Scottish Court of Session Decisions

This was a petition by Mr Samuel L. Mason for removal of his name from the register of the Benhar Coal Company, in which he had been entered as holder of 50 preference shares of the company. The company went into voluntary liquidation on 30th December 1880, and the liquidation was placed under the supervision of the Court on 18th January 1881. The name of the petitioner was placed on the register by the liquidators. They lodged answers to the petition, and submitted that the petitioner's name should be retained on the register. The facts as disclosed in a proof which was led before Lord Shand were as follows:—The petitioner was an ordinary shareholder to a large extent from the commencement of its business in 1872 to the date of the liquidation, and he took from the first a considerable interest in the affairs of the company. In respect of some business transactions which he had with it he also became a considerable creditor of it, and in the year 1878 its debt to him amounted to at least £6500, while he contended that he was really a creditor to the amount of £8000. In December of that year the company was in considerable financial difficulties, and various expedients were considered for continuing the business without having recourse to liquidation. A general meeting of the shareholders was held on the 27th of that month, when two motions were laid before the meeting. One of these, moved by Mr Harrison, was in favour of winding up the company, while the other, moved by Mr Forrest, embraced a scheme for continuing the business of the company by an arrangement be tween the company and its creditors, by which the creditors should delay pressing for payment of their claims in consideration of the proposed rais ing of funds by the company by the issue of new 7 1 2 preference stock under conditions embodied in a memorandum. For further consideration of these proposals the meeting was adjourned till 6th January, and meantime on 30th December a circular was issued which set forth the two motions and gave a copy of the proposed agreement and memorandum of conditions of the proposed issue of new shares. This circular (which will be found fully quoted in the opinion of Lord Shand) stated that the board of directors approved of the arrangement proposed in Mr Forrest's motion, and recommended its adoption rather than the adoption of the disastrous course of a winding-up. The circular went on to “request shareholders and creditors to favour them with an early reply, share holders stating how much of the new stock they will take, and creditors stating how far they will accede to the proposed agreement in regard to their claims, and how far they wish new stock in payment. Schedules for these replies are herewith sent, and replies are requested as long as possible before the meeting on 6th January. It is under stood that the allotments of new stock will not be made until the arrangements otherwise are regarded as satisfactory.” This circular was issued with the concurrence of the petitioner, who was deeply interested in the company, as already stated, both as a shareholder and as a creditor. The schedule for replies appended to it was in these terms:—“I hereby express my willingness to take of the proposed new preference shares.”

The petitioner filled up one of these schedules expressing his willinguess to take fifty of the proposed new preference shares. His four daughters, who were also shareholders, filled up similar schedules sent to them, expressing their willingness to take three shares each. A large number of other shareholders expressed their willingness to take the proposed new shares before the meeting on 6th January. At that meeting the motion of Mr Forrest was carried, and it was decided to issue the stock. The resolution creating it was embodied in a second circular, which was issued on 8th January, and by which the new stock was offered to the shareholders, and the last paragraph of which ran thus—“The board will be obliged by shareholders intimating at the earliest possible date the amount of their subscriptions, and by its being borne in mind that the opportunity and the means now afforded of retrieving the company's credit and of saving its property are final. The

