Tuesday, November 15.

FIRST DIVISION.

MILN V. NORTH BRITISH FRESH FISH SUPPLY

COMPANY (LIMITED).

Company-Companies Act 1862 (25 and 26 Vict. c. 89), sec. 23-Application for Shares, whether Conditional-Powers of Directors- Ultra vires.

A person applied for 1000 shares in a jointstock company, and remitted £25, "being deposit of 2s. 6d. per share, less 2s. per share commission." The application was made upon this condition-"I do not wish to invest my own money in shares of your company up to that extent, but see my way clear to place 1000 shares amongst my friends and clients." The shares were allotted to him, and his name was entered on the register of members. He failed to place the shares, and thereafter presented a petition to have his name removed from the register. Held (1) that the placing of the shares was not a condition precedent to the petitioner being put upon the register; and (2) that it would have been ultra vires of the directors to have made an agreement with the petitioner by which he was to be put upon the register without incurring liability as a member. Petition refused.

This petition was presented under the 35th section of the Companies Act 1862 by William Simpson Miln, residing at 3 Bellevue Villas, Woodgreen, London, for rectification of the register of members of the North British Fresh Fish Supply Company (Limited), in the following circumstances as set forth in the petition :The North British Fresh Fish Supply Company (Limited) was incorporated under the Companies Acts, with its registered office in Scotland, and having a nominal capital of £50,000 in 50,000 shares of £1 each. Its first issue of capital (3000 shares) was offered in December 1886.

On 22d December 1886 the petitioner addressed to the secretary of the company an application for 1000 shares of the said issue, on the conditions specified in a letter to the secretary in the following terms-Enclosed I beg to hand you application for 1000 shares, together with £25, being deposit of 2/6 per share, less 2/ per share, commission. Please to put this application before your directors at their allotment meeting, on the following conditions:-I do not wish to invest my own money in the shares of your company up to that extent, but see my way clear to place 1000 shares amongst my friends and clients. Although I have been very busy lately, still a good many shares have been applied for through me, and certainly after allotment I feel sure that I can place at least that number, more especially as the London Founders' Association (Ld.) have agreed to give me their full commission of 10 per cent. I authorise you to forfeit the deposit sent you herewith in case I fail to place the shares I apply for within two months from this date. I intend to remit you as and when I sell the shares, which I will sell by transfer out of my name, giving you notice of any transfer I sign.'

In compliance with the said application and rela

tive letter (which was engrossed in the minutes of the board), the secretary of the company on 23d December 1886 sent to the petitioner-(1) an allotment letter of that date for the 1000 shares, showing 2/6 per share, or £125, as paid on application, and 7/6 per share, or £375, as payable on allotment; and (2) a receipt for "the sum of £25, being the deposit of 2/6 per share required on the application for an allotment of 1000 shares of £1 each in the above company (less 2/ per share commission)."

The petitioner was never called upon to pay the amount payable on the other shares of the company on allotment. The petitioner in fulfilment of his undertaking endeavoured to place the shares, but owing to differences with the directors and secretary of the company failed to do so, and on 22d February 1887 wrote to the directors of the company referring to his previous letter of 224 December 1886, and his "conditional application for shares," and informed them that he had not placed the shares for many good reasons" which he explained. He also expressed his belief that the company would succeed if properly controlled, and asked the directors to extend the time for his placing the shares for three months. On 4th March 1887 the secretary intimated to the petitioner that the directors had agreed to grant your request for an extension of time for three months, from 22d February 1887 to enable you to get the shares allotted to you placed amongst your friends."

The petitioner did not get any of the shares placed, and on 4th July 1887 intimated this to the secretary of the company, and requested that in the circumstances the deposit of £25 should be refunded, the petitioner returning the receipt therefor, and abandoning the commission. It was intimated to the petitioner in reply, on 27th July 1887, that the directors had not the power to do anything in the matter. The petitioner thereupon intimated to the company that he had resolved to abandon the £25 deposited on application, and he returned the allotment letter and receipt, and requested that his name should be removed from the register of members. On 26th September 1887 the secretary of the company intimated that the directors were advised that they had no power to do so without an order of the Court."

