Scottish Court of Session Decisions

J. M. Smith, Limited, having their registered office at No. 67 Hope Street, Glasgow, and Robert Crawford, merchant, Glasgow, raised an action against John Wilson, C.A., Glasgow, trustee on the sequestrated estates of J. & D. T. Colquhoun, writers, Glasgow, and of James Colquhoun and David Turnbull Colquhoun, both writers in Glasgow, sole partners of the said firm, as such partners and as individuals.

The conclusions of the action were (1) for declarator that by virtue of the terms of an offer, dated 31st January 1900, addressed by the defender to the pursuers J. M. Smith, Limited, and an acceptance of said offer addressed by the said J. M. Smith, Limited, to the defender, dated 12th February 1900, and signed by the pursuer Robert Crawford, a contract was concluded between the said J. M. Smith, Limited, and the defender for the sale, under the terms of article 4 of the articles of association of said company, of 687 ordinary B shares of said company, the said shares being Nos. 3842 to 4468 inclusive, and 4713 to 4772 inclusive, and such as were specified and referred to in a letter dated 4th January 1900, addressed by the defender to the said J. M. Smith, Limited; (2) for declarator that the defender was bound to implement the said contract of sale by executing transfers and delivering the share certificates to the pursuer Robert Crawford, or alternatively to J. M. Smith, Limited, in return for payment of the sum specified in his offer as the price; (3) for decree ordaining the defender on payment of the said price to execute transfers and give delivery of the share certificates to Robert Crawford or to J. M. Smith, Limited, in conformity with the declaratory conclusions; and (4) for interdict against the defender selling the shares or executing transfers thereof, or giving delivery of certificates applicable to the same to any person other than the pursuer Robert Crawford, or alternatively the pursuers J. M. Smith, Limited, or in any manner or way other than was provided by the terms of articles 4 and 5 of the articles of association of J. M. Smith, Limited.

The pursuers averred that the defender as trustee foresaid was the holder of 687 Ordinary B shares of J. M. Smith, Limited. “(Cond. 2) The defender, in realising the estates of said bankrupts ( i.e. the Colquhouns), desired to sell, inter alia, said 687 Ordinary B shares, and in so doing was subject to the requirements of the articles of association regarding the transfer of said shares. Article 4, which secures a right of pre-emption in favour of existing B shareholders, is in the following terms, viz.:—‘If any holder of Ordinary B shares wishes to sell his B shares, he shall, before doing so or transferring them to any party, offer them to the company in writing, specifying the price which he is willing to accept for said B shares and the directors shall either take said shares on behalf of the company at such price, or intimate said offer to the other Ordinary B shareholders, who may lodge sealed offers with the company specifying the sum or price which they are willing to pay for such shares, and which offers shall be opened at a meeting of the directors to be held within fourteen days after the directors shall have given the aforesaid notice to the other shareholders, and the highest offer shall be accepted by the seller provided it is equal to or above the sum specified in his letter, and if the highest offer is below the sum specified in the letter of offer, the holder of Ordinary B shares so desiring to sell shall then be at liberty to sell his Ordinary B shares to any party (subject, however, to the stipulation in article 5), but not at a price below the highest sum offered by any of the other shareholders as aforesaid, and in no case shall Ordinary B shares be sold at a sum below the highest offer without giving the directors or the shareholders so offering the first option of acquiring said shares at the lower sum which the seller has agreed to take, and in every case the highest offerer as aforesaid shall be bound to take the Ordinary B shares at the price sooffered by him.’ (Cond. 3) In terms of said article 4, the defender addressed to the pursuers J. M. Smith, Limited, a letter of which a transcript is subjoined, viz.—‘154, St Vincent Street, Glasgow, 31st January 1900. Messrs J. M. Smith, Limited, 65 Hope Street. J. and D. T. Colquhoun's Seqn. Dear Sirs—I hereby offer to the company the following shares—Ordinary B shares, 100 at £10, 1s. each; 100 at £11, 1s. each; 100 at £12, 1s. each; 100 at £12, 11s. each; 100 at £13, 1s. each; 50 at £13, 11s. each; 50 at £14, 1s. each; 50 at £14, 11s. each; 37 at £15, 1s. each. These shares are offered to you under article 4 of the articles of association of your company.…’ (Cond. 4) Upon receipt of said letter a meeting of the directors of the company was held, and at said meeting on 3rd February 1900 the pursuer Robert Crawford offered to buy all the shares at the prices before mentioned, which offer was accepted ‘should no higher offer be made by any other holder of B shares.’ Thereupon the pursuers J. M. Smith, Limited, in terms of the procedure enacted by said article 4, made intimation of said offer to the existing Ordinary B shareholders of the company, and invited offers from them. Upon 10th February 1900 Mr Crawford, who was a holder of Ordinary B shares, put his offer in writing by a letter in the following terms, viz.—‘84 Miller Street, Glasgow, 10th February 1900. J. M. Smith, Limited. Dear Sirs—Referring to the offer received by you from the trustee the sequestrated estate of Messrs J. &

