voted in its favour, and that the chairman's declaration that the resolution was carried did not legalise the proceedings, it being apparent ex facie of them that the statutory requirements had not been complied with.

Company Reduction of Capital-Petition for Confirmation of Reduction-Omission of Words "and Reduced" -Competency of Petition.

The Companies (Consolidation) Act 1908 enacts, section 48-"Where the reduction does not involve either the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, then on and from the presentation of the petition for confirming the reduction the company shall add to its name, until such date as the Court may fix, the words and reduced,' as the last words in its name, and these words shall, until that date, be deemed to be part of the name of the company: Provided that where the reduction does not involve either the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, the Court may, if it thinks expedient, dispense altogether with the addition of the words and reduced.""

C. & Co., Limited, having passed and confirmed a resolution for reduction of capital, presented a petition to the Court for confirmation of the proposed reduction. The company did not, on and from the presentation of the peti. tion, add the words "and reduced" to its name. The Lord Ordinary, when ordering intimation and service, dispensed meantime with the use of these words.

Held that the petition was incompetent, in respect that the company had failed to comply with the terms of

the statute.

On 11th October 1910 John T. Clark & Company, Limited, incorporated under the Companies Acts 1862 to 1900, and having their registered office at 22 Bridge Street, Aberdeen, presented a petition to the Court for confirmation of reduction of capital resolved on by special resolution, and for dispensing with the words "and reduced" as an addition to the name of the company. The petition was presented under the Companies Acts 1862 to 1908, and more particularly under secs. 46 to 56, both inclusive, of the Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69). On 26th October 1910 the Court remitted to Mr Charles Young, W.S., to inquire and report as to the regularity of the proceedings, and whether the proposed powers should be granted. The proceedings are rated in Mr Young's report, which stated-"The proposal is to reduce the capital of the company from £20,000 to £18,500 by cancelling 1500 shares. The shareholder who offers to surrender these 1500 shares was the vendor to the company, and he received as the price of the goodwill

nar

The

of his business 2000 ordinary shares, which were deemed to be fully paid up. directors have entered into an agreement with him to cancel 1500 of these shares, so that the goodwill will in future appear at £500. While no reason for this depreciation is given in the petition, it was presumably on account of being to that extent not represented by available assets, and the petitioners' agents confirm this. The articles of association of the company only authorise the company to reduce capital by paying off capital, or cancelling capital which has been lost or is unrepresented by available assets.

"The resolution passing and confirming the proposed reduction of capital was passed at properly called meetings. At the first meeting at which the resolution was said to be passed, there were present nine shareholders, two of whom produced proxies, and one voted on a power of attorney, so that in terms of the statute there were twelve members present entitled to vote--on the assumption that a power of attorney is a proxy within the meaning of the Companies Act and the company's articles of association. This latter is, however, a point which your Lordships might consider. The reporter draws your Lordships' attention to the number of members present, as it does not appear to him that the proper statutory majority to pass the special resolution was got. As stated in the petition, the vote was eight to two, which was brought about by two members not voting, but it must be borne in mind that they were present and entitled to vote, therefore it would appear that it would require a majority of nine to pass the resolution. Even if a power of attorney is not a proxy which would entitle one shareholder to vote for another, the majority of eight to two is still less than the necessary three-fourths, as there would then have been eleven present.

"The minute of meeting bears that the chairman declared the resolution carried, and that one of the objecting shareholders had thereafter expressed himself satisfied with the ruling, The petitioners' agents call attention to the provisions of section 69, sub-section 3, of the Companies Act 1908, which states that a declaration on the part of a chairman that a resolution is carried is conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution. The reporter cannot think, however, that this section can possibly override the first subsection of section 69, which requires that an extraordinary resolution must be passed by a majority of not less than three-fourths of such members entitled to vote as are present in person or by proxy (where proxies are allowed). A special resolution must be passed in the same way (section 2).

"The reporter would further point out that the company has not used the words 'and reduced' as part of its name. This omission has been very frequent in similar petitions, and while the practice of not using the words has crept into use, the Act

& Co. Ltd.

The

of 1908 makes it obligatory in a case like the present from the date of presenting the petition until such time as the Court grants an interlocutor dispensing with it. Lord Ordinary officiating on the Bills in this case, when ordering intimation and service, dispensed meantime with the use of these words, but the statute directs that they should have appeared before that.