The petitioner averred that "throughout the whole transaction the petitioner acted as paid agent of the company, and the shares were allotted in his name provisionally, and for convenience in the execution of the agency. The petitioner's name accordingly should now be removed from the register of members, the agency to facilitate which the shares were so provisionally registered having proved abortive and come to an end."

The company lodged answers, in which they averred-The petitioner duly applied for the shares in question, and, as he was well aware at the time, these shares were allotted to him, and he was entered on the register as a shareholder in respect thereof, and agreed to become a shareholder in respect thereof. The shares were all along dealt with by the petitioner and the company as having been finally and unconditionally allotted to and accepted by the petitioner." They submitted that the petitioner's averments were

N. B. Fresh

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irrelevant and unfounded in fact.

The Companies Act 1862 (25 and 26 Vict. c. 89), sec. 23, provides-"The subscribers of the memorandum of association of any company under this Act shall be deemed to have agreed to become members of the company whose memorandum they have subscribed, and upon the registration of the company shall be entered as members on the register of members hereinafter mentioned; and every other person who has agreed to become a member of a company under this Act, and whose name is entered on the register of members, shall be deemed to be a member of the company."

Argued for the petitioner-The question here was whether he agreed to become a member of the company within the meaning of section 23 of the Companies Act 1862. It was clear he did not. He had no doubt signed documents which in ordinary circumstances would put him on the list of shareholders, but the real arrangement was that he should place 1000 shares. The application and allotment were merely incidental to the primary contract to place shares. There was a wide distinction between an agreement to take shares and an agreement to place shares-Gorrisen, L. R., 8 Chan. App. 507. Such a contract was within the powers of the directors Liquidator of Consolidated Copper Company v. Peddie, December 22, 1877, 5 R. 393; Simpson's case, L. R., 4 Chan. App. 184; Buckley on the Companies Acts, sec. 23.

Argued for the respondents-The terms of the application showed that the petitioner was to be the dominus and true owner of the shares. It was not open to him to say that unless a preliminary condition was complied with he was not to be put on the register. The directors had no power to make such an allotment-Muir v. City of Glasgow Bank and Liquidators, December 20, 1878, 6 R. 392 (per Lord President, 403)—aff. (H. L.) 21. In the cases cited the question was whether there was a condition precedent to being put on the register. But here it was not said that the petitioner's name was improperly put on the register-Fisher's case, L.R., Chan. Div. 120; Elkington's case, L. R., 2 Chan. Div. 511; Bridger's case, L.R., 9 Eq. 74, and 5 Chan. 305. There was no preliminary condition to be fulfilled before the petitioner's name was to be placed on the register. It was there by agreement, and that was conclusive. There was no authority for the proposition that the petitioner might agree to be put on the register, and afterwards repudiate being a shareholder; nor was there any to the effect that the directors had power to register his name with qualified liability. The case of Gorrisen (supra cit.) was not in point, for Gorrisen had never substantially agreed to be put on the register.

At advising

LORD PRESIDENT-I think this is a clear case. The petitioner applied for shares by his letter of the 22d of December 1886, and he expressed his assent to an allotment of shares, and authorised the secretary to place his name on the register in the usual formal manner, and this was done.

The question comes to be, whether there was an agreement apart from the request to be registered, which suspended the petitioner's liability, and

imported an agreement that he was not to be put on the register till a condition precedent should be fulfilled? I am of opinion that there was no such agreement. The letter written on the same date as the application for shares plainly contemplated that he was to be put on the register, and that his name was not to be removed therefrom except in one way, viz., by the execution of a transfer of the shares in favour of other persons. I am therefore unable to hold that any such agreement as is contended for has been made out here, where on the face of the application for the shares there is a request to be registered and thus become a partner of the company. Now nobody can become a partner without incurring all the liabilities of the other partners, and being placed on the same footing with them. In other words, no one can be registered except as a partner with full liability. Therefore, even supposing an agreement, such as Mr Lorimer contended for, had been made out, I am of opinion that it would have been beyond the powers of the directors to have made it. But I do not think that the letter of 22d December above referred to bears any such meaning. I think all the petitioner meant to say was, that he did not wish to continue to be a shareholder, but only became one with a view to transferring his shares in common form at an early period. I therefore think the petition should be refused.