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only alternative to the subscription of the capital is immediate recourse to official liquidation.” Annexed to the circular was a schedule for replies addressed to the board, and which ran thus—“I, hereby apply for shares of £5 each of the new preference stock of your company, having the rights, priorities, and special privileges expressed in the resolution of the meeting of the company held on 6th January 1879; and I agree to take the said number, or any less number that may be allotted to me.” A copy of this circular, with schedules annexed, was sent to Mr Mason, and a copy was also sent to each of his daughters. His daughters filled up their schedules for “two additional shares” each, and sent them in. This was done with the knowledge of the petitioner. He himself did not fill up the schedule, and made no response whatever to the circular. He assigned as his reasons for not filling up the schedule that he was dissatisfied with the treatment he was receiving from the company in not admitting as a debt to him the sum of £ 1500 which he claimed in addition to the £6500 for which he was admittedly a creditor, and that be was dissatisfied with some of the gentlemen proposed as new directors in the reconstructed board of directors of the company. Thereafter on 12th May a meeting of the directors was held, at which, infer alia, fifty preference shares were allotted to the petitioner, and five to each of his daughters. Allotment letters were sent out to those to whom the shares were allotted, but the proof was conflicting as to whether any such letter had reached the petitioner. He himself deponed that he had never received one. Thereafter, however, call letters were sent out to the shareholders making certain calls on their shares, and these he admittedly received. He never answered these letters, in his evidence he gave as his reason for this that he considered that he had not applied for shares, and that the sending of call letters to him was simply a “try-on.” The company did not before going into liquidation take any steps to enforce payment of these calls. The reason of this was explained by the secretary to be that the petitioner was a large creditor who had given delay to the company, and that it would have been in the circumstances unfair to press him for his calls. The annual return of shareholders lodged with the Registrar of Joint Stock Companies did not contain the petitioner's name.

Argued for the petitioner—The circular answered by the petitioner was only tentative. The object of it was to see what hopes the company had of being resuscitated, and the expression of the shareholders' “willingness” to take new preference stock was plainly dependent on the other answers received showing the company's prospects. It was also dependent on the creation of the stock, for it had not yet been created, and on the satisfaction of the proposed shareholders with the new board and the state of the market. The answer sent in only expressed the attitude the petitioner had at the time of writing it towards the proposal to give the company a fresh start. And so the company must have thought, for otherwise the second circular would never have been issued. This second circular was distinguished from the first by being (as the first was not) in the terms ordinary and appropriate to an application for shares. Assuming the petitioner to be held to have applied for shares by his mere expression of “willingness” to take them, he was proved never to have received an allotment letter, and therefore there was no contract between him and the company. The company's own conduct in the omission of the petitioner's name from the return made to the Registrar of Joint Stock Companies showed their own view of the position— Pellatt's case, April 13, 1867, 2 L.R., Ch. App. 527 (opinion of Lord Justice Cairns); Gunn's case, November 14, 1867, 3 L.R., Ch. App. 40. Authorities as to the effect of actings of the company— Browne v. Freeth, June 23,1829, 9 B. and C. 632: Mackenzie v. British Linen Company, June 4, 1880, 7 R. 836— rev. February 11, 1881, 8 R. (H. of L.) 8.

Argued for respondents—There was here an agreement to take shares. This gentleman, who was actively engaged in promoting the affairs of the company, stated his willingness to take fifty shares of the proposed preference stock, and thereby agreed to take them, subject only to the condition that they should be issued. The proof showed that he had got an allotment letter, and he certainly got call letters, which he never repudiated. The only reason for the different wording of the two circulars was that at the date of the first the new stock had not been created, while at the date of the second it had— Jackson v. Turquand, 4 L.R., Eug. and Ir. App. 305; Addinell's case, November 17, 1865, L.R., 1 Eq. 225; Macdonald's case, February 7, 1879, 6 R. 621. Mere denial that the allotment letter had been received would not free a person who had applied for shares, and if the posting of it was proved, as was the case here, the contract was to be held complete— Wall's case, November 9, 1872, 15 L.R., Eq. 18; Higgins & Sons v. Dunlop, Wilson, & Company, July 2, 1847, 9 D. 1407— aff. Feb. 24, 1848, 6 Bell's App. 195; Household Fire Insurance Company v. Grant, July 1, 1879, 4 L.R., Ex. Div. 216. No doubt the petitioner's name was omitted in the public return of shareholders, but that was proved to be due to an erroneous opinion on the part of the secretary that no names should be entered in that return except the names of shareholders who had paid for their shares. The Lords made avizandum.

At advising—