"If your Lordships are of opinion that the special resolution has been properly passed, and that it was unnecessary for the company to have used the words and reduced, the reason for the proposed reduction of capital is one of which your Lordships may approve, and you may be pleased to pronounce an interlocutor granting the prayer of the petition."

Argued for the petitioners-(1) The threefourths majority prescribed by sub-section 1 of section 69 of the Companies Consolidation Act 1908 (8 Edw. VII, c. 69) was after all merely a question of form. There was no opposition to this petition. All the shareholders were of opinion that the reduction was desirable. The majority was more than a three-fourths majority of those who voted. Moreover a poll was not demanded, and accordingly the declaration of the chairman was conclusive-section 69 (3). There was no conclusive evidence under the hand of the company as to what proportion of those entitled to vote actually did vote. This case was accordingly distinguishable from Cowan v. Scottish Publishing Co., February 4, 1892, 19 R. 437, 29 S.L.R. 375, where it was held that as the minute showed that the resolution had not been passed by the requisite statutory majority the resolution could not receive effect. In re Indian Zoedone Co., 26 Ch. D. 70, was referred to. (2) The words "and reduced" was as a matter of practice usually omitted in petitions of this kind. The petitioners had merely followed the bad usage that had been established. The Court could by section 48 dispense with the words altogether. This was eminently a case where the Court should exercise its power and retrospectively dispense with them.

LORD JUSTICE-CLERK-I am afraid that both the points which have been brought before us are such as to prevent us from granting the prayer of this petition. At the meeting at which the resolution was dealt with, it was not passed by the requisite statutory majority. There were twelve shareholders present, of whom eight voted for the resolution, two against, and two did not vote at all. The statute requires a three-fourths majority of such members as are present in person or by proxy, so it is quite plain that its requirement was not fulfilled in this case. The provision in subsection 3 of section 69 that a declaration of the chairman that the resolution is carried shall (I quote the provision shortly) be conclusive evidence of the fact, does not legalise the proceedings if it is plain upon the face of them that no such thing has happened.

Upon the second question I think there

10, 1910

is no doubt whatever. Section 48 of the Act requires that "on and from the presentation of the petition for confirming the reduction, the company shall add to its name, until such date as the Court may fix, the words 'and reduced' as the last words in its name." No doubt there is a proviso that "the Court may if it thinks expedient dispense altogether with the addition of the words "and reduced," but in order to be dispensed with the words must be there. Usually the Court does dispense with the use of the words, and at an early stage, for the obvious reason that they are apt to be misleading to people who have dealings with the company in its new position. It is also true that the matter is of no consequence in this particular case, but I fear that is no excuse for the irregularity. We are here dealing with a statute which prescribes a course of procedure, and as it is laid down that these words are to be added, and are to be removed only with the permission of the Court, I am quite clearly of opinion that a petition which does not contain the words at all is not a competent petition.

LORD ARDWALL-I entirely concur. The Court is very averse to refusing a petition of this description when no substantial interests are involved, but we are at present dealing with proceedings under a statute which has been passed in the interest not of one company but of the whole public, and it would be very unfortunate if the Court were to sanction any irregularity on the ground that in this particular case no harm would result. I may add that there is no necessity for the carelessness and negligence which is often shown in these and similar petitions; and I think it would be a good thing if agents and secretaries of companies acted more frequently under the advice of counsel, as is the practice in England.

LORD DUNDAS-I quite agree. We are here in a purely statutory region, and I think we are bound to see that the statutory requirements are properly carried

out.

LORD SALVESEN-I agree. The result of our decision will be that the company must begin de novo, but I think the decision will be a useful one in correcting the laxity of practice which seems to have crept in.

The Court refused the prayer of the petition.

Counsel for the Petitioner-C. H. Brown. Agents-Ronald & Ritchie, S.S.C.

v. Glasg. &

10, 1910

Thursday, November 10.

SECOND DIVISION.

[Lord Johnston for Lord Cullen, Ordinary.

BOYD & FORREST v. THE GLASGOW AND SOUTH-WESTERN RAILWAY COMPANY.

