Phosphate of Lime Co. v. Green. 1871 the thing to be ratified came to the knowledge of all who chose to inquire, all having full opportunity and means of inquiry. *By one of the articles of association of a joint-stock company, it was pro- [44 vided that "the company shall not, under any circumstances, purchase its own shares." The directors, having advanced money to the promoters of the company, to enable them to take up shares which they (the promoters) had bought, but for which they were unable to pay, agreed, by resolution, to abandon their claim to have the money returned, in consideration of 400 shares (upon which 107. per share had been paid up) being given up to them to be cancelled:Semble, that this was a "purchase of shares" within the prohibition above mentioned. : THE first count of the declaration was for money lent by the plaintiffs to the defendants; the second for a wrongful conversion by the defendants of goods of the plaintiffs, to wit, twentyfive debenture bonds of the Phosphate of Lime Company. Pleas, to the first count, never indebted, payment, and that the defendants satisfied and discharged the plaintiffs' claim by delivering to the plaintiffs certain shares in the company, then being of great value, to wit, 60007., and all their right and title therein, and the certificates thereof, and a certain paper purporting to be a transfer of the said shares, and by the plaintiffs accepting the same in full satisfaction and discharge of the plaintiffs' claim; and to the second count, not guilty, and that the defendants satisfied and discharged the plaintiffs' claim by delivering to the plaintiffs certain shares, and the certificates thereof, and a paper purporting to be a transfer of the shares, and by the acceptance by the plaintiffs of the same in full satisfaction and discharge of the causes of action in the last count stated Issue thereon. The cause was tried before Brett, J., at the sittings at Guildhall after last Trinity Term. The facts proved were as follows:The Phosphate of Lime Company, Limited, was established in July, 1865, under the Joint Stock Companies Act, 1862 (25 & 26 Vict. c. 89), for the purpose of purchasing or leasing and working certain mines or quarries of phosphate of lime in the island of Sombrero, in the West Indies, and elsewhere. Its capital was to be 300,000l., divided into 12,000 shares of 251. each. The articles of association of the company contained, amongst others, the following provisions: Art. 19. "The company may forthwith issue the 12,000 shares of 25l. each, into which its nominal capital of 300,000l. is divided, and may from time to time, with the sanction of a special resolution, increase the capital beyond the sum of 1871 Phosphate of Lime Co. v. Green. 300,000l., by the creation of new shares; provided that such new shares shall in 45] *the first instance, unless the company on the creation thereof shall otherwise determine, be offered to all the members of the company for the time being, in proportion to the number of their respective shares, and such of them as are not taken by the members may be disposed of to such other persons as the board shall determine. The company shall not, under any circumstances, purchase its own shares." Art. 84, sub.-s. 4. "They (the directors) may, at their discretion, make, enter into, rescind, alter, vary, renew, or otherwise deal with any contracts or engagements by or on behalf of the company, or the terms and conditions thereof, or the time or manner at or in which any payments or securities or obligations in respect of any such contract or engagement may be payable, and make such payments, securities, or obligations payable at other times or in another manner than may have been originally agreed upon, or grant or enter into a new or other contract or engagement in lieu thereof or in exchange therefor." Sub.-s. 11. "They may let, mortgage, sell, or otherwise dispose of, either absolutely or conditionally, in such manner and upon such terms in all respects as they may think fit, any of the property of the company, and may accept payment or satisfaction for any property so disposed of or dealt with, in such manner as they may deem expedient." Sub.-s. 18. "Generally where these articles are silent or do not otherwise provide, the directors, in their discretion, shall have full power to do and execute all such acts, deeds, and things necessary or deemed by them proper or expedient for carrying on the business of the company, and to enforce, perform, and execute all acts and things in relation to the company, and also to make rules and regulations for carrying on the business and concerns of the company, and to alter and vary the same as they shall think fit; and all such rules and regulations shall be binding on the company, provided the same be not repugnant to law or to any of the provisions of these articles." Art. 113. "The directors may decline to register any transfer of shares made by a member who is indebted to the company, and shall have a paramount lien upon all the shares of any member for the amount of any debt due from him to the company either solely or jointly with any other person; and, if such debt be not paid within three months from the service of a notice on such member requiring him to pay such debt together with interest and any expense that may have accrued by reason of such non-payment, the shares of such member, or so many of such shares as shall be sufficient to pay such debt, shall be liable to be forfeited, and, by a resolution of the directors to that effect, may be forfeited accordingly; and the company may thereupon sell and transfer all or any of the shares so forfeited, and apply the proceeds of such sale in or towards payment of the debt so due from such member as aforesaid; and the consent of such member shall not be necessary for giving validity to any sale, disposition, or transfer of any such shares." Articles 121 to 127 contained provisions for forfeiture of shares for non-payment of calls, &c. The defendants, Green and Nicholls, were the promoters of the company, and on their behalf negotiated with one Wood for the purchase of a mine in the island of Sombrero, and also 46] with one *Dumas for the purchase of a mine at Lagrosan, in Phosphate of Lime Co. v. Green. 