L. C. 1871 WRIGHT'S CASE. shareholder without any authority, would that be enough? The shareholder must take instant action when he discovers the fraud; but this shareholder did nothing whatever, and has, by his laches, lost his right to complain: Lawrence's Case (1). A shareholder ought not to be allowed to bolster up an untenable case in this way: Dixon's Case (2). At all events he could not be released as to the past debts of the company. LORD HATHERLEY, L.C., after stating the facts, and that it was clear that a settling day had been refused because the committee of the Stock Exchange were not satisfied as to the allotment of shares, continued: Under those circumstances Mr. Wright was clearly entitled, as soon as he ascertained them, to put an end to the contract altogether; the contract was, according to the decision in Oakes v. Turquand (3), voidable by him; for I take it to be clear upon the evidence that this was a material misrepresentation so far as regards the object which Mr. Wright had in taking the shares. The fact that a settling day had been refused was calculated to excite suspicion, but was not enough, in the face of the positive statement in the prospectus, to fix him with notice of the real state of things. [His Lordship then read Mr. Wright's letter.] He wrote to say that he thought the concern ought to be put an end to and the money returned. It is true that he might not be entitled to this, as expenses might have been incurred, but he only says what he thinks the directors ought to do as honest men. He was then informed that he could have the shares cancelled and the money returned without interest. Mr. Wright had therefore pressed the directors to cancel his allotment, because no settling day could be obtained, and the directors, knowing the reason, agreed to cancel the allotment upon certain terms, which he accepted. He took the money, returned the share certificates, and was told that the shares were cancelled; and in the books we find an entry that the shares were cancelled. It was said that there was nothing to shew when this entry was made, but I must take it primâ facie that the entry was made on the 2nd of November, when the (1) Law Rep. 2 Ch. 412. (2) Law Rep. 5 Ch. 79. (3) Law Rep. 2 H. L. 325. L. C. 1871 money was paid. It was argued that the shares could not be said to have been cancelled ab initio, because no interest was paid; but that fact merely amounts to this, that the directors made a bargain WRIGHT'S with the shareholder, and he waived the interest on being relieved from the shares. It is quite true that without a case of fraud which he could allege against the directors, he would not be entitled to demand the cancellation of the shares; but still that was the thing he bargained for, if he could get it; and here I have the satisfaction of proceeding on the same ground as the Vice-Chancellor, who says it was intended by both parties to put the shareholder in the same position as if he had never been on the register. The question is whether it could properly be done, and the case in this respect is singular. I will take Mr. Wright to have made a demand on the honour and fair dealing of the directors, as making it incumbent on them to return him his money, he not knowing how much higher he could put his case, and they being perfectly conscious of the fraud they had committed in the representations which they had made. Thereupon they at once gave him all the relief, which, had he been informed of the facts, he could have demanded as a matter of right. Then, on this state of things, if, shortly before the winding-up, he had discovered his higher right, would it have been necessary for him to say, "I find that this cancellation was imperfect, because there was not a sufficient denunciation of your proceedings and assertion of my right, and now I must file my bill to put my higher right in force"? I cannot conceive that it was necessary for him to do so, or that anything said in Martin's Case (1) can be so construed. If, indeed, Mr. Wright had not concluded the matter by a complete and full election to put an end to the contract, and had been able, in the event of the company being successful, to turn round and deny the right of the directors to cancel his shares, it would have been different; but I think that he had fully and completely exercised his election to have the contract annulled. Then, was this a contract that could be annulled? Was it a contract which was voidable, if not void? I think it was. The (1) 2 H. & M. 669. CASE. L. C. 1871 CASE. The directors acted mind of all parties was, that the contract should be annulled; and in that the Vice-Chancellor agrees with me. WRIGHT'S with full knowledge of the circumstances. They were glad and ready enough to annul this contract, which they had improperly entered into, and which they knew must be annulled against them if legal proceedings were taken, and with costs. Dealing with this gentleman, and being anxious to have the contract annulled, they agreed with him in a course of proceeding by which they on their part declared the allotment to be annulled, and he accepted that annulment as complete. I apprehend that from that time the directors were completely bound; they could not afterwards set up their fraud, and refuse to be bound; nor would it lie in the mouth of Mr. Wright, supposing the concern had become prosperous, to say afterwards that he intended to revoke the bargain, and to become a shareholder. If he was conclusively bound, the directors were conclusively bound; and as regards the