Scottish Court of Session Decisions

The Glasgow Pavilion, Limited, raised an action in the Sheriff Court at Glasgow against William Motherwell, Ibrox, craving decree for payment of (1) the sum of £62, 10s., with interest from 8th April 1902, and (2) the sum of £125, with interest from 1st May 1902.

The pursuers averred that on 27th March 1902 the defender applied for 500 shares in the company, and paid the pursuers the sum of £62, 10s., being the deposit of 2s. 6d. per share on the number of shares applied for; that on 8th April 1902 500 ordinary shares were allotted to the defender, and a further sum of 2s. 6d. per share, amounting to £62, 10s., became payable by the defender; that on 1st May 1902 a first call of 5s. per share, amounting to £125, became due by the defender, and that the defender refused to pay these sums.

The defender denied liability, and explained that by the prospectus of the company it was provided that the minimum subscription upon which the directors would proceed to allotment was 20,000 ordinary shares, and that at the date of allotment the minimum subscription had not been obtained, and that he therefore had repudiated the allotment and called on the board to return him the £62, 10s. of deposit paid by him on application.

A proof was led, which showed that the shares of the company were offered to the public; that the minimum subscription on which the directors could proceed to allotment was 20,000 ordinary shares; that the directors proceeded to allotment on 8th April 1902; that on that date several applications for shares, along with cheques for the sums payable on application, were handed to the directors, but it being after bank hours these cheques could not be cashed or put in bank during that day; that on the next day these cheques were banked and were honoured in ordinary course; and that unless the applications received with these cheques were taken into account the minimum amount had not been subscribed, and unless the amount of these cheques was taken into account the amount payable on application for the minimum subscription had not been paid to and received by the company before allotment.

On 2nd July 1903 the Sheriff-Substitute ( Fyfe) pronounced the following interlocutor:—“Finds (1) that the defender applied for 500 shares in the pursuers' company upon the prospectus No. 7/1 of process, which shares were allotted to him on 8th April 1902; (2) that it was a condition of said prospectus that the directors should not proceed to allotment unless upon a minimum subscription of 20,000 ordinary shares;(3) that at 8th April 1902 20,000 ordinary shares had not been subscribed for, the amount due upon application not having been paid to and received by the pursuers;(4) that defender repudiated the allotment: Finds in law that, in respect the minimum subscription had not been obtained when the directors proceeded to allotment, the allotment was invalid, and defender is not bound to accept the shares or pay the calls sued for: Therefore assoilzies the defender.”

Note.—… “My opinion upon the proof is that when they proceeded to allotment on 8th April the directors had not this minimum subscription.

The directors' minute allots in all 24,727 shares, but these shares had not been ‘applied for’ to the effect of warranting allotment unless the directors at the moment of allotment had in their cash-box or in the custody of their bankers, at their call, actual cash (not paper) representing 2s. 6d. on each share applied for. It was argued that company directors may proceed to allotment if they have cheques from subscribers although these have not been cashed. But cheques may be stopped before presentation, or they may never be met, and the application call is, according to the form of the prospectus itself, to be paid to the company's bankers—that is, of course, to be paid in cash. The Companies Act 1900, section 4, is most emphatic that the application subscription is to be paid to and received by the company, and in calculating a minimum subscription for purposes of allotment cash payment only is recognised.” …

The pursuers appealed, and argued—The sum payable on application had been paid to and received by the company on the date of allotment. The amount in the cheques which had been received after bank hours on the date of allotment must be taken into account in calculating the sum received. A cheque which was accepted as cash and duly honoured was payment in cash as at the date on which it was received. Any other result would be “absurd and unjustifiable”— Spargo's case, 1873, L.R., 8 Ch. Ap. 407, opinion of James, L.J., 411. The same objection could be taken against the notes of Scottish banks as against cheques.

Argued for the defender and respondent—The requirements of the Act of 1900 were not complied with when the directors went to allotment. The provision of the statute was that the sums payable on application must “be paid to and received by” the company. That had not been complied with. These cheques were not the equivalent of cash on the day of allotment. It was impossible oh that date to say whether the cheques would or would not be honoured. A cheque which had been honoured before allotment was a payment in cash, but a cheque which might or might not be honoured was not. If the argument on the other side was right a company might go to allotment having received nothing but cheques which might turn out to be worthless, or might even be bogus. This would defeat the purpose of the statute. The case of Spargo was not an authority on the present question. That case raised a question of compensation. It was held that a person who took shares in

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a company was entitled to arrange with the company to pay the price of his shares out of a sum due to him by the company, and that there was no need of his handing money to the company and the company handing it back to him. But Spargo decided nothing beyond this. See opinion of James, L.J., in White's case, 1879, 12 Ch. D. 515. Bank notes were not in the same position as cheques. Bank notes were “treated as money, as cash, in the ordinary course and transaction of business by the general consent of mankind, which gives them the credit and currency of money to all intents and purposes”— Guardians of Lichfield Union v. Greene, 1857, 1 H. & N. 884, opinion of Bramwell, B., 889. A bank cheque if dishonoured was not a payment at all. If a bank cheque was not presented within a reasonable time, and the drawer was prejudiced thereby, the seller was held to have made the cheque his own, and the payment as between seller and drawer became absolute—Bell's Prin. (10th ed.), sec. 127; Hopkins v. Wane, 1869, L.R., 4 Exch. 268. This made it plain that a cheque was not to be treated as payment in cash at the date of its receipt but at the date of its being presented and honoured in ordinary course of business.