Contract-Fraud-Recompense-Personal

tract

Bar-Misrepresentation Inducing ConQuantum meruit - Damages Action by Contractors with Simple Petitory Conclusion to Obtain Payment Quantum meruit instead of under the Contract Made by them.

A firm of contractors who had completed the formation of a railway for a railway company brought a simple petitory action against the company to recover £106,688. The contractors had already received £271,970, being £28,880 in excess of the lump sum for which, with extras and subject to deductions, they had entered into a contract to complete the work; but they maintained that the contract was inapplicable as the basis of charge for the work executed by them, inasmuch as it had been induced by the defenders' fraud, and they claimed the sum sued for either as the balance still due on the basis of quantum meruit or alternatively as damages. The detailed schedule annexed to the contract was based on bores which, the specification stated, had been put down at various parts of the line, and of which a copy of the journals might be seen at the engineers' office. The contractors tendered on the information supplied by the company in the belief that it was based on a genuine journal of bores taken by a responsible borer. The bores had in fact not been taken by a borer, but by railway servants inexperienced in this work. What purported to be a journal of the bores had not been prepared by them, but had been made up in the engineers' office, and was not the exact and complete information supplied him by the borers' notes, but his gloss on or interpretation of that information, and, for example, it classified as "soft" a substance which the borers had described as hard, as rock, and as whinstone. There were, however, in the specification and schedule very wide clauses safeguarding the company from the consequences of any inaccuracy in the information supplied and calling upon the contractors to satisfy themselves. As the work had progressed it had from time to time been found that a great amount of cutting scheduled as in "soft" was in rock. This made the work itself much more costly, and dislocated the contractors' schemes of working.

Held (1) that the misrepresentations by the company's engineer with regard to the bores having been made reck

lessly, careless whether they were true or false, and without any belief in their truth, amounted to fraud inducing the contract; (2) that the inaccuracies were consequently not covered by the protective clauses of the contract; (3) that the pursuers were therefore not bound by the contract as the basis of charge for the work executed by them, and the defenders were barred from founding upon it; (4) that it was, however, not necessary for the pursuers formally to reduce the contract; but (5) that they could obtain under the action fair and reasonable remuneration for the work done on the basis of quantum meruit, or alternatively damages which would fall to be ascertained on a quantum meruit basis.

Question (per Lord Dundas) if the summons with its simple petitory conclusion was in an appropriate form? On the 15th November 1907 Messrs Boyd & Forrest, contractors, Kilmarnock, who had completed the formation of the Dalry and North Johnstone Railway for the Glasgow and South-Western Railway Company, brought an action against the Railway Company with a simple petitory conclusion for £106,688, 13s. 11d.

The pursuers, inter alia, pleaded—“(2) The pursuers having on the defenders' employment executed the work contained in the account sued for, and the prices charged therefor being fair and reasonable, the pursuers are entitled to decree as concluded for. (3) The contract founded upon by the defenders is inapplicable as the basis of charge for the work executed by the pursuers, and is no longer binding upon the pursuers, in respect (a) that said contract was induced by the fraud of the defenders, (b) that said contract was entered into by the pursuers under essential error induced by the misrepresentations of the defenders, (c) that the work as executed by the pursuers proved to be entirely different from that contemplated by the contract, (d) that said contract was by agreement of parties departed from as the basis of charge, and (e) that the defenders are by their actings barred from founding on said contract as the basis of charge. (4) Alternatively, the pursuers having suffered loss and damage to the extent of the sum sued for, owing to the fraud, negligence, or breach of contract of the defenders as condescended on, the pursuers are entitled to decree as concluded for."

The defenders, inter alia pleaded-“(3) The contract between the parties for the execution of the said work standing unreduced, the pursuers are barred from insisting in the present action. (4) The pursuers having agreed in terms of the contract libelled to execute the work specified in the account sued on for the lump price of £243,090, and the defenders having made payment to the pursuers of the said contract price, the defenders should be assoilzied. (5) Separatim - The work specified in the account sued on in so far as falling within the contract between the parties, having been included in the payment by

v. Glasg.

the defenders of the contract price, and in so far as consisting of extra work having been included in the additional payments condescended on, the defenders are entitled to absolvitor."

