Re The Norwich Yarn Company ex parte Bignold
| Jurisdiction | England & Wales |
| Judgment Date | 31 May 1856 |
| Date | 31 May 1856 |
| Court | High Court of Chancery |
English Reports Citation: 52 E.R. 1062
ROLLS COURT
S. C. 25 L. J. Ch. 601; 2 Jur. (N. S.) 940; 4 W. R. 619. See In re Professional Life Assurance Company, 1867, L. R. 3 Eq. 682.
[143] In re the norwich yarn company. Ex parte bignold. May 1, 2, 3, 28, 31, 1856. [S. C. 25 L. J. Ch. 601; 2 Jur. (N. S.) 940; 4 W. R. 619. See In re Professional Life Assurance Company, 1867, L. R. 3 Eq. 682.] Directors of a trading company incurred a large debt to the bankers beyond the subscribed capital. Held, that they were entitled to be repaid by the company by means of a call, with simple, but not compound, interest, or with rests as charged by the bankers. Some of the clauses in a public company's deed of settlement are directory and some imperative. A deviation in the former may be sanctioned and confirmed by a general meeting of shareholders, but the latter cannot, unless with the assent of every individual shareholder. By the deed of settlement of a joint stock company, all cheques on the bankers were to be signed by three directors. Held, that this was directory and not imperative, and therefore, that the directors were entitled to be allowed any sums drawn from the bankers by cheques not properly signed, if bond fide applied for the purposes of the trade. Absent members of a company held affected by the information furnished by the directors at a general meeting, and bound by the proceedings, as to matters within its competence. This case came before the Court, on appeal from the Master's certificate. the solicitor-general (Sir R. Bethell) and Mr. Cole, in support of the motion. Greenwood's case (3 De G. M. & Gor. 459); Bank of Australasia v. Breillat (6 Moore, P. C. C. 152); Ex parte Chippendale, In re German Mining Company (4 De G. M. & Gor. 19). Mr. Roupell, Mr. R. Palmer and Mr. Busk, for the official manager, and representing the contributories. Rath-well v. Humphreys (1 Esp. 406) ; Ee The Norwich Yarn Company (13 Beav. 426) ; Ex parte Bonbonus (8 Ves. 540); Smdilands v. Marsh (2 B. & Aid. 673); Fisher v. Tayler (2 Hare, 218); Dickinson v. Falpy (10 B. & C. 128); Tredwen v. Bourne (6 M. & W. 461); Hawtayne v. Bourne (7 M. & W. 595); Hawken v. Bourne (8 M. & W. 703); Rkketts v. Bennett (4 C. B. 686); Bramah v. Roberts (3 Bing. N. C. 963); Green-òwoofs case (3 De G. M. & Gor. 459); Gillan v. Mor-\l4&\-rison (1 De G. & Sm. 421); In re Worcester Cm-n Exchange Company (3 De G. M. & Gor. 180); Prendergast v. Twrton (1 Y. & C. C. C. 98); Morgan's case, In re Vale of Neath, &c., Company (1 Hall & Tw. 320, and 1 Mac. & Gor. 225); Bank of Australasia v. Breillat (6 Moore, P. C. C. 152); Ex parte Chippendale, In re The German Mining Company (4 De G. M. & Gor. 19); Pott v. Sevan (1 Car. & Kir. 335); Bennett's case (5 De G. M. & Gor. 284). the master of the rolls reserved judgment. May SI. the master of the rolls [Sir John Romilly]. This case came before me on appeal from the Master's certificate, regulating the rights as between themselves, of the directors of the Norwich Yarn Company, and their co-proprietors. The company was projected and set on foot in the year 1833, by several of the influential inhabitants of the City of Norwich. Their principal object seems to have been to relieve the distress, which at that time afflicted the poor of that city, by opening to them the means of employment, by the establishment of an extensive aBBAV.HS. IN RE THE NORWICH YARN COMPANY 1063 manufacture for converting wool into yarn; and for this purpose, their design was to raise £30,000 by three hundred shares of £100 each. The affairs and conduct of the company, and the liability and rights of the proprietors, were regulated and prescribed by a deed of the 2d of August 1834. Although charity had a large share in the motives for the establishment of this company, the profitable invest-[145]-ment of money was not disregarded; and it is assuredly a principle inseparable from this, as from all similar undertakings, that the public benevolent and charitable object will fail, unless the private and profitable one be also accomplished. They are in fact inseparable, and unless the company be so established and conducted as to become profitable to the proprietors, it is likely, if not certain, in the end, to aggravate rather than allay the particular evil it was intended to remove. Unfortunately, the skill with which this company was constituted did not equal the benevolence of the motives which projected it. It was provided, by one of the clauses of the deed (102), that no person should be a director who had any practical knowledge of the manufacture about to be established; though the primary object