Re Lands Allotment Company
| Jurisdiction | England & Wales |
| Judgment Date | 1894 |
| Date | 1894 |
| Year | 1894 |
| Court | Court of Appeal |
Company - Directors - Liability - Ultrà vires - Investment of Money in Shares of another Company - Temporary Investment - Statute of Limitations -
Directors of a company are trustees as to moneys of the company which have come to their hands or are under their control within the meaning of the Trustee Act, 1888, s. 1, sub-s. 3, and therefore can, in the absence of fraud, take advantage of the Statute of Limitations in proceedings against them for misapplication of the funds of the company.
The directors of the L. A. Company, which had no power to invest its capital in the shares of other companies, in March, 1885, accepted fully paid-up shares in the B. S. Company to the amount of £35,000 in discharge of a debt. This was referred to in the balance-sheet of the L. A. Company as “Assets. By B. S. Company,” and the entry was explained by the chairman at the general meeting in April, 1885, to mean that it represented the amount due from the B. S. Company for an estate purchased from the L. A. Company. The same item was repeated in successive balance-sheets till 1889. The investment was made without any fraudulent intent The L. A. Company was wound up in 1893: —
Held (affirming the decision of Wright, J.), that, assuming that the directors had been guilty of a breach of trust in investing the money in shares of the B. S. Company, they were protected by the Statute of Limitations; and that there had been no such fraudulent concealment on their part, notwithstanding the false statement by the chairman at the meeting, to prevent time from running under the statute.
Whether the directors had not power to accept the shares of the B. S. Company, if they took them as a compromise for the debt, and not with the intention of retaining them as a permanent investment — Quære.
In July, 1889, the directors of the same company passed a resolution to invest a further sum of £5200 in more paid-up shares of the B. S. Company. Two directors, B. and T., were not present at the meeting, but they were present at the next meeting, at which the minutes of the previous meeting were read and confirmed. B. was in the chair and signed the minutes. B. was also in the chair at the next general meeting of the company, and he then referred to the new investment, and, speaking on behalf of the directors, said: “We carefully considered the matter, and deemed it advisable to exercise our right of subscription, and have no reason to regret our decision”: —
Held (reversing the decision of Wright, J.), that although the presence of B. and T. at the meeting at which the minutes of the previous meeting were confirmed was not sufficient in itself to make either of them liable for the ultrà vires investment, yet B. had by his action as chairman at that meeting, and by his statement at the general meeting, shewn that he took an active part in the investment, and must be held responsible for it.
THE Lands Allotment Company, Limited, was registered as a limited company on the 25th of November, 1867.
By the memorandum of association the objects of the company were stated to be the purchasing, acquiring, improving, dealing with, and disposing of lands of any tenure situate in Great Britain. or elsewhere; the constructing and repairing buildings and erections thereon; the granting rights and easements over any land acquired by the company; the raising money by way of mortgage or charge of or upon any land or property which should have been purchased or acquired by the company, or of or upon any estate or interest therein, and the raising money upon debenture bonds, deposit notes, or other securities of the company; the lending money by way of mortgage or charge of or upon any land which should have been sold, demised, exchanged, or granted or agreed to be sold, demised, exchanged, or granted by the company, or of or upon any estate or interest therein, and the carrying on of business as land agents and negociations for the sale and purchase of land.
By the 99th article of the articles of association the directors were empowered “to employ and invest the capital paid up and other moneys received by the company whether upon deposit or otherwise in or upon such securities, real, personal or mixed, other than their own shares, as they might from time to time approve.”
