In re Harmony and Montague Tin and Copper Mining Company ('Spargo's Case)(1873) L.R. 8 Ch.App. 407
[1861-73] All ER Rep 261
(Judgment by: Sir W M James LJ (including background))
re Harmony and Montague Tin and Copper Mining Company
Subscriber to Memorandum
Payment in Cash
Companies Act, 1867 (30 & 31 Vict. c. 131) - s. 25
Judgment date: 25 January 1873
Sir W M James LJ (including background)
Any bonafide transaction between a company and a shareholder which, if the company brought an action against him for calls, would support a plea of payment, is "payment in cash" within sect. 25 of the Companies Act, 1867.
S. took shares in a company formed for working a mine which he sold to them. The whole nominal amount of the shares was immediately payable, as was also the purchase-money of the property. It was agreed between S. and the company that he should be credited in account with the price of the property, and debited with the amount payable on his shares; and the balance of the account thus made out was shortly afterwards exactly balanced by cash payments by S.:-
Held (reversing the decision of the Vice-Warden of the Stannaries), that S. must be considered as having paid up his calls in cash.
This was an appeal motion by Thomas Spargo from an order of the Vice-Warden of the Stannaries ordering him to pay to the Registrar, as liquidator of the company, £450, the amount originally payable in respect of nine shares for which he was settled on the list of contributories, and ordering him to pay a balance alleged to be due from him in respect of forty-two other shares of which he had been the holder, but which he had long since disposed of.
Michell and Stevens were licensees of a sett for twelve months from the 28th of January, 1871, with the right at any time within that period to call for a lease for twenty-one years. They and Spargo entered into arrangements for promoting a company to work this mine, and determined that its capital should be £3200, in sixty-four shares of £50 each; £16 per share to go for working capital, and £34 per share for the purchase of the mine, treating it as worth £2176. A company for that purpose was accordingly registered on the 9th of March, 1871, under the above name. The capital was stated by the memorandum of association to be £3200, in sixty-four shares of £50 each. Spargo subscribed the memorandum for thirty-one shares, two other persons for two shares each, and the remaining four subscribers for one share each. Neither Michell nor Stephens was a subscriber.
On the 16th of March, 1871, a meeting was held, at which all the seven subscribers were present, and at which the following resolutions were passed unanimously:-
"That the sum of £2176 be credited Mr. Thomas Spargo for the lease, & c., of the property, and that the same be paid out of the share capital of the company. That Mr. T. Spargo be and is hereby appointed the manager of the company. That Mr. F. H. Hearn be and is hereby appointed the secretary to the company. That the statement of accounts produced to this meeting be allowed and passed; balance in favour, £989 11s. 6d. That Mr. Spargo, as manager, issue certificates for shares in the company as follows."
Then followed, first, the names of the seven subscribers to the memorandum, with the numbers of shares for which they had respectively subscribed it set against their respective names; next, the names of three persons who had applied for shares, amounting to five in all; and lastly, the name of Spargo, with the balance of twenty shares set against it.
From the account kept in the books of the company it appeared that all the shares except Spargo's were fully paid up in cash in March, 1871. Spargo's account stood as follows in the ledger:-
|Mar.||To share capital,||Feb. 16||By Cash .. ..||2||10||0|
|31 share, signed||28||Ditto .. ..||25||0||0|
|for in mdum. ..||1550||0||0||Mar. 3||Ditto .. ..||6||18||6|
|Ditto 20 taken at meeting||1000||0||0||Purchase of Lease of Mine||2176||0||0|
|Aug. 5||Cash .. ..||150||0||0|
|Sept.||Ditto .. ..||51||11||6|
|Nov.||To Cash .. ..||45||13||3||Nov.||By rent a/c ..||37||10||0|
|Dec.||Wages due at Mine||25||0||0||Salaries a/c||31||10||0|
After the above meeting Spargo, at different times, disposed of a number of his shares at a premium. A Mr. Riddell took twelve of them in August, 1871, and subsequently acquired six more shares. The next general meeting was held on the 13th of September, when Mr. Riddell and three other persons were elected directors. Part of the minutes was as follows:-
"Mr. Spargo submitted the balance sheet, and a discussion arose thereon respecting the sum of £2176 charged for purchase of the lease, which it appeared had not yet been transferred to the company. It appeared, also, that by an agreement entered into in August last, between Mr. Spargo and Captains Stephens and Michell, Mr. Spargo was to receive one half that sum for bringing out the company, the remaining half to be divided equally between Captains Stephens and Michell. It was ultimately proposed and agreed that Mr. Spargo should forthwith pay £543 in cash and execute a transfer of twenty shares to the company as a security for the transfer of the lease, the company undertaking to settle with Captains Stephens and Michell out of the said money and shares, and to pay the balance in new shares and money to Mr. Spargo."
