Liquidator of Irvine and Fullarton Property Investment and Building Society v Cuthbertson

JurisdictionScotland
CourtCourt of Session
Judgment Date18 October 1905
Docket NumberNo. 1.
Date18 October 1905
Court of Session
1st Division

Ld. Johnston, Lord President, Lord Adam, Lord M'Laren, Lord Kinnear.

No. 1.
Liquidator of Irvine and Fullarton Property Investment and Building Society
and
Cuthbertson.

Building Society—Winding-up—List of Contributories—Ceasing to be a member by not paying instalments.—

The rules of a building society contained an article (16) providing that when the fines due by a member amounted to the sum standing at his credit, the amount thereof should be forfeited to the society, and that the member should thereafter cease to have an interest in the society. The article required notice to be sent to every member six months in arrear. The society having gone into liquidation, the liquidator placed on the list of contributories B, a member whose contributions had been exceeded by fines twenty years before the liquidation, but who had received no notice as to arrears.

B having objected, held (aff. judgment of Lord Johnston) that, under article 16 of the rules of the society, B had ceased to be a member of the society before the liquidation, and that his name should not have been put on the list of contributories.

Observed that the rule, applied in Moore v. RawlinsENR, 1859, 6 C. B. (N. S.) 289, that a clause of forfeiture in the case of shares of a joint stock company operates only at the option of the directors, did not apply.

James Maxtone Graham, C.A., Edinburgh, official liquidator of the Irvine and Fullarton Property Investment and Building Society, which had been ordered by the Court in 1903 to be wound up as an unregistered company under the provisions of the Companies Acts, 1862 to 1900, presented a note in the liquidation, in which he craved the Court to settle a list of contributories of the Society in conformity with the list appended to the note.

In the note the liquidator stated, inter alia, that the Society was not incorporated under the Building Societies Act, 1874.

Objections and answers to the note were lodged for James Cuthbertson junior, who objected to his name being put upon the list of contributories in respect that he was not a member of the Society. He referred, inter alia, to Art. 16,* and contended that, in terms of

that rule, he, even if he had ever been a member of the Society, had ceased to be a member many years ago.

The liquidator lodged answers, stating that Cuthbertson applied for and received shares in 1878; that he had paid entry money, and the first instalments on these shares, and was entered on the register of members in respect of these shares; that thereafter he was treated as a member of the Society in respect of these shares, and profits were allocated to him in respect thereof, as such member, up to and including the year 1886; and that no notice of withdrawal of membership was ever given by him to the Society. The liquidator also averred;—‘The Society did not enforce the 16th Article of the Rules as regards the shares in question.’

On 29th June 1905 the Lord Ordinary (Johnston) pronounced an interlocutor finding that the name of the objector, the said James Cuthbertson junior, should not have been put on the list of contributories, and ordering the liquidator to remove his name from the list.*

The liquidator reclaimed.

Thereafter a joint minute of admissions was lodged by the parties, in which the following admissions were made:—‘(2) That no intimation or notice was given by the Society to the said James Cuthbertson junior in terms of the 16th Article of said Rules or otherwise; (3) That the instalments paid by the said James Cuthbertson junior in respect of shares were 10s. in all; and (4) That if rule 16 operated, the amount of 10s. standing at the credit of the said James Cuthbertson junior would have been extinguished by fines about the month of April in the year 1882.’

Argued for the reclaimer;—Art. 16 of the rules did not operate automatically, and the Society had not put it in operation as regards the objector's shares. Accordingly the objector, not having intimated his withdrawal, remained a member of the Society. Clauses of the kind contained in Art. 16, providing for the forfeiture of shares on

non-payment of calls, &c., did not enable shareholders to get rid of their shares by refusing to pay their calls. Such clauses were inserted for the benefit of the Company, and there was no forfeiture until the forfeiture was declared.1 A mere power to forfeit not carried into effect was no forfeiture at all, and did not prevent a shareholder who had incurred a forfeiture from being put on the list of contributories in a winding-up.2

Argued for the respondent;—Art. 16 operated automatically, and under the operation of that rule the respondent had long ago ceased to be a member of, or to have an interest in, the Society. The extinction of a person's interest in the Society in the manner provided for in Art. 16 was one of several ways in which, under the rules, a person might cease to be a member of the Society. The case of Moore v. RawlinsENR3 relied on by the liquidator was distinguished in that the directors there had a discretionary power of forfeiture. In

the present case there was no such discretionary power given to the directors, and the respondent was accordingly entitled to rely on the automatic working of Art. 16.1 In Moore v. RawlinsENR,2 too, the building society was in its constitution much more like a joint stock company than this Society. The ‘shares’ in this Society were simply deposits, and were entirely different in kind from the shares of a joint stock company.

At advising,—

Lord President.—This is a case in which James Cuthbertson junior seeks to have his name removed from the list of contributories which has been made up by the official liquidator of the Irvine and Fullarton Property Investment and Building Society. This Building Society is constituted under a set of articles which in general scope are not unlike the articles...

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