The facts are given in the findings and opinion of the Lord Ordinary (JOHNSTON), who, after a proof which had been allowed the pursuers on their third plea-in-law, pronounced this interlocutor "Finds that by missives, dated 19th March and 12th April 1900, bearing reference to relative plans, specification, and schedule of quantities, and by formal contract dated 16th and 18th September 1900 following thereon, the pursuers contracted with the defenders to execute the works necessary for the construction of a line of railway from Dalry to North Johnstone; that the contract was a lump sum contract for execution of the work as detailed in the schedule; that as regards a material part of the work contracted for, the price was based upon calculations of quantities included in the schedule, and that these calculations were based upon the information alleged to be derived from certain borings, an alleged journal of which was submitted by the defenders to the pursuers before they made their offer; that the alleged journal of bores is thus the basis of a material part of the contract: Finds further, that as regards a portion of the line in question, this alleged journal of bores is not a journal in the ordinary acceptation of the term, and as contemplated by the specification, and therefore by the contract, and was not prepared by or issued on the responsibility of the borer; that for this portion of the line, which from the length and the nature of the operations necessary for its formation was a material portion of the line, the alleged journal of bores was constructed by the engineer of the defenders from information afforded by a servant of the defenders, who was not a trained or experienced borer; that such information was defective in itself, and further, was not adopted by the defenders' engineer as it was received, but was interpreted by him according to his personal impression or opinion of what his informant meant: Finds that the defenders' engineer, for whom they are responsible, so acted recklessly and with gross disregard for the interests of the pursuers and other intending offerers: Finds that the consequence of such actings was that the alleged journal of bores essentially misrepresented the nature of the strata through which the last-mentioned portion of the line was to pass; that said misrepresentation materially induced to the contract; that said misrepresentation though directly affecting only a part of the line, indirectly affected the execution of the whole contract; and that the contract so induced has in the execution of the work contracted for involved serious loss to the pursuers: Finds that in these circumstances the defenders are barred from founding upon the clauses in the contract intended to protect them from responsibility for inaccuracies in the information afforded to in

10, 1910

tending offerers and otherwise; and that the contract itself is not binding upon the pursuers, and does not fix the price to be paid by the defenders to the pursuers: Therefore sustains branches (a), (b), and (e) of the third plea-in-law for the pursuers; and finds that the pursuers having on the defenders' employment executed the work contained in the account sued for, are entitled to reasonable recompense therefor, allowing for payments to account, either in name of quantum meruit or, which in the present case is substantially the same thing, of damages, as the same may be ascertained."

Opinion." In form this action is a petitory action for £106,688, 13s. 11d., which is the difference between the sum alleged to be due by the defenders, the Glasgow and South-Western Railway Company, to the pursuers, Messrs Boyd & Forrest, contractors, under deduction of sums admittedly paid, for the construction of a short piece of line between Dalry and Johnstone, as per the account, which sets out the items in great detail, the ultimate result being as above

£378,658 13 11 271.970 0 0

Claim for work done Sum admittedly received Balance, being sum sued for £106,688 13 11 But while this is the form of the action, the real question at issue is, whether the contract under which the work was done is binding, and regulates the payment due by defenders to pursuers, in which case the pursuers have received more than the contract price, viz.—

Sum received
Contract price.

Excess of payments

£271,970

243.090 £28,880

or whether the pursuers rightly demand that the contract be disregarded, and that they be paid a quantum meruit for their work. There is also an alternative claim for damages for breach of contract.

"There is no question that the pursuers undertook a work enormously more difficult than was contemplated by either party to the contract, and that they have incurred a ruinous loss, but that of course does not entitle them to set aside the contract, and claim as if it had never been made. They base their main case upon the misleading misrepresentation, made to them in the journal of bores, which was the basis and the sole basis of the important part of the contract between them and the defenders, which was concerned with the cutting and embanking of the line. Unless they substantiate this misrepresentation they cannot succeed on this branch of their case, nor can they, except partially, on the alleged breach of contract. In my opinion they have substantiated it in point of fact. But the effect in relation to the special terms and circumstances of the contract has to be considered before judgment even in point of principle can be given for the pursuers. It would remain, even then, to ascertain the quantum meruit, for parties were agreed that the proof should be restricted to the constitution in point of principle of the pursuers' claim.