Resolutions were then passed for increasing the capital of the company to £10,000 by the issue of new shares; and rules and regulations were adopted in the place of those in Table A. to the Companies Act, 1862.
Spargo handed over the £543, and transferred shares, according to the arrangement mentioned in the minute. No lease, however, was ever granted, difficulties having been raised as to its form on the part of the lessees. No new shares were ever issued in pursuance of the resolutions at the September meeting, and the company having proved a failure an order for winding it up was obtained on the 21st of December, 1871. Spargo was placed on the list of contributories for nine shares, being all that were standing in his name at the commencement of the winding-up.
In February, 1872, the Registrar, as liquidator, applied for an order under sect. 165 of the Companies Act, 1862, for Spargo to pay into Court £1633, alleged to have been retained by him out of the assets of the company, and the above-mentioned sum of £2176. The Vice-Warden refused the application, and there was no appeal from his decision.
The Registrar then applied for an order upon Spargo to pay into Court £450, being £50 per share on the nine shares in respect of which he was on the list of contributories; and also to pay into Court £893, being the balance of £50 per share on the forty-two other shares taken by Spargo, after deducting £1207, the amount of the moneys which the Registrar computed to have been paid by Spargo on behalf of the company. The Vice-Warden made the order asked for, and Spargo appealed.
Mr. Roxburgh, Q.C., and Mr. Woodroffe, for the Appellant:-
Spargo can only be made liable as an officer of the company who has misconducted himself, or as a contributory. An attempt to charge him on the former ground has failed, he therefore can only be attacked as a shareholder past or present. But the case cannot be dealt with on the former ground, for no list of past members has been settled. Then, how can he be liable as a present member for those shares with which he has parted, and in respect of which other persons are on the list of contributories?
[The LORD JUSTICE MELLISH:- It appears to me that you must shew your shares to have been fully paid up. When you take shares you become bound to pay cash for them. If you do not do so, and the company nevertheless registers them in your name as fully paid up, and you sell them to bonafide holders as fully paid up shares, they are not liable to pay calls on them; but how is your original liability to pay got rid of?]
They were fully paid up. The company was under a present obligation to pay for the mine, Spargo under a present obligation to pay for his shares. The two were set off, and if Spargo had been sued at law the facts would have supported a plea of payment, and the Companies Act, 1867, sect. 25, is satisfied: Fothergill's Case. [F1]
[They also referred to Waterhouse v. Jamieson. [F2] ]
Mr. Fry, Q.C., and Mr. Joseph Dixon, contr...:-
We contend that under the Act of 1867 Spargo is liable on all the shares he took, no memorandum such as is required by the Act having been registered. The Act requires that if there be no such memorandum the shares shall be paid up in cash.
[The LORD JUSTICE MELLISH:- In Fothergill's Case [F3] both the Lord Chancellor and I thought that anything which would support a plea of payment would be enough.]
We cannot say that what was done here would not support a plea of payment; but does it amount to payment in cash? If it does, the Act of 1867, sect. 25, has not altered the law. Cleland's Case [F4] shews the opinion of Vice-Chancellor Wickens, that the cancellation of a debt arising from the sale of property to the company is not enough. The case is substantially one of shares allotted as fully paid up. As to the shares in respect of which Spargo was no longer on the register at the commencement of the winding-up, it is true that he cannot be called upon as a contributory, but he is under a liability to the company for not having paid them up; and under the Companies Act, 1862, s. 101, when a person is on the list as a contributory the Court has jurisdiction to settle all matters depending between him and the company: Stringer's Case. [F5]
Sir IR W. M. James, L.J.:-
I am of opinion in this case that the order of the Vice-Warden cannot stand.
