1871 Phosphate of Lime Co. v. Green. notice by the report and accounts presented to them at the meeting in March, 1867, when the whole property and effects and rights and obligations of the old company were by consent of the proprietors transferred to the new one. The shares in the new company would necessarily be increased in value by the cancellation of the defendant's shares; and its members have gone on receiving dividends on the footing of such cancellation being authorized down to the time of the commencement of the present action. When all the facts are looked at, it is impossible to say that the company had not ample opportunity of knowing what had been done. There are numerous authorities to show that where an act has been done by a public company which is ultrà vires, or to the legality of which certain formalities are requisite, and the circumstances are such that knowledge and acquiescence may be imputed to every shareholder, the Court will, as against the company, infer that the necessary formalities have been complied with: Bargate v. Shortridge (1); Re Magdalena Steam-Navigation Co. (2); Re British Provident Life and Fire Assurance Society (Grady's Case) (3); Reuter v. Electric Telegraph Co. (1); Evans v. Smallcombe (5); and the judgment of Blackburn, J., in Taylor v. Chichester and Midhurst Ry. Co. (); and see Chitty on. Contracts, 7th ed. 255. The decision of the House of Lords in Spackman v. Evans (7) in no way conflicts with the present argument. The act of the directors here was not an absolute nullity, but, at the most, was what the civilians call a relative nullity; and the company can only take advantage of it by rescinding it, and returning what they had received under it: see the judgment of Mellish, L.J., in Ayers v. South Australian Banking Co. (8). Nov. 11. Hawkins, Q.C., Sir G. Honyman, Q. C., and Lanyon, in support of the rule. The 6500l. was a debt justly due to the company. The directors were under no obligation to 50] advance the *money to Green and Nicholls: their remuneration was to come from the vendor of the mine. Although it might have been competent to the directors to (1) 5 H. L. C., 297; 24 L. J. (Ch.), 457. (5) Law Rep., 3 H. L., 249. Phosphate of Lime Co. v. Green. 1871 compromise their claim in some shape, they clearly could not do so by a purchase of shares, for that is distinctly prohibited by the 19th clause of the articles of association; and they could not legally do it by a cancellation of shares, for that would be diminishing the capital of the company, which is distinctly prohibited by s. 12 of the Companies Act, 1862 (25 & 26 Vict. c. 89), which was in force at the time. No doubt, shares may be forfeited for non-payment of calls, but that is not this case; it is the case of an acquiring by the company of its own shares by agreement for a money payment, or, what is the same thing, the forbearance of a debt, and therefore within art. 19, which provides that "the company shall not, under any circumstances, purchase its own shares." Then, as to the supposed ratification. What are the facts relied on by which the shareholders are to be fixed with notice or knowledge of the act of the directors in compromising their claim by the cancellation of these shares? They are simply the report of the directors at the meeting for the transfer of the Phosphate of Lime Company to the Sombrero Company, in which it appeared that the reduction of the capital of the new company was in part due to "shares forfeited for non-payment of calls," together with the statement in the accounts then presented to the shareholders that Green and Nicholls had been credited with the 40001. for the cancelled shares. That clearly was no notice to the shareholders of this transaction. [WILLES, J. It was calculated to put them upon inquiry, and that would have led to knowledge.] It was not calculated to lead the shareholders to the knowledge that these shares had been bought by the directors, but rather to induce them to believe that they had been forfeited in invitum. Besides, the report and account were not sent to the shareholders; nor was there evidence that a single shareholder saw the entry in the ledger. BRETT, J. The report was read at the meeting in March, 1867, and a copy of the account was given to all the shareholders present; and a sufficient number of shareholders attended to *authorize the transfer of the business of the Phosphate of [51 Lime Company to the Sombrero Company. The report showed that the shares in question were cancelled, and the account showed what that cancellation meant.] 1871 Phosphate of Lime Co. v. Green. This The facts to show acquiescence here were not nearly so strong as those in the recent cases in the House of Lords, of Spackman v. Evans (1), Erans v. Smallcombe (2), and Houldsworth v. Evans (3). In the first of those cases, a company, called the Agriculturists' Cattle Assurance Company, was formed. A deed of settlement was executed, which contained various clauses as to the admission and withdrawal of shareholders, and the transfer and forfeiture of shares. On difficulties arising in its business, a proposition was made to allow, on certain conditions, dissenting shareholders to retire on the forfeiture of their shares. proposal, of which distinct notice had been given to all, was adopted at a public meeting of the shareholders. Spackman, a shareholder who had executed the deed, dissented from these conditions, and sought to wind up the company. In this he failed; and he was sued for calls. Pending the litigation, the directors allowed him to retire upon conditions which were not those named in the deed or in the proposal agreed to at the meeting. No notice of the conditions thus entered into with Spackman was shown to have been communicated to the other shareholders; but the fact of Spackman's retirement was known to them, and there was no imputation