[HOUSE OF LORDS]

AND

IN THE MATTER OF THE COMPANIES ACT, 1862; AND IN THE MATTER OF OVEREND, GURNEY, & CO., LIMITED.

W. PEEK, THE YOUNGER v. THE SAME.

Company - Contribution - Fraud - Winding-up.

Where a person has been, by the fraudulent misrepresentations of directors, or by their fraudulent concealment of facts, drawn into a contract to purchase shares in a company, the directors cannot enforce the contract against him, but he may rescind it. But he must do so within a reasonable time.

A contract induced by fraud is not void but voidable; and therefore though the persons who by their fraud induced it may not enforce it, other persons may, in consequence of it, acquire interests and rights, which they may enforce against the party who has been so induced to enter into it.

The Limited Liability Acts previous to 1862 do not destroy, but only restrict, the liability of a shareholder in a company formed under their provisions, and change the form of enforcing it.

The direct remedy of a creditor of an incorporated company is solely against the company, and not against its individual members as upon a contract with them. But though, as between the company and the member, the member might have a good legal or equitable defence to a call upon himself, he may be liable to contribute to the assets of the company required for the payment of the company's creditors.

A member of a limited liability company which is wound up, resembles, with respect to creditors, a member of a company under the Acts of 1844, or a partner in a partnership which has become bankrupt. The only difference is as to the extent of the liability.

The Companies Act of 1862 did not introduce any rules or principles applicable to the acts or conduct of a shareholder in a company different from those which previously existed, but merely changed the form of proceeding so as to fit it to be applied to the principle of limited liability.

By that Act a contributory is a person who has agreed to become a member of the company, and whose name is upon the register.

Where a memorandum of association (which was registered) differed from the prospectus on which it professed to be founded, and on which, as setting forth the true objects of the association, A. had become a shareholder, though he, on discovering the difference, might have repudiated his shares, he could not after the failure of the company relieve himself from liability to contribute to the debts of the association, on the ground that he had been ignorant of something which, with proper diligence, he might have known.

It is the duty of a person taking shares in a company to use reasonable diligence in making himself acquainted with the provisions of the memorandum of association. He must take the consequences of neglect.

The certificate of the registrar under the Companies Act, 1862, is conclusive that all previous requisites have been complied with.

Semble, that at a meeting of shareholders called to agree to a voluntary winding up of a company, liquidators may be lawfully appointed, though no notice of the resolution to appoint them has been given.

A. applied, on the faith of statements in a prospectus, for shares in a limited liability company. They were allotted. His name was put on the register of shareholders. At the end of nine months the company failed. It was ordered to be wound up. A. then applied to have his name removed from the list of contributories:-

Held, affirming the decision of Malins, V.C., that it was properly placed there.

Henderson v. The Royal British Bank (7 E. & B. 356) adopted.

A variance between a prospectus and the memorandum of association of a company will not, necessarily and as of course, relieve a member of the company from his liability as a contributory.

Two persons, an original allottee of shares and a purchaser of shares, separately moved the Court to discharge an order declaring them contributories in the matter of a company which was being wound up. Their motions were refused with costs, and the Vice-Chancellor's order contained a direction requiring them (jointly in point of form) to pay costs to the liquidators:-

Held, that this form was erroneous; and that each must be made answerable for the costs incurred in his own petition.

THE first of these cases was an appeal against a decision of Vice-Chancellor Malins, by which the name of Mr. Oakes was kept on the register of members of the company called "Overend, Gurney, & Co., Limited," and he had been held liable to answer any call

that might be made upon him by the liquidators appointed to wind up the company.

The second was an appeal by Mr. Peek against a like decision, the only difference between the two cases themselves being, that Mr. Oakes was an original allottee of the shares in respect of which liability was fixed on him, while Mr. Peek had purchased his shares in the ordinary way.