The question turns upon what is the true intent and meaning of the 25th section of the Companies Act, 1867, which we had to consider very fully in Fothergill's Case, in which judgment was delivered yesterday by the Lord Chancellor and ourselves. In that case no doubt it was not necessary for us to lay down what would amount to "payment in cash," since we were clearly of opinion that there had not been any payment of cash or anything that could be called a payment of cash in that particular case, but it was said by the Lord Chancellor, and we entirely concurred with him, that it could not be right to put any construction upon that section which would lead to such an absurd and unjustifiable result as this, that an exchange of cheques would not be payment in cash, or that an order upon a banker to transfer money from the account of a man to the account of a company would not be a payment in cash. In truth, it appeared to me that anything which amounted to what would be in law sufficient evidence to support a plea of payment, would be a payment in cash within the meaning of this provision.
The object of the section was, I apprehend, to prevent such contracts as had been before the Court in Pellatt's Case, [F6] and Elkington's Case, [F7] in which a man was to take shares, and to pay for them by supplying goods when wanted. It was considered that there was mischief in collateral contracts of that kind, which deprived creditors of the remedies which they would expect to have against persons whose names they saw registered on the list of shareholders. In Fothergill's Case, [F8] the bargain in effect was to give paid up shares in satisfaction of the money which was to be paid for other shares. But if a transaction resulted in this, that there was on the one side a bonafide debt payable in money at once for the purchase of property, and on the other side a bonafide liability to pay money at once on shares, so that if bank notes had been handed from one side of the table to the other in payment of calls, they might legitimately have been handed back in payment for the property, it did appear to me in Fothergill's Case, and does appear to me now, that this Act of Parliament did not make it necessary that the formality should be gone through of the money being handed over and taken back again; but that if the two demands are set off against each other the shares have been paid for in cash.
If it came to this, that there was a debt in money payable immediately by the company to the shareholders, and an equal debt payable immediately by the shareholders to the company, and that each was accepted in full payment of the other, the company could have pleaded payment in an action brought against them, and the shareholder could have pleaded payment in cash in a corresponding action brought by the company against him for calls. Supposing the transaction to be an honest transaction, it would in a court of law be sufficient evidence in support of a plea of payment in cash, and it appears to me that it is sufficient for this Court sitting in a winding-up matter. Of course, one can easily conceive that the thing might have been a mere sham, or evasion, or trick, to get rid of the effect of the Act of Parliament, but any suggestion of sham, or fraud, or deceit seems to be entirely out of the question in this case, because everybody in the company knew of the transaction; every shareholder of the company was present, and was a party to the resolution; there was no deceit practised on any creditor, nor was there any registration of these shares, except as shares paid up.
This seems to me to dispose of the case. It was argued, however, that the payment by the company was made for a consideration which has absolutely failed. If however the payment was made, the subsequent failure of the consideration could not prevent its being a payment, nor prevent its repayment by the shareholders from being a payment in full of the shares, though there might be an action or a bill by the company either for the return of the money or for damages, in case there was a subsequent failure to do something in respect of the property. But I see no trace whatever, no shadow of anything like what may be called a failure of consideration. What the parties were dealing with was a license or sett for a year, with a right to get a license or sett for twenty-one years. That was the property which the parties undertook to deal with.
The company, with knowledge of all this, not only paid the £2176, in the manner which appears, to the Appellant, but afterwards made arrangements with him for satisfying the two other persons who were interested with him for their proportion of the property. After this disputes arose, not between this gentleman and themselves, but between the intending lessors and themselves; not as to the right ofone to have the lease and the obligation of the other to grant a lease, but as to what would be the proper conveyancing language in which that lease was to be expressed. It appears to me that it would be an abuse of language to say that there was anything like a failure of consideration on the part of Mr. Spargo, which is to entitle the company to treat that payment as a payment never made, and to insist that the shares remain unpaid to this day. This applies to the forty-two shares as well as the nine shares. Therefore, it is not necessary to discuss the question as to what we might do under the 101st section, if this were a case where Mr. Spargo had not paid up his shares, but they had been so dealt with that as between the company and the present holders they must be treated as paid up.
I am of opinion that the order of the Vice-Warden ought to be discharged with costs of the proceedings in the Vice-Warden's Court.