LORD MURE concurred.

LORD SHAND-The question raised is under section 23 of the Companies Act. Did this petitioner agree to become a member of the company? Now, I am of opinion that any man who applies for shares, and requests that his name be put on the register, agrees to become a member. There is a class of cases where registration is to take place, but only after a condition precedent has been fulfilled; and if there is registration notwithstanding this qualification of the request, the Court will give redress because the registration is unauthorised. There is no such condition here. Therefore the case is one where the petitioner agreed to become a member.

I also concur in what your Lordship has said as to the want of power on the part of the directors to register a man with qualified liability.

LORD ADAM-I am of the same opinion.

The Court refused the petition with expenses. Counsel for the Petitioner-Lorimer. Agent-Peter Morrison, S.S. C.

Counsel for the Respondents Agent-Thomas Dalgleish, S.S.C.

Dickson.

Bankruptcy-Cash Payment by Notour Bankrupt-Fraud.

A notour bankrupt, against whom a petition for cessio had been presented by one of his creditors, sold a large portion of the stock and implements on his farm, and, with the proceeds of the sale, paid in cash a debt due to another creditor. An order had previously been pronounced in the process of cessio, which the bankrupt failed to obey, ordaining him to lodge a state of his affairs by a certain date, and the sale was effected the day before that on which the state should have been lodged. The creditor when he obtained payment had knowledge of the notour bankruptcy, the dependence of the process of cessio, and the order that had been pronounced. Held, in an action at the instance of the bankrupt's trustee against the creditor, that the payment was improperly made, and that the defender was not entitled to take benefit thereby.

Thomas v. Thomson, 3 Macph. 358, and Coutts' Trustee v. Webster, 13 R. 1112, distinguished.

Court at Lamond,

This was an action, in the Sheriff Perth, at the instance of James trustee for behoof of the creditors of David Shaw, farmer, Mid-Derry, in the parish of Glenisla, against Stewart & Bisset, general merchants, Blairgowrie, for payment of the sum of £101, 9s. 11d., which the pursuer alleged had been illegally paid by Shaw to the defenders.

The circumstances of the case were as follows: -Shaw was charged on 15th September 1886 upon a protested bill at the instance of James Matthewson, his landlord. The days of charge expired upon 21st September, and Shaw, who had previously been insolvent, became notour bankrupt. Matthewson then presented, in the Sheriff Court at Forfar, a petition against Sbaw under the Cessio Acts, and on 28th September 1886 the Sheriff-Substitute pronounced this deliverance-Being satisfied from the productions that there is prima facie evidence of the notour bankruptcy of David Shaw, the debtor and defender-Appoints a copy of the said petition and of this deliverance to be served upon the said debtor, and appoints the pursuer to publish a notice in the Edinburgh Gazette at least eight days before the diet after mentioned, intimating that this petition has been presented, and requiring all the creditors of the said debtor to appear in Court within the Sheriff Court-house. Forfar, upon Tuesday, the 12th day of October next, at one o'clock afternoon: Ordains the said debtor to appear at said diet for public examination, and on or before the sixth lawful day prior thereto to lodge in the hands of the Clerk of Court, to be patent to all concerned, a state of his affairs, subscribed by himself, and all his books, papers, and documents relating to his affairs." On 12th October Shaw was examined

before the Sheriff-Substitute, who ordained him to execute a disposition omnium bonorum in favour of Lamond. On 13th October the SheriffSubstitute er proprio motu reported the case to the Procurator-Fiscal under the Debtors (Scotland) Act 1880, sec. 13, sub-sec. 5, B. Shaw afterwards absconded. He had previously, upon 30th September, executed a trust-disposition of his whole estate for behoof of his creditors in favour of Lamond.