of the scheme was to employ, and, for this purpose, to instruct in the business, the poorer inhabitants of the City of Norwich, where, at that time, no such business seems to have been carried on; and who were consequently ignorant of the process by which such a manufacture was conducted. The result of an undertaking established on such principles might easily have been foreseen. It struggled on with increasing difficulties for sixteen years, till at last, in the year 1850, it was wound up, by order of this Court, under the statute, in a state of insolvency. The whole of the original capital was gone, and a debt of £32,000 contracted with the East of England Banking Company, the bankers of the company. The property of the company has been sold for £17,000, and of this, the sum of £12,000, or thereabouts, alone remains towards paying this debt to the bankers, assuming it to be applicable to this purpose. Under the winding-up orders, the bankers claimed to be creditors for this amount against the company; the [146] Master disallowed their debt. On appeal to Lord Langdale (13 Beavan, 426), he expressed no opinion on the point, but directed the bankers to bring an action at law, and entered a claim but not a proof of debt, in the meantime, to abide the result of the action. This, on appeal to the Lords Justices, was affirmed; and one of their Lordships expressed an opinion that on the evidence then before them, if compelled to come to a conclusion, he should have concurred with the Master. The bankers commenced an action accordingly, but on reflection, finding that there was no doubt as to the individual liability of the directors, or of their capacity to pay, they abandoned the action against the company, and enforced their demand against the directors; the result of which has been that the claim of the bankers against the company has been expunged, and the directors have paid or given security for the debt to the banking company, and put themselves in the same situation as if they had advanced this money for the purposes for which it was applied. In this state of things, the directors applied to the Master to make a call on their co-proprietors, in order to reimburse them what they have paid, or have rendered themselves liable to pay, to the banking company. The co-proprietors, on the other hand, seek to throw the whole debt on the directors, and to divide the surplus of the money arising from the sale of the partnership property between themselves, in proportion to their subscriptions. The Master has made his certificate, refusing to make any call on the co-proprietors to relieve the directors, but permitting them to apply the surplus money arising from the sale of the partnership property in discharge, as far as it will extend, of their payment or liability to [147] the bankers. Both parties object to the Master's decision, and cross-motions to vary his certificate have been given and argued before me immediately before the close of the last term. Both motions involve the same questions, and have been argued as one ; indeed, the cross-motion of the co-proprietors is rather in the nature of defence, to prevent the directors from succeeding in enforcing a contribution from them. The first motion, on behalf of the directors, insists on their right to contribution. The cross-motion, by their co-proprietors, insists that the whole debt due to the bankers must be borne by the directors themselves, and that the surplus money arising from 1064 IN BE THE NORWICH YARN COMPANY 22BBAV.148. the gale of the property of the partnership ought to be divided amongst them, and not retained by the directors, or applied by them in discharge of the surna they have already paid or secured to the bankers. Assuming that the money advanced has been applied bond Jide, for the purpose of the partnership, primA fade the directors would be entitled to have the amount repaid to them. The ground on which the proprietors found their defence to the claim of the directors is two-fold:- First, they contend that, according to the partnership articles or deed of 2d August 1834, the liability of the shareholders, as between each other, is limited to the amount subscribed, and that if the directors have spent more,.they have thereby acquired no right to contribution from their co-proprietors beyond their original subscriptions. Secondly, they contend that the conduct on the part of the directors, in the management and carrying on of [148] the concern, disentitles them to any contribution. Their conduct, it is alleged, was in violation both of the express and of the implied contract on which the partnership was founded; that is, that the conduct of the directors was contrary to the provisions of the partnership...
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