shareholders, all they are entitled to, according to Oakes v. Turquand (1), is, that the status of any subscriber shall not be altered after the date of the winding-up. But I think that at the date of the winding-up, the contract was annulled on both sides, and that it would have been impossible for Mr. Wright to replace himself as a shareholder. But then it was said that this was done just before the windingup; and if it was done with a fraudulent desire on the part of the directors to liberate some of their friends, leaving other persons liable, that might, of course, be a matter for consideration. But this winding-up was for the purpose of going on, if I may use such an expression. It was to amalgamate one company with another, and the only mode of doing this was to put an end to one company and start in association with the other. At that time all parties thought it was a solid concern, and there is therefore nothing to induce one to say that there was fraudulent combination between the two parties to this contract. I think, therefore, for the reasons which I have given, that the order of the Vice-Chancellor must be discharged. Mr. Wright's name must be struck off the list, and his costs paid out of the assets of the company. Solicitors: Messrs. Lewis, Munns, & Longden; Mr. H. Harris. (1) Law Rep. 2 H. L. 325. PIKE v. DICKINSON. [1870 P. 11.] Composition Deed-Bankruptcy-Jurisdiction-Opening Account-Creditors. The Plaintiff had made a composition with his creditors, under which he raid them 8s. in the pound, and was released from his debts. One of the creditors was the Defendant, who had been agent for the Plaintiff, and claimed from him a balance of £300 on which he received the composition. The Plaintiff afterwards filed the bill in this suit against the Defendant, alleging that the Defendant had made overcharges, and asking for an account and payment of the balance. Overcharges were shewn : : Held (affirming the decision of the Master of the Rolls), that this Court had jurisdiction in the matter, and that the Plaintiff was not obliged to apply to the Court of Bankruptcy : That the composition deed was not a bar to the suit: That the Defendant could not set up any rights of the creditors in bar of the suit. THE Plaintiff in this case, on the 24th of July, 1867, made a composition with his creditors, by which he agreed to pay them 88. in the pound, and they released him and his estate. The composition deed was duly assented to, and registered under the Bankruptcy Act, 1861. The Defendant had been an agent to the Plaintiff, and told the Plaintiff that he, the Defendant, was not able to state the exact amount due to him, but believed it to be about £300; and his name was accordingly inserted by the Plaintiff in the schedule to the deed as a creditor for £300. The composition was duly paid to all the creditors, including the Defendant. In January, 1870, the Plaintiff filed the bill in this suit against the Defendant, alleging that the accounts given by him were incorrect, and contained many overcharges, and claiming a balance due to the Plaintiff, and asking for an account. The Master of the Rolls was of opinion that overcharges were proved, and directed an account as reported (1), where the facts are more fully stated. The Defendant appealed. It was admitted on the appeal that the accounts were inaccurate. (1) Law Rep. 12 Eq. 64. L. C. 1871 Νου. 16. L. C. 1871 PIKE v. Mr. Swanston, Q.C., Mr. Jackson, and the Hon. E. Romilly, for the Appellant: We say, first, that the Court of Bankruptcy is the proper Court DICKINSON. for any application of this sort: In re England (1); Stone v. Thomas (2). Secondly, the composition deed is a bar to any such proceeding, as it amounts to a compromise between the Plaintiff and the Defendant; and the compromise cannot be impeached without setting aside the deed, and then the other creditors must be parties. Thirdly, it is the creditors who are entitled to anything which may be recovered in this suit; for if it should turn out that the Defendant is a debtor instead of a creditor, then the creditors executed the composition deed under a misapprehension as to the amount of the debtor's assets. Any decree must, in fact, set the deed aside, and then the creditors come in. The Solicitor-General (Mr. Jessel), and Mr. Robinson, for the Plaintiff, were not called upon. LORD HATHERLEY, L.C.:— I do not think that I need call upon the Respondent, though I feel very strongly the necessity of watching closely a case of this kind, and of not encouraging a debtor who has made a composition with his creditors to fight them in detail afterwards. It is, of course, a question of importance what was the true amount of the assets as compared with the debts when the deed was executed. If they differed by a large amount from what was represented, the creditors might say they were induced to execute the deed upon a representation of facts different from the truth. All the creditors are interested in this question, and have a right to see that there is no mala fides in the transaction. But all this only amounts to saying that the case must be closely watched. Here the debtor is in no degree in default. It is as much the Plaintiff's case as the Defendant's that there was no accurate inves tigation of the accounts between them. The Plaintiff says that he did not at first know that the Defendant claimed to be a creditor, and says that the Defendant was erroneously placed in the schedule as a creditor on his own statement. But there must (2) Law Rep. 5 Ch. 219. (1) Law Rep. 12 Eq. 207. |