The averments of the pursuer in the present action were that after the deliverance of the Sheriff-Substitute of 28th September had been served on Shaw he culpably failed to lodge the required state of affairs; that on 7th October, by the advice and at the instigation of the defenders, Shaw removed from his farm the live stock and implements thereon, and sold the same to conjunct and confident parties; and also entered into a fraudulent and collusive arrangement with the defenders by which on that day he paid them the sum of £101, 9s. 11d. in satisfaction of an alleged account which was not legally due.

The pursuer pleaded-" (1) The payment of the foresaid sum of £101, 9s. 11d. to the defender having been fraudulent and collusive, the pursuer, as trustee for the creditors, is entitled to demand repetition thereof; et separatim, the said £101, 9s. 11d. not being legally resting owing to the defenders at the time, the same falls to be repaid. (2) The defenders being in the knowledge of the insolvency of Shaw, were barred by personal exception from taking payment of the foresaid money, and they are in mala fide and are bound to repeat. (4) The said payment by the bankrupt to the defenders was not in the ordinary course of business, but was made subsequent to the public insolvency of Shaw, which was within the knowledge of the defenders, and was therefore fraudulent and illegal under the Act 1696, c. 5, the Act 1621, c. 18, the Cessio Acts, and at common law, and repetition falls to be made."

The defender pleaded-"(1) The payment referred to having been made in the ordinary course of business, and in discharge of a bona fide debt du by Shaw to the defenders, the action should be dismissed."

Evidence was led before the Sheriff-Substitute, the principal witness being Mr Stewart, a partner of the defenders' firm, to whom the payment of £101. 9s. 11d. had been made, and whose evidence may be thus summarised:-On 7th October 1886 Shaw paid Stewart £101, 9s. 11d. in notes, gold, and silver, no discount being allowed. in discharge of a debt to that extent which the witness deponed was due to the firm. This debt consisted of a balance due by Shaw to the defenders of an advance of £100 made by them to him on 21st November 1883, and of the price of coal and other goods supplied by them to him at various dates between 29th August 1883 and 19th May 1884. The advance was made on the promise of the delivery of potatoes to that value by Shaw to the defenders, but the potatoes had never been delivered. Mr Stewart deponed-"For my advance of £100 I expected the produce of upwards of 10 acres of potatoes for the season of 1883 and the spring of 1884. When

I did not get the potatoes I did not press Shaw. I got no potatoes from him at all. The season

v. Stewart &

15, 1887

was a bad one; potatoes were almost unsaleable

It came to my knowledge somewhere about the beginning of October or end of September 1886 that Shaw was in difficulties. I think the Indication of it that I had was from Mr Panton, but I am not certain. Mr Lochhead called on me and spoke about Shaw. Mr Panton and Mr Lochhead act as my agents only in some cases. A day or two after Mr Panton indicated to me that Shaw was in difficulties Mr Lochhead called at my office and showed me a little jotting of Shaw's liabilities. That jotting showed that Shaw was insolvent." Mr Panton and Mr Lochhead were in business together, and had been consulted by Shaw in regard to his affairs. After learning what Shaw's position was Mr Stewart sent for him, and pressed him about the matter. I did not propose anything to Shaw about payment. I pressed him that he should do something to pay me. Shaw told me that he would try and make payment of his account. He indicated that he would try and dispose of some things, or do something, and pay me. He did not indicate plainly what actually he intended to do. Interrogated-What was your impression when he left you? (Answer)-I cannot put that into words. I had the impression and always thought that Shaw was a very decent fellow, that he would make some effort in some shape to do something for me. I thought he would either go to his friends or dispose of part of his stock and raise money. He did not tell me that he intended to sell any of his stock, but he gave me to understand that he would raise something on his stock. He did not say anything about the implements." Mr Stewart further deponed-"I heard of the cessio first not very long before the beginning of October-some of these days previously. I heard it before payment was made to us. I know that a petition for cessio had been presented a few days before we were paid, and a few days before we sent for Shaw. I know James Moncur and George Grant, Tullyneddie. I don't recollect if these men told me they were to purchase stock and implements from Shaw. Perhaps they may have done so on the market day. Moncur indicated to me that he was going to see Shaw. He did not indicate anything particular. I do not know what led him to make the remark. pose that he had been aware that we had sent for Shaw. I think Shaw had made him aware. I cannot tell. I did not press Moncur to go and buy. I saw Grant in the market. I think I mentioned something to him about going to purchase at Mid-Derry. The gist of our conversation was-I told him that Shaw had been here, and if he needed anything I thought Shaw was wanting to sell some of his stock, or something to that effect. One reason for pressing Shaw in October was that I was anxious to get payment. Another reason was, I had a strong feeling that if Mr Matthewson and his agent got Shaw in his fingers there would be nothing got."