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D. T. Colquhoun, of which a copy is annexed, I hereby offer for the whole of the Ordinary B shares therein mentioned the prices attached thereto in the trustee's letter of offer, and to pay the amount of these prices in cash at once against delivery.—Yours truly, R. Crawford.’ … (Cond. 5) The said pursuer Robert Crawford was the only offerer among existing B shareholders for said 687 shares, and as the price offered by him was equal to the price specified by the defender in his letter of 31st January 1900, the said Robert Crawford became entitled to purchase said shares under the terms of article 4. The defender, however, has refused to execute transfers and to deliver the share certificates applicable to said 687 shares, founding upon a letter addressed by him to the pursuers J. M. Smith, Limited, under date 5th February 1900, in which he writes as follows—‘I hereby withdraw and cancel the offer which I made to you on the 31st ult. of the following shares in your company,’ and a list is appended of the said 687 shares.… The defender is now in a position to execute transfers and deliver certificates to a transferee, and the pursuers J. M. Smith, Limited, are apprehensive that he is about to do so without observing the conditions of articles 4 and 5 of said articles of association. The pursuers believe and aver that the defender has, in point of fact, either arranged or is in course of arranging to transfer said shares in disregard of said conditions to Mr D. M. Stevenson, merchant, Glasgow. Prior to the offer to the company of date 31st January 1900, the defender had in fact advertised privately for offers for said shares, and had by printed conditions of tender provided that such private offerers should be, inter alia, subject to the right of pre-emption contained in the 4th article of said articles of association. Thereupon, and prior to said 31st January, Mr Stevenson concluded his transaction of purchase (subject to said conditions) with the defender. The offer of 31st January was then made, and Mr Stevenson induced the defender to withdraw his offer to the company, and is endeavouring to have the transaction with himself carried out in defiance of said articles of association.… (Cond. 6) The said letter of 5th February 1900 was written by the defender after the pursuers J. M. Smith, Limited, had resolved at a board meeting to invite offers from their Ordinary B shareholders under the terms of said article 4, and the pursuers declined to admit the defender's right to cancel his offer pending receipt of such offers as might be received from said shareholders.”…

By letter dated 12th February 1900 and signed by J. M. Smith, Limited, and by Robert Crawford, Messrs Smith, Limited, refused to recognise the defender's right to withdraw his offer, intimated Mr Crawford's offer, and “in conjunction with Mr Robert Crawford” thereby accepted the defender's offer of 31st January, and called upon him to implement it to Mr Crawford. The defender admitted that prior to 31st January 1900 he had entered into a contract of sale of the shares to a third party, but he averred that that contract was made subject, inter alia, to article 4 of the company's articles of association. From the minutes produced it appeared that the intimation to the ordinary B shareholders was made by circular dated 10th February 1900.

The pursuers pleaded—“(1) A contract for the sale of said shares having been duly concluded by said offer and acceptance, decree should be pronounced in terms of the conclusions of the summons for declarator and decerniture. (2) The defender having transferred, or being about to transfer, said shares and deliver share certificates therefor in breach of the conditions in the company's articles, interdict should be pronounced as concluded for.”

The defender pleaded, inter alia—“(1) No title to sue.… (3) The pursuers' averments being irrelevant and insufficient in law to support the conclusions of the summons, the action should be dismissed.”

On 19th January 1901 the Lord Ordinary (Low) pronounced an interlocutor whereby he sustained the first and third pleas-in-law for the defender, and dismissed the action.

Note.—“The question in this case is, whether there was a concluded contract between the defender and the pursuer Crawford for the sale of a number of ordinary B shares in J. M. Smith, Limited.

By article 4 of the articles of association of that Company it is provided that if any holder of ordinary B shares wishes to sell them he must offer them in writing to the Company at the price at which he is willing to sell, and the Company shall either take the shares at that price or intimate the offer to the other ordinary B shareholders, who may lodge sealed offers with the Company specifying the price which they are willing to pay for the shares, and the highest of such offers shall be accepted by the seller provided that it is equal to or above the sum specified by him. It was also provided that the sealed offers should be opened by the directors within fourteen days after the notice to the other B shareholders.

The defender, as trustee on the sequestrated estates of Messrs J. & D. T. Colquhoun, became entitled to certain ordinary B shares in the company, which by letter dated 31st January 1900 he offered to the company at a certain price ‘under article 4 of the articles of association of your company.’