1871 Spain. Upon each of these: transactions, Green and Nicholls were to receive from the vendor a sum of 10,000l., 7500l. in cash, and 2500l. in debenture bonds. The Sombrero purchase was duly completed, and Green and Nicholls received the 10,000l. thereon, as agreed. Some difficulty, however, arose as to the vendor's title to the Lagrosan mine; and, although the directors had on the 27th of February, 1866, issued a prospettus, in which they stated that they had "succeeded in obtaining" both mines, the purchase of the last mentioned mine had not been completed at the time the transaction next mentioned took place. Green and Nicholls, for the obvious purpose of furthering the interests of the company, had bought a large number of shares in the market; and, being unprepared to take them up on the settling day, they applied to the directors for assistance, and the directors, knowing the injurious consequences which would result to the company from these shares being again thrown upon the market, with the consent and at the request of Dumas agreed to advance to Green and Nicholls 6500l. in cash and fourteen debenture bonds for 100%. each; and a resolution to that effect was passed at a meeting of the 9th of March, 1866. Upon receiving the advance, Green and Nicholls signed the following receipt :— "London, March 9, 1866. "Received on our joint and several account from the Phosphate of Lime Company (Limited) the sum of 75007., and twenty-five debenture bonds of 100%. each of the company; the said cash and bonds being taken and accepted by us as an advance from the company pending the completion of M. Dumas's purchase, and to be accounted for by us jointly and severally and repaid to the company to the extent of 6500%. and fourteen of the said bonds of 100%. each, in the event of the said purchase from any cause not being completed within three months from the date hereof. "6 Thomas Green. "6 'Edward C. Nicholls." Green and Nicholls in fact received only 6500l. in money and fourteen bonds; 1000l. and eleven bonds being retained by the company by arrangement. The shares (400 in number) were accordingly taken up by Green and Nicholls. The purchase of the Lagrosan mine eventually going off, the directors called upon Green and Nicholls to repay them the above advance; and, after some negotiation, by a resolution of the directors *of the 10th of July, 1866, confirmed by a sub- [47 sequent resolution of the 24th, it was arranged "that 400 shares (10l. paid-up) of the company should be delivered up by Green and Nicholls to be cancelled, in satisfaction of the debt due by those gentlemen to the company," with a promise on the part of the directors, that, if any dividends should be declared as to 300 of the shares within three months, Green and Nicolls should have the benefit thereof. The 400 shares were accordingly delivered up by Green and Nicholls to the directors, and cancelled by them; and the account of Green and Nicholls in the company's ledger was credited, under date the 21st of August, 1866, "By shares forfeited account, 4000l." The names of Green and Nicholls appeared in the list of "forfeited shares for a like sum. In consequence of the failure to obtain the Lagrosan mine, it was proposed at the end of the year 1866 that the Phosphate of Lime Company should go into liquidation, and should transfer to a new company, to be called the Sombrero Company, all its business and assets, that the capital should be reduced to 132,000l., and the shares instead of 25l. each should be reduced to 107. each, the shareholders in the Phosphate of Lime Company to be shareholders, share for share, in the new company. Accordingly, on the 6th of March, 1867, a meeting of the shareholders of the Phosphate of Lime Company was held, at which a report of the directors was read, stating the reasons for the liquidation of the original company and the prospects of the new company, and informing the shareholders that the proposed reduction of the capital had been effected partly by shares cancelled owing to the abandonment of the Lagrosan purchase, partly by "shares forfeited for non-payment of calls," and partly by the abatement by the vendor of the Sombrero mine in the number of paid-up shares issued to him. At this meeting the report was read, the books of the company were produced, and an account was circulated amongst the shareholders in which the sum of 4000l. appeared as representing forfeited shares. The transfer having taken place, the Sombrero Company (the directors of which were the directors of the Phosphate of Lime Company) continued to carry on business, paying several dividends, down to the end of 1869, when it also went into liquidation. 48] *On the 7th of February, 1870, the liquidator of the Phosphate of Lime Company made a demand upon Green and Phosphate of Lime Co. v. Green. 1871 Nicholls for the 6500l. and the fourteen bonds referred to in the receipt of March 9th, 1866; and, upon their refusal to comply with such demand, the present action was brought by leave of the Court of Chancery. For the plaintiffs, it was submitted that the directors had no authority under the articles of association to make the alleged compromise of July, 1866. For the defendants, it was insisted that the directors had authority to make the compromise; and that, assuming they had not, the circumstances attending the transfer of the business of the original company to the Sombrero Company showed such ratification or acquiescence on the part of the shareholders as to make the act lawful, and consequently that the plea of accord and satisfaction was proved. The plaintiffs' counsel declined to go to the jury; and a verdict was thereupon taken, by the direction of the learned judge, for the defendants upon that plea. Hawkins, Q.C., in Easter Term last, obtained a rule nisi to enter a verdict for the plaintiffs for 65001. Nov. 8, 10. H. Giffard, Q. C., W. G. Harrison, and Benjamin, • showed cause. The receipt by the directors of the 400 paid-up shares in settlement of their claim against Green and Nicholls was a good accord and satisfaction, and clearly within the authority conferred upon them by the articles of association. And, if there was any excess, the subsequent ratification and adoption by the company of the compromise, and the cancellation of the shares, made the act lawful. The situation of the defendants was thereby altered to their prejudice; and that of the company improved to the extent of the increased dividends which would result to them from the cancellation. The transaction was not a "purchase of shares," within article 19, but a compromise or settlement of a claim within article 84, sub-sections 4 and 18, and article 113, which obviously contemplate a case where the company may take back their own shares in satisfaction of a debt due to them. A resumption of capital under such circumstances cannot be called a purchase. The prohibition only applies to the buying of shares *in the market, or, in other [49 words, to what is called "rigging the market." At all events, there was abundant evidence of ratification, with full knowledge of all the circumstances. The shareholders had reasonable |