Both the Appellants alleged, in substance, that the representations made by the directors of the company were false and fraudulent, and that in consequence of such false and fraudulent representations, and by means thereof, they had become the holders of the shares. They insisted, therefore, that they were, as a result of the imposition practised upon them, released from all liability to have their names kept on the list of members, and be made to contribute to the debts of the company. The company had begun business on the 1st of August, 1865, and stopped payment on the 10th of May, 1866. On the 11th of May Vice-Chancellor Kindersley made an order appointing, provisionally, Messrs. Turquand and Harding to be the official liquidators of the company. An extraordinary general meeting of the members of the company was called for the 11th of June, 1866, "to consider the position of the affairs of the company, and, if deemed expedient, to pass the following resolution:- 'That the company cannot, by reason of its liabilities, continue its business, and that it is advisable to wind up the same voluntarily.'" The meeting was held, and 363 shareholders, representing 30,193 shares, were present, and 623 shareholders, representing 26,312 shares, sent proxies. The resolution actually passed was this:- "That it has been proved to the satisfaction of this meeting that Overend,Gurney, & Co., Limited, cannot, by reason of its liabilities, continue its business, and that it is advisable to wind up the same voluntarily, under the supervision of the Court, and that William Turquand and Robert Palmer Harding, of &c., be and are hereby appointed liquidators." Two shareholders (Mr. Henry Kingscoteand Mr. Henry Grissell) and one depositor (Mr. Charles Oppenheim) were appointed a committee of supervision.

Petitions for winding up the company were presented, and were heard before Vice-Chancellor Kindersley on the 22nd of June, 1866,

when the following order was made:- "That the voluntary winding up of the said Overend, Gurney, & Co., Limited, referred to in the affidavit of William Bois, filed on the 22nd of June, 1866, be continued, but subject to the supervision of this Court, and that William Turquand and Robert Palmer Harding be continued as liquidators, and that any of the proceedings under the said voluntary winding-up might be adopted, as the Judge should think fit."

The liquidators put the names of Mr. Oakes and of Mr. Peek on the list of contributories; and on the 20th of August, 1866, made a call of 10 per cent. on the members of the company in respect of the unpaid portion of the shares. Notice of motion to remove the names of these Appellants from the list, and to stay, as against them, all proceedings on the call, having been given, the motion was heard before Vice-Chancellor Malins, who, on the 9th of February and the 7th of March, 1867, made orders dismissing the motion, and directing that Mr. Oakes and Mr. Peek should pay the costs of the liquidators, and that the costs of Mr. Oppenheim, the depositor, who represented the creditors, should come out of the assets of the company. This appeal was brought against these orders.

The facts of the case necessary to raise the question of general liability were those above indicated. They have been so fully and so recently published in these Reports(1), and are so frequently mentioned by the noble and learned Lords in their judgments, that it has been deemed inexpedient to repeat them here. But a point was raised in this House as to the registration of the memorandum or articles of association, and as to that the facts were these:- The third article of the memorandum of association was in these terms: "The objects for which the company is established are - the receiving money on deposit, or by re-discount of bills, and the employment and investment of such money, and of the paid-up capital of the company in the discounting of bills, promissory notes, and other negotiable securities, and in making advances in loans, and investing in securities, and generally, the carrying on of the business of bill brokers and money dealers, as heretofore carried on by Messrs. Overend, Gurney, & Co., at No. 65, Lombard Street, in the city of London; and, with a view to the above objects, the acquisition of such business upon terms to be agreed by the

(1) Law Rep. 3 Eq. 576.

directors, and the acquisition, whether by way of purchase or amalgamation, or otherwise, of such other business or businesses of a like character, and upon such terms, as the directors shall think expedient, and the doing of all such acts and things as may, in the opinion of the directors, be incidental or conducive to the attainment of the above objects."

On the 13th of July, 1865, Mr. C. E. Jones, the attesting witness to the memorandum of association, took it for registration to the Registrar of Joint Stock Companies. The registrar refused to receive it, unless the words marked above in italics were struck out. Mr. Jones consented, and they were struck out at once, without any communication being had with any other person. The memorandum was then registered.