Early in 1885 a builder named J. W. Hobbs was indebted to the Lands Allotment Company to the value of £35,000. A joint stock company called the Building Securities Company vas formed for the purpose of taking over his business and liabilities, and among other things they undertook the liability of paying the debt of £35,000 to the Lands Allotment Company. But the Building Securities Company, not having the money at their disposal, made an arrangement with the directors of the Lands Allotment Company that the last-mentioned company should take 7000 shares of £5 each in the Building Securities Company in full discharge of this liability. Accordingly, at a meeting of the board of directors of the Lands Allotment Company, held on the 2nd of March, 1885, at which the following directors were present, S. R. Pattison, Rev. Dawson Burns, G. Dibley, M. Theobald, and G. E. Brock, and also H. G. Wright, the solicitor of the company, a resolution was passed to apply for 7000 shares in the Building Securities Company, and to pay the same up in full. This resolution was confirmed at the next meeting of the board on the 9th of March, when the same directors were present, and also Mr. Jabez S. Balfour, the chairman of the company. The shares were in due course allotted and paid for by a cheque for £35,000, which was balanced by a cheque for the same amount drawn by the Building Securities Company in discharge of their liability to the Lands Allotment Company.
This transaction was referred to in the balance-sheet of the Lands Allotment Company, issued in March, 1885, as follows: “Assets. By Building Securities Company, £35,000.” At the annual general meeting of the Lands Allotment Company, held on the 18th of April, 1885, at which Mr. Jabez S. Balfour presided, and at which the other above-mentioned directors were present, Mr. Balfour was questioned by Mr. Wratten, one of the share-holders, as to the meaning of this item, and he replied, according to the minutes of the shorthand writer, that it was an asset representing an amount to be paid by the Building Securities Company in respect of an “estate” which they had purchased from the Lands Allotment Company, and that it was put down as an unpaid item in order that the shareholders might see what it was. There was, however, some doubt whether the word used by Mr. Balfour was “estate” or “asset.” The same item appeared in the balance-sheet in the four following years.
At the general meeting on the 16th of April, 1887, Dibley, who was chairman, was asked by one of the shareholders for an explanation of the item in the balance-sheet, and he replied that the Building Securities investment was the same as it had been for the last two or three years; and that the Building Securities Company was a very good company indeed, and the directors considered it a very capital investment.
At the general meeting on the 16th of May, 1888, the item was again referred to as an investment which could be disposed of in due time.
At the general meeting on the 28th of November, 1888, Dibley was again in the chair, and he stated that the directors were perfectly satisfied with the investment in the shares of the Building Securities Company, and that the investment paid a very good rate of interest, and they thought it would be unwise at the present time to disturb it.
At the general meeting on the 15th of April, 1889, Brock, who was in the chair, referred to the investment in similar terms of approbation.
At a meeting of the directors on the 1st of July, 1889, at which E. Barnard and J. W. Dresser were present, but Theobald and Brock were both absent, it was resolved to apply for 1040 more paid-up £5 shares in the Building Securities Company, and the money was paid to that company by three bills, which were duly met by the Lands Allotment Company.
At a board meeting on the 9th of October, 1889, during the currency of the last of the bills, Brock, who had been chairman of the company since April, was present. The minutes of the yearly meeting, among other minutes, were read and confirmed, and were signed by Brock as chairman. Theobald was also present, and did not oppose the confirmation of the minutes.
At the general meeting on the 17th of April, 1890, Brock was in the chair. He then said: “With respect to this new investment. You will no doubt observe that we have increased our holding in the shares of the Building Securities Company. That company decided last year on making a further issue of capital, and they intimated to us, with other shareholders, that we were entitled to so many additional shares. We carefully considered the matter, and, having regard to the excellent return on our then holding, and our confidence in the management of the company, we deemed it advisable that we should exercise our right of subscription, and we have had no reason to regret this decision, seeing that the company is paying an eminently satisfactory dividend of 7 per cent.”
The Building Securities Company was ordered to be wound up in 1892.
The Lands Allotment Company was ordered to be wound up on the 16th of January, 1893, and in August, 1893, the official liquidator took out a summons to make the directors Pattison, Burns, Dibley, Brock, and Theobald jointly and severally liable to make good to the assets of the company the sum of £35,000 improperly invested by them in the purchase of 7000 shares of the Building Securities Company.
He also took out another summons to declare Barnard, Dresser, Brock, and...
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