Scottish Court of Session Decisions

The Greenock Property Investment Society carried on business in conformity with the Act for the regulation of Benefit Building Societies 6 and 7 Will. IV. cap. 32, and its objects were to raise a fund by fixed periodical contributions from the members, out of which fund advances to the amount of their shares were made to members applying for the same, for the purpose of building or purchasing dwelling-houses, lands, or other heritable subjects, to be secured to the society till repayment of the advances. Each share was of the nominal or subscribed value of £25, and was paid up by the members by monthly instalments of 2s. per share. These instalments, together with the proportion of profit credited to each share on the paid up amount thereof, as at the close of each financial year—on 30th November annually—constituted the contributions of each member towards the nominal or subscribed value of his share. During the course of 1883 the end of the financial year was changed to 31st December.

While the above were the general regulations as to all shares in the society, the members were divided into two classes according as they did or did not obtain advances. By rule 9 of the revised rules of the society it was provided—“The profits (after deducting such a sum as the directors consider should be carried to the reserve account) shall be allocated amongst the members each year, and carried to the credit of their respective accounts in the ledger. When the profits, with the instalments paid, amount to £25 per share, the members shall be paid out; provided that when such members are paid out during the currency of the financial year they shall only be entitled (in lieu of profits) to interest from the date of the immediately preceding annual balance on the sum then standing at their credit, at such rate as may from time to time be fixed by the directors; and such interest may, in the option of the directors, be dealt with as profits in the maturing of shares, but should such members not take payment of their shares when the same have come to maturity, and intimation to that effect has been made to them, then interest at bank current-account rate shall only be allowed such members from the date of such intimation till paid. Members whose shares come to maturity during the currency of the financial year shall be liable in payment of a proportion of any payment chargeable, in conformity with rule 2. Members who have not received an advance of money from the society may withdraw at the end of twelve months from the date of their entry, or at any time thereafter, by giving one month's previous notice, when the whole instalments shall be repaid, with a proportion of profits effeiring thereto, as at the date of the last annual balance according to scale No. 7 of appendix, less all penalties or other payments owing by such members. All members shall be bound at settlement to deliver up to the society their pass-books and certificates of shares.”

On 24th December 1883 the directors of the society having received very unfavourable valuations of certain heritable properties on which the society had advanced money, and which had been thrown on the hands of the society by the proprietors, agreed “meantime to receive no new members, to take no further deposits, and to delay making any payments.” After that date business was stopped and payments were suspended. At a special general meeting of the society held on 3rd January it was resolved that the society should only continue for the purpose of liquidation. The petition for liquidation was presented on 14th January, and a winding-up order was pronounced by the Court on 6th February 1884.

Having paid the outside creditors of the society the amount of their debts in full, the liquidator presented a note to the Court stating that a surplus remained in his hands, and that questions had arisen among members of the society who had been placed by the Court on the list of contributories as to the disposal of this surplus, and praying the Court, inter alia, to find that James Broadfoot's trustees and John Lyle were not creditors inter socios, nor entitled to any preference over the other contributories for the amount standing at their credit on their respective shares.

The facts with regard to Broadfoot's case were set forth in answers lodged for him before his death to a previous note by the liquidator and adopted by his trustees, and were as follows:—“In 1874 the respondent became the holder of twenty shares in the society for behoof of his son James Broadfoot junior, conform to certificate of transfer dated 19th July 1877. These shares were of the value of £25 each, and he thereafter proceeded to pay up the amount of said shares, namely £500, by instalments. The respondent was an investing member, and had no advance on his shares. At 30th November 1882 the sum standing at his credit, including profits up to that date, amounted to £446, 0s. 2d. During the year 1883 he paid further instalments amounting to £40, 15s. 3d., which brought up the total of his payments, as at 30th November 1883, to £486, 15s. 5d.,” which was the sum entered opposite the respondent's name in the list of contributories. On 29th October the directors resolved that the rate of interest to be allowed on shares coming to maturity at or after that date should be 3 per cent. Interest at that rate on £446, 0s. 2d. to 30th November 1883 amounted to £13, 7s. 7d., which being added to the above sum of £486,15s. 5d., made the sum standing at the credit of the respondent on 30th November £500, 3s., or three shillings more than the amount required to mature his shares.

“At a meeting of directors held on 17th September 1883 the following report was made:—‘The manager reported that the following sums fell due between this date and 31st December, the close of the financial year—James Broadfoot, £500.’