Another point raised on the appeal was, that the Appellants ought not to have been ordered to pay the costs of the liquidators, especially not those of Mr. Oppenheim, as no notice of motion had been served on him, and also that the order to pay costs (which was in form an order on the Appellants jointly) was erroneous in that respect.

Mr. Markham Giffard, Q.C., and Mr. Swanston, for the Appellants:-

After very minutely stating the circumstances of the case, with a view to shew that the representations made by the projectors of the company, who constituted themselves its directors, were false and fraudulent, and were so within the knowledge of those persons, who carefully concealed this knowledge from the public, they contended that these circumstances put an end to the Appellants' liability. It was the duty of the promoters of a company to put those who were invited to be shareholders into a position to know the truth: The Venezuela Company v. Kisch (1), where the rule was laid down independently of any question of fraud in the concealment of facts. Even in The Western Bank of Scotland v. Addie (2), where the shareholder had received dividends and acted in the management of the concern, and so was held liable, it was declared that an action for deceit would, in a case of fraudulent representation, lie against the directors; and

(1) Law Rep. 2 H. L. 99.

(2) Law Rep. 1 H. L. Sc. 145.

though such action would not lie against the company in respect of the conduct of the directors, yet no rights would vest in the company as against the individuals thus defrauded. Statements so made in a prospectus as to produce a false impression, in consequence of which a contract is entered into, will not sustain that contract as a binding contract, even though such statements were not made with the wilful intention to deceive: Smith v. The Reese River Mining Company (1). When that case was before the Lords Justices, Lord Cairns expressly stated(2) that, "with regard to companies established under the Act of 1862, there is no contract whatever between a creditor of the company and a shareholder of the company. When the Legislature introduced the principle of limited liability it was absolutely necessary to give effect to that principle by setting up the company, and the company alone, as that with which creditors, or third persons, could contract." That opinion is decisive against the present claims. Here, too, the fraudulent intention could not be doubted; it was proved, not merely by the fact that the statements were in themselves untrue, but by the execution of the secret deed, which was intended to provide for a state of things carefully concealed from the public, and which was concealed from the public because if it had been disclosed not one person would have become a shareholder in the projected company. The shareholders had no means of testing the accuracy of the representations made to them, and their not having done so affords no answer to their claim for relief. Nor will the length of time that elapsed have that effect: Rawlings v. Wickham (3); Bell's Case (4).

The fact that this is a proceeding under a Winding-up Act makes no difference as to the rights of the parties. There may be a winding-up where there are no creditors. It does not preclude a party from disputing his liability: Chapman and Barker's Case (5). It is a mere substitute for the old proceedings under a dissolution of partnership. It settles the proportions of contribution among the parties who are really liable, but does nothing more.

Then it is said that even if the company could not enforce the

(1) Law Rep. 2 Eq. 264.

(2) Ibid. 2 Ch. Ap. 616.

(3) 1 Giff. 355; 3 De G. & J. 304.

(4) 25 Beav. 35.

(5) Law Rep. 3 Eq. 361.

contract against the shareholder on account of the misrepresentations by which he had been induced to enter into it, the creditors of the company are still entitled to the benefit of it. Bright v. Hutton (1) laid down the general proposition that a contributory was a person who had entered into a contract with the creditors. Without such contract he would not be liable. The Bwlch Mining Company's Case (2) shews that a person who has been fraudulently induced to become a member of a company may, upon discovering the fraud, absolutely repudiate his contract, and relieve himself from his membership, and the creditors have no right against the deceived shareholder, for, as is there stated, "the creditors trust those who are liable as shareholders, those against whom the company is entitled to enforce the duty of shareholders." The company has no such right here, and the creditors of the company could not be in a better situation than the company itself, and consequently could not have any right to enforce against these Appellants "the duty of shareholders." [THE LORD CHANCELLOR:- The case here comes to this: The creditor finds the shareholder in the position in which the statute makes him a contributory. The creditor has then a right to come against him. At that time he has not avoided his liability; can he afterwards do so at his pleasure?] But before establishing any such right the creditor must shew that he became creditor in consequence of the credit he gave to the company, through the fact of the particular shareholder being a member of it. The doctrine of "holding out," as applicable to private partnerships, cannot apply to a case like this; besides, it would be contrary to the fact to introduce it here. There is not particle of such proof in this case.

