The Official Manager of the Athenaeum Life Assurance Society v Pooley
| Jurisdiction | England & Wales |
| Judgment Date | 13 December 1858 |
| Date | 13 December 1858 |
| Court | High Court of Chancery |
English Reports Citation: 44 E.R. 1281
BEFORE THE LORDS JUSTICES.
S. C. 1 Giff. 102; 28 L. J. Ch. 119; 5 Jur. (N. S.), 129; 7 W. R. 167. See Aberaman Ironworks v. Wickens, 1868, L. R. 5 Eq. 517; Northern Assam Tea Company v. Universal Life Assurance Company, 1870, L. R. 10 Eq. 464. Observed upon, In re Hercules Insurance Company, 1874, L. R. 19 Eq. 302. See In re Romford Canal Company, 1883, 24 Ch. D. 92.
[294] the official manager of the athen^um life assurance society v. pooley. Before the Lords Justices. Dec. 4, 11, 13, 1858. [S. C. 1 Giff. 102 ; 28 L. J. Ch. 119 ; 5 Jur. (N. S.), 129 ; 7 W. E. 167. See Aberaman Ironworks v. Sickens, 1868, L. R. 5 Eq. 517 ; Northern Assam Tea Company v. Universal Life Assurance Company, 1870, L. R. 10 Eq. 464. Observed upon, In re, Hercules Insurance Company, 1874, L. R. 19 Eq. 302. See In re Rmnford Canal Company, 1883, 24 Ch. D. 92.] Debentures under the common seal of a joint stock company incorporated under 7 & 8 Viet. c. 110, were given to P. in July 1854, in pursuance of an arrangement made between P. and the chairman of the directors, which was a fraud on the company. These debentures were afterwards bought by L. in the market in the ordinary course of business. The transfer to L. was registered in the books of the company, and interest was paid to July 1855, inclusive, but the matter was not made known to the shareholders till December in that year, when an investigation of the affairs of the company took place, in consequence of which the directors resigned, and the further payment of interest was refused. Held, that L., though a purchaser bonAJide for value without notice, yet being only the purchaser of a chose in action not assignable at law, must take it subject to the equities attaching to it; and that, under the above circumstances, neither the registration nor the payment of interest had the effect of a confirmation of L.'s title, and that he ought to be restrained from suing at law upon the debentures. This was an appeal by the executors of Richard Holmes Laurie, from a decree of Vice-Chancellor Stuart, granting a perpetual injunction to restrain them from proceeding at law upon certain debentures issued under the common seal of the Athenajum Life Assurance Society. The society was formed in 1851 as a joint stock company, and was completely registered on the 14th of May in that year. It was provided by the deed of settlement, that the capital should be 10,000, but power was given to an extraordinary general meeting to increase it. On the 16th of May 1851, a meeting of shareholders was held, at which Josiah Bartlett presided as chairman. At this meeting resolutions were passed for increasing the capital to 100,000, and for empowering the directors to borrow any sum or sums of money not exceeding in amount the increased capital, on debentures under the common seal of the company, or on such other security as to the directors should seem fit. [295] This meeting was alleged to have been irregularly constituted, but it is not necessary to enter into the objections taken to it, as the judgment of the Court did C. xx [V.- 41 1282 ATHENAEUM LIFE ASSURANCE SOCIETY V. POOLEY SDEG. Se J. 296. not turn upon the question whether the raising money by debentures was duly authorized. In June 1854 an arrangement was come to, under the management of Bartlett, that the company should purchase from the Defendant Pooley, at par, Westminster Improvement Bonds to the amount of 10,000, to be paid for partly in cash and partly in bonds of the company. In July 1854, this transaction was completed, and the consideration was paid, as to 3500 by seven debentures of the company for 500 each, payable to Pooley, and the remaining 4500 by a cheque on the company's bankers. It appeared that the requisitions of the deed of settlement as to the mode of affixing the common seal were notf complied with. This cheque was duly cashed, and the notes in which it was paid were, to the extent of 500, traced as having come into the hands of Bartlett on the same day. The Westminster Improvement Bonds were at the time worth much less than their nominal amount, and afterwards became further depreciated, and ultimately worthless. In October 1854, Pooley transferred the debentures to Brown, a stockbroker, and on the 7th of December 1854, Brown transferred them to Mr. Laurie, who bought them in the market in the ordinary course of business without any notice of the circumstances relating to their creation or their issue. The transfer of them to Laurie was registered in the books of the company. Interest on the debentures was paid by the directors in January and July 1855. The last report made by the directors to the shareholders went down only to July 1854. In December 1855, a meeting of shareholders [296] was held to investigate the affairs of the company, and Mr. Bartlett and the other directors