of any fraudulent concealment. The name of Spackman (who had performed all the conditions on which leave to retire was granted to him) was removed from the list of shareholders in 1849. Changes were afterwards made in the mode of carrying on the company's business, and dividends were paid; but Spackman was not informed of the changes; he never received a dividend, and he never was called on to take, and never did take, any part in the affairs of the company. In 1861, ån order was made for winding up the company; and it was held by the House of Lords (Lord St. Leonards and Lord Romilly dissenting), that Spackman's name was rightly placed on the list of contributories. There it was brought to the knowledge of every shareholder that 52] some *compromise had been made; but, as it was not notified to them what that compromise was, the transaction was held to be void. Lord Chelmsford says (1): "The arrangement, being ultrà vires of the directors, could only be subsequently made good by the acquiescence of all the shareholders, with know (1) Law Rep., 3 H. L., 171. (2) Law Rep., 3 H. L., 249. (3) Law Rep., 3 H. L., 263. Phosphate of Lime Co. v. Green. 1871 ledge of the transaction. But mere time alone, without such knowledge, could never, in my opinion, grow into proof of acquiescence, or render valid that which, without the consent of all the shareholders, was absolutely void ab initio." In the next case, Evans v. Smallcombe (1), it was held that an arrangement allowing the members of a company to retire from the company under certain conditions therein agreed to by a public meeting of the shareholders convened by a due notice, is not in itself valid, unless made in accordance with the provisions of the deed of settlement, and, if not assented to directly or indirectly, after due notice, by all the shareholders, may be impeached by any one of them; but that, if the means of notice to all appear sufficient, so as to raise a clear presumption of knowledge and acquiescence, and the arrangement is left unimpeached by any one for a great many years, the shareholder who has been allowed to retire, and whose name has been removed from the list of shareholders, will be held to be relieved from his liability as a shareholder. But Lord Cairns, in his judgment says (2): "Lapse of time clearly would not make valid that which at the beginning was invalid." In the third case, Houldsworth v. Evans (3), it was held by Lord Cranworth (who differed from the majority), that, where shareholders know that their directors have been exceeding their legal powers, and take no steps in the matter, but allow the things done to remain unimpeached for years, they must be taken to have, retrospectively, sanctioned what has been done. But Lord Cairns (1) said that it was impossible to ascribe to the mere mention of "cancelled shares" in the balance sheets the effect sought to be imputed to similar words in this case. In Imperial Bank of China, &c. v. Bank of Hindustan, &c. (5), it was held that acquiescence, to bind all the members of a company to a bargain which there is no *power to confirm, must be [53 acquiescence by every member of the company. Giffard, V.C., there says (6): “It is excessively difficult to make out acquiescence on the part of a body such as a company is. I can understand acquiescence in a case where it is in the power of the persons said to have acquiesced to confirm it; but, when it (1) Law Rep., 3 H. L., 249. () Law Rep., 3 H. L., at p. 275. (5) Law Rep., 6 Eq., 91. (6) Law Rep., 6 Eq., at p. 100. 1871 Phosphate of Lime Co. v. Green. is not in the power of the persons said to have acquiesced to confirm it, it requires, in order to establish acquiescence, a case from which it must necessarily be inferred that every member of the company has assented." These cases clearly show that the evidence of ratification or acquiescence in the present case was insufficient to bind the general body of shareholders. [WILLES, J. It is to be observed that those were all cases of liquidation,-a proceeding intended for the shareholders themselves.] WILLES, J. The argument of this case has occupied a considerable time, though not longer than its importance warranted. But, when it comes to be threshed out, the facts which are material to the forming a judgment upon it appear to be shortly these:- The plaintiffs' company was formed for the purpose of working two mines, one in the island of Sombrero, in the West Indies, and the other at Lagrosan, in Spain, with a capital of 300,000l., in 12,000 shares of 251. each, of which 101. per share was paid up. Negotiations were entered into by the company for the purchase of the mines. The Sombrero mine was duly conveyed to them; but a difficulty arose as to the title of the Lagrosan mine, and up to the month of March, 1866, the sale had not been completed; and the purchase ultimately went off. The defendants, Green and Nicholls, were the promoters of the company, and would receive a considerable benefit in the shape of bonus or commission if the company was successfully floated. They had in fact received from the vendor 10,000l. (in money and shares) on the conveyance of the Sombrero mine; and they were to receive a similar sum upon the completion of the purchase of the Lagrosan mine. They appear to have purchased a considerable number of shares in the company; and when the time arrived for taking them up, owing to the purchase of the Lagrosan mine being still in fieri, they were una51] ble to obtain funds. Under these circumstances, it being considered that their failure to take up the shares which they had so agreed to purchase would have an ill effect upon the prospects of the company, the directors as representing the company, agreed to advance to Green and Nicholls the sum sought to be recovered in this action; and in respect of that advance the following receipt was given:-"London, March |