bankrupt, who was a stockbroker, and Taylor, who was
a solicitor, were, with one other, trustees under the will of the



278 BANKRUPTCY.

bankrupt's father. Bonds, being part of the trust funds, were
left in the bankrupt's custody. On the 25th of March, 1885,
the bankrupt confessed to Taylor that he had forged transfers of
certain of the securities, whereupon Taylor threatened to take
him before the Lord Mayor on the charge of embezzlement.
Thereupon the bankrupt gave Taylor a cheque for 3,000/.,
which was cashed the same day. On the 28th March the bank-
rupt absconded, and on that act of bankruptcy was adjudicated
a bankrupt on the 21st of April.

The trustee of the bankrupt claimed the repayment of the
3,000/. paid to Taylor by the bankrupt, on the grouud that it
was a fraudulent preference.

Held, the payment of money in respect of a breach of
trust by a trustee to a co-trustee is not a payment " in
favour of any creditor or any person in trust for any
creditor'''' which may be a fraudulent preference within
sect. 48 of the Bankruptcy Act, 1883.

Held also, that a payment under a threat of criminal
prosecution is not one u with a view of giving a creditor a
preference over the other creditors.''''



The Court in Bankruptcy has power to go behind a Judgment and
inquire into the Consideration, but not into the Form of
Judgment.

IN RE BEA.UCHAMP. [1904]

(73 L. J. K. B. JJl 1 ; (1904) 1 K. B. 572 ; 90 L. T. 594 ; 52 W. R. 545 ;
11 Ma. 5; 20 T. L. R. 269.)

In this case a receiving order was made against Mrs. Beau-
chanip, a divorced wife, who at the time of the making of the
order was a single woman. The order was obtained for the



BANKRUPTCY. 279

ii< m- compliance with a bankruptcy notice calling on her to pay
a sum of money due under a judgment. The judgment was



Online LibraryPhilip Bertie PetridesStudent's cases : illustrative of all branches of the law → online text (page 21 of 29)