I sup

A receipt was produced, dated 7th October 1886, granted by Shaw to Moncur for £148, the price of stock and implements that day delivered to him; and a similar receipt for £28, 19s. 6d., dated 11th October 1886, grauted by Shaw to Grant. The pursuer deponed that Moncur and Grant had acknowledged before the Sheriff that they had bought the stock and implements referred to in these receipts from Shaw.

On 29th March 1887 the Sheriff-Substitute (GRAHAME) pronounced this interlocutor:-" Having heard parties' procurators and advised the case, Finds that on 7th October 1886 David Shaw, farmer, Mid-Derry, made to the defenders a cash payment of £101, 9s.. being the balance due upon an advance of £100, and the price of articles supplied to him by them; that at the date of this payment Shaw was insolvent; but Finds that it is not proved that said payment was made in collusion or fraudulently with the defenders: Finds that repetition of said payment cannot be claimed by the pursuer, Shaw's trustee, either under the statutes founded on or at common law: Therefore assoilzies the defenders from the conclusions of the action: Finds them entitled to expenses, &c.

"Note. This is a case in which repetition of payment is sought of a sum paid by an insolvent to one of his creditors, in respect of its having been the result of a collusive and fraudulent transaction. The action is founded both on statutes and on common law, but the real question, and the one which was the subject of argument at the hearing, is as to the effect of the circumstances proved, upon the validity of the transaction in question at common law. It is alleged by the pursuer, who is the trustee of the insolvent debtor, that the payment in question was not only made with the view of giving the defenders, as favoured creditors, an unjust preference, but that the defenders themselves were parties to a fraudulent method of effecting this purpose. What is specially alleged, is that when Shaw made a cash payment of his debt to the defenders, he was enabled to do so only by the improper sale of the stocking of his farm, and that this sale was carried out with the collusive and fraudulent connivance of the defenders, who, it is alleged, were not only in the knowledge of Shaw's solvency, but were parties to the sale of the stock from the proceeds of which their debt was paid; and that the transaction thus effected must therefore be held fraudulent and null. I do not think that this alleged collusive and fraudulent connivance of the defenders with Shaw has been established. The case seems to me to be just that of creditors who had reason to think that their debtor was in impecunious circumstances, and who accordingly pressed for payment of their debt and got it, no doubt to the disadvantage of other creditors, but not therefore fraudulently, and so as to afford ground for claim on the part of the debtor's trustee for repetition of the money so paid. What the defenders did may have been a sharp proceeding, involving inequitable consequences to the other creditors, but it was not one which the law regards as fraudulent, and will set aside on that ground. Cash payments of debts due by an insolvent are not null merely in respect of their having been made so as to cause an inequitable distribution of the insolvent's estate. If a creditor can get a cash payment of a debt due to him, he is in the general case secure of his money, and need not ask where the money came from; and though the intention of his debtor may have been to give him an unjust preference, and thus to deprive other creditors of the means of getting their just claims satisfied out of his estate, the payment, once made, is good, unless there are very clear grounds for holding that there has been a fraudulent conspiracy. In the present instance it is