The defender's letter was considered at a meeting of directors held on 3rd February 1900, and the minute bears that the pursuer Crawford, who is a director and also a holder of ordinary B shares, offered to buy the defender's shares at the price which he had put upon them, and that the directors agreed to accept Crawford's offer ‘should no higher offer be made by any other holder of B shares.’

The directors then made intimation of the defender's offer to the other holders of B shares, and upon 10th February Crawford addressed to the company a letter offering to purchase the defender's shares at the price named by the latter.

The defender, however, had meantime,

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upon 5th February, written to the company withdrawing and cancelling his offer of 31st January.

The defender avers that the directors did not intimate his offer to the other B shareholders until after they had received his letter withdrawing his offer. The pursuers, however, although they do not deny, do not admit that averment, and therefore I cannot assume it to be correct.

In these circumstances the pursuers maintain that the defender is bound to transfer the shares to Crawford at the price named.

It was not disputed that, in view of the judgment of the House of Lords in Trevor v. Whitworth, 12 App. Ca. 409, the power which was given to the company by the 4th article to purchase shares was illegal and void, but it was contended for the pursuers that the provision in the article, that shares which the holder desired to sell should be offered to the other holders of similar shares, was perfectly legal, and remained binding upon the members of the company. I do not see any reason why the articles of association of a company should not provide that a shareholder wishing to sell his shares should first offer them to the other shareholders. In the view, however, which I take of the case, it is not necessary to decide that question, but I shall assume that to that extent the 4th article was good and binding upon the defender.

The question therefore is, Whether the defender was entitled to withdraw his offer, and if so, whether he withdrew it timeously?

It was said that the terms of the 4th article imply that if a shareholder offers his shares to the other shareholders he shall not withdraw his offer but shall give them an opportunity of accepting it. The argument, as I understood it, was chiefly founded upon the provision that the offers of the other shareholders should be opened within fourteen days of the notice to them, which the pursuers argued implied an obligation on the defender's part not to withdraw the offer in the meantime. It seems to me that that provision was enacted in favour of the shareholder desiring to sell, for the purpose of ensuring that he should not be prejudiced by undue delay. But an offer to sell does not amount to any contract, and I am unable to see why, before a contract had been constituted by acceptance of the offer, the defender should not, if he saw fit, change his mind and withdraw the offer.”

[His Lordship then dealt with a contention for the pursuers that Robert Crawford's intimation at the meeting of the directors of J. M. Smith, Limited, on 3rd February 1900, that he was willing to buy the shares at the price mentioned, and the directors' acceptance of that offer should no higher offer be made by a holder of B shares, was an acceptance of the defender's offer. This contention was given up as untenable by the pursuers' counsel in the Inner House.]

The pursuers further founded upon the defender's admission that he has sold the shares to a third party, and contended that although the defender might be entitled to withdraw his offer because he had made up his mind to retain the shares, he was not entitled to do so for the purpose of selling them to some one outside the company, because under the articles of association he could only sell the shares to an outsider if no existing shareholder was willing to purchase them.

It seems to me that the purpose for which the defender withdrew his offer is immaterial so far as the present action is concerned. The fact that he did explicitly withdraw it seems to me to be sufficient for the determination of the question whether or not a contract for the sale of the shares was concluded with Crawford. That is the only question which is raised in this case, and it in no degree affects, or is affected by, the question of the validity of any sale which the defender may have made to a third party.”

The pursuers reclaimed, and argued—They did not dispute the law laid down by the Lord Ordinary. But that law applied to a voluntary offer. Here they were dealing not with a simple offer but with an offer made under a contract, namely, article 4 of the articles of association. The offer must be held to include the conditions of that contract. The defender had taken up the position of a vendor of shares and had offered them as he was bound to do to the company. He was not entitled to withdraw that offer as long as he remained desirous of selling these shares, and a reasonable time must be allowed to elapse in order that his offer might be communicated to the shareholders who constituted the company, in terms of article 4. The defender's offer to the company was made on 31st January, and the offer was accepted by the company under article 4 on 12th February, so that the transaction had been carried through with due dispatch. In these circumstances the contract had been completed, and the pursuers were entitled to decree in terms of the conclusions of the summons. In any event they were entitled to interdict in order to have their rights protected. The defender did not deny that he wished to sell the shares to an outsider, and under article 4 he was not entitled to sell to an outsider without first offering the shares to the company.

Argued for the defender—He had withdrawn the offer he had made before it was accepted. The offer therefore fell. There was nothing in article 4 which compelled a shareholder offering his shares to keep his offer open for a certain time. No such condition was expressed or implied in article 4, and indeed such a condition was foreign to the terms of that article. The article did not specify any time within which the directors were to intimate the offer to the shareholders. They could do so at any time they pleased. But until the offer had been accepted the shareholder making it was entitled to withdraw it. Interdict was unnecessary as it was not disputed that before a sale could be

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carried through the conditions in article 4 must be fulfilled.