resigned their appointments. In January 1856, the new directors refused to continue payment of interest on the debentures; and Mr. Laurie afterwards commenced an action at law upon them in the name of Pooley. On the 12th of July 1856, an order was made for the winding up the company. The present bill was filed among other things to restrain the action, and Vice-Chancellor Stuart granted a perpetual injunction, From this decree the representatives of Mr. Laurie appealed. Mr. Malins and Mr. W. D. Lewis, for the official manager, in support of the decree. No rule is better settled than that the assignee of a chose in action, incapable of being transferred at law, takes it subject to the equities to which it was liable in the hands of the assignor; Gator v. Burke (1 Bro. C. C. 434). Pooley obtained these debentures by an arrangement made between him and Bartlett to defraud the company, and therefore could not have been allowed by a Court of Equity to sue upon them. Laurie, though morally innocent, cannot be in any better position; Turtan v. Benson (I P. W. 496); Coles v. Jones (2 Vern. 692), Persons dealing with the directors of a joint stock company, incorporated under 7 & 8 Viet. c. 110, are bound to see that they are not acting ultra vires. We should contend, if necessary, that these debentures are invalid at law. A mere noncompliance with formalities is not in all cases fatal to the validity of an instrument under the seal of a company; but if the act be ultra vires, and the obligor knew it to be so, he cannot recover; Royal British Bank v. [297] Twguand (5 E. & B. 248; 6 E. & B. 327); Ridley v. Plymouth, Stonehouse and Davenport Grinding and Baking Company (2 Exch. 711); Kingsbridge Flow Mill Company v. Plymouth, &c., Grimling and Baking Company (Ibid. 718); Hillv. Manchester and Salford Water Works Company (2 B. & Ad. 544)'; Horton v. Westminster Improvement Commissioners (7 Exch. 780); Kirk v. Bell (16 Q. B. 290); Bryson v. Warwick and Birmingham Canal Company (4 De G. M. & G. 711); Ernest v. Nieholk (6 H. of L. Cas. 401). Mere registration and payment of interest make no difference ; these acts were as much ultra vires as those which had gone before, and were acts of the directors only, not binding on the shareholders, who knew nothing of what had been done till the meeting of the 19th of December 1855, and never affirmed the transaction. This takes the case out of the principle referred to in Mangles v. Dixon (3 H. of L. Cas. 702), and on which that case was decided by Lord Cottenham. The case of Agar v. Athenceiim Life Assurance Society (6 W. R. C. B. 277), will be relied on against us, but there there was no fraud, nothing but mere informality. Mr. Bacon and Mr. Locock Webb, for the executors of Laurie. Agar's case is exactly the same as ours except in this particular, that there cash was paid for the debentures; but that makes no difference, for the directors had power to invest on 3DECKJ,t ATHENAEUM LIFE ASSUKANGE SOCIETY V. POOLEY 1283 such securities as they thought fit. The resolution for creating debentures has been adopted by the whole body of shareholders, arid the issue of these debentures has been ratified, for interest has been paid on [298] them, and the company has had and disposed of the bonds which were given for them. That the bargain has turned out a bad one for the company is no reason for impeaching it. If the debentures are bad at law the company ought to defend themselves at law, and have no reason on that ground for coming here. There is no equity against Laurie, he bought the bonds bond fide in the market for value and in the ordinary course of business. Having so done, though he must take the risk of the debentures being invalid at law, there is no equity against him. Several of the cases referred to on the other side are observed upon in Greenwood's case (2 De G-. M. & Gr. 459), and the remarks there tend to shew that the issuing bonds, being within the powers of the directors in the ordinary discharge of their duties, the purchasers were not bound to look to the regularity of their issue. Pooley did not appear. the lord justice knight bruce. It is in my judgment clear upon the evidence that the debentures to which this suit relates were obtained by Mr. Pooley through a combination between him and Mr. Bartlett to defraud the company. I am not sure that I should not have come to that conclusion independently of the tracing of the 500 note, but the tracing of that note into the private account of Mr. Bartlett at his bankers on the very day on which the cheque drawn on the company's iunds by Mr. Hopkinson was cashed, puts an end to all possibility of doubt. In my judgment the transaction was clearly fraudulent, and therefore if Mr. Pooley were the only person concerned in the case no question could arise. Mr. Laurie appears to have [299] bought these debentures innocently, but very imprudently, in the belief probably that they were good securities, and without notice of anything to the contrary. Unfortunately...
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