The manager (now the official liquidator)

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got at this meeting cheques signed for the various sums mentioned in the minute as falling due before the close of the financial year, except that for the respondent's money. A cheque was not then made out for that money because the respondent, who was present at the meeting as a director, stated that he would allow the money to remain to the end of the financial year in order that he might get a share of the profits for the year. James Broadfoot junior, to whom the money belonged, was at sea at the date of the meeting last referred to; and after his return he was told that his shares had matured, and he instructed the respondent to get up the money from the society as he had use for same before the end of the year. The respondent accordingly intimated to the manager of the society that he would take up his son's money; and at a meeting of the directors held on 10th December 1883 the following report was made:—‘The manager reported that notice had been given that the following sums were to be uplifted from the Society—J. Broadfoot, £500. The directors signed cheques for the following to meet the payments falling due before next meeting—J. Broadfoot, shares matured, £500. The manager stated that the shares held by Mr Broadfoot (chairman) for behoof of his son had come to maturity, and payment of which was desired immediately. On payment of these shares Mr Broadfoot would cease to be qualified for the office of director. Mr Broadfoot stated that he now resigned the office of director. Mr James Broadfoot having thus ceased to be a director of the Society, the directors in consideration of his long, valuable, and faithful services to the society, unanimously appointed him to be a trustee in the room and stead of Mr Alexander Currie. Mr Broadfoot being present accepted the office.’ The respondent ceased to be a director at the meeting referred to, and did not attend any further meetings of directors. The cheque for £500 was signed by the directors and a trustee at the meeting on 10th December, and the same was handed to the manager of the company, who thereafter held it for behoof of the respondent or of his son. On 24th December James Broadfoot junior called for the cheque. The manager was out when Mr Broadfoot Junior called, and the manager states that if he had been in the cheque would have been delivered and the money paid.”

The respondent submitted that his name should be removed from the list of contributories in respect that his shares had matured, and he had ceased to be a member of the society before the resolution for winding-up was adopted.

The facts with regard to Lyle's case were set forth in answers lodged for him, and were as follows:—“In 1877 the respondent became the holder of ten shares in the society conform to certificate dated 3rd December 1877. These shares were of the value of £25 each, and before 12th November 1883 he had paid up contributions on his said shares to the extent of £72, which with a sum of accumulated profits on the said contributions amounting to £9, 15s. made together a total sum of £81, 15s. due to the respondent at the said date. The respondent was an investing member, and had no advances on his shares. On or about 12th November 1883 the respondent gave notice of withdrawal in terms of rule 9 above quoted. The said notice was in the form of a letter to Mr Blair, then the manager, in the following terms:—“10 Regent Street, 13th November. Dear Sir,—I have ten shares in the Building Society (£72 paid), and I wish to withdraw them. Would you let me know when I can do so? — Yours, &c., John Lyle.

On 14th November he received the following letter from Mr Blair:—“6 West Blackhall Street, Greenock, 14 th November 1883. Mr Jno. Lyle — Dear Sir,—One month's notice requires to be given before payment of shares withdrawn is made. Please call for payment of your shares on 13th December next.—I am, yours truly, W. Blair, manager, per J. T.

Accordingly, on or about 13th December 1883 the respondent called at the office of the society for payment of the said sum of £81, 15s. He saw the manager, or his clerk, but was informed that through an omission the matter had not been brought before the directors at their monthly meeting held on 10th December 1883, and that he could not receive payment at that time. He was informed by the manager, or his clerk, that authority would be taken at next meeting to pay the sum due. The respondent got married about this time and left the town, and when he returned the society had suspended payment.”

Argued for the liquidator—In Broadfoot's case the shares had not matured. The directors had an optional power to hold interest as profits in the maturing of shares, but this power had not been exercised in his case. The cheques for payment of his shares were in name of the manager, and were never placed beyond the power of the society to recal. In Lyle's case the notice of withdrawal was not made effectual by payment. The undertaking in the rules that the shares of matured and withdrawing members should be paid was an undertaking inter socios, and contingent on the ability of the society to pay— North British Building Society v. M'Lellan, June 23, 1887, 14 R. 827.

Argued for the respondents—The case of both respondents was the same in principle. Both had ceased to be members of the society before 24th December when the society stopped payment, though it would have been enough if they had ceased to be members before the petition for winding-up was presented on 14th January. In Broadfoot's case the directors had clearly acknowledged that his shares were matured at the meeting of 10th December, and Lyle's notice of withdrawal took effect on 13th December. They were therefore both entitled to a preference over the other members of the society— North British Building Society v. Tosh, July 14, 1885, 12 R. 1271, and July 30, 1886, 14 R. (H. of L.) 6; , July 6, 1883, L.R., 24 Ch. Div. 421, and (H. of L.), November 28, 1884, 10 App. Cas. 33.

At advising—