The principles acted on in Cox v. Hickman (3), which was the case of a private partnership, cannot properly be applied to a company, but even there it was declared that to make a man liable as a partner he must do some act by which a person is induced to give credit to the partnership. Fox v. Clifton (4), had previously announced the same rule, and in Pott v. Eyton (5), Lord Chief Justice Tindal founded his judgment on the circumstance that

(1) 3 H. L. C. 341.

(2) Law Rep. 2 Ex. 324.

(3) 8 H. L. C. 268, 304, et seq.

(4) 6 Bing. 776.

(5) 3 C. B. 32.

"there was no evidence to shew that credit was in fact given to Eyton." Nothing was done here as in Cockerell v. Aucompte (1), or Caldicott v. Griffiths (2). No one living creature can shew, or even pretend to shew, that he gave credit to this company on account of Mr. Oakes or Mr. Peek belonging to it. The creditors here looked to the general company alone, and must recover from the company alone. The ordinary doctrine of liability upon taking shares in a company was applied in Mixer's Case (Re Royal British Bank)(3), overruling Brockwell's Case (4), but there the shareholder had executed the supplementary deed, and had received interest on his shares; besides which, Mixer's Case proceeded on different Acts of Parliament, namely, the Acts of 1848, 1849.

The cases of Henderson v. The Royal British Bank (5); Daniell v. The Royal British Bank (6); and Powis v. Harding (7), do not establish the liability here sought to be enforced. They depended on the special provisions of a particular statute, which gave an individual creditor a right to recover as against an individual shareholder. The provisions of the Companies Act of 1862 are entirely different. And even as to the former statute itself, and with regard to the same banking company, it was held in Nicol's Case (8) that shareholders who had been induced to become so by the fraud of the company, if they applied to be relieved as soon as they discovered the fraud, could not be placed on the list of contributories as generally liable for the debts of the company, but were so only when by their own acts, such as receiving dividends, and, though with the means of knowledge, not obtaining it, and not repudiating their shares, they had made themselves substantially members of the company. And Clarke v. Dickson (9) (though the decision there was adverse to the sharebolder) distinctly recognises the principle that a person induced by fraud to enter into a contract under which he pays money, may rescind it at his option if he has not taken the benefit of the contract, and can restore the parties to the same situation in which they were when he entered into the contract.

(1) 2 C. B. (N.S.) 440.

(2) 8 Ex. 898.

(3) 4 De G. & J. 575.

(4) 4 Drew. 205.

(5) 7 E. & B. 356.

(6) 1 H. & N. 681.

(7) 1 C. B. (N.S.) 533.

(8) 3 De G. & J. 387, 421.

(9) E. B. & E. 148.

The prospectus and the memorandum here did not agree together. It was on the statements contained in the former that Mr. Oakes asked for his shares. The difference between the two documents avoided his contract. Those differences were very considerable, and if he had known the powers assumed by the directors under the memorandum or articles of association, he would not have taken the shares. Ship's Case (1), Stewart's (The Vyksounsky Ironworks Company) Case (2), and Webster's Case (3) (as to the same company), shew that the difference between these instruments entitles the Appellant to have his name removed from the list of shareholders.

Then the alteration in the memorandum itself put an end to all claim on the part of the company. The Companies Act of 1862 (25 & 26 Vict. c. 89), required the memorandum or articles of association, "signed by the subscribers to the memorandum," to be registered. That had not been done here. A memorandum was agreed to in a particular form - that form was subscribed as required by the statute, but before it was registered the form was altered by the act of the attesting witness without any assent on the part of the subscribers. There had, consequently, been no registration of the memorandum as required by the statute. This was not, therefore, in any sense an incorporated company within the terms of the statute. Master v. Miller (4), Davidson v. Cooper (5), shew that by the rules of law, independently of the statute, the alteration in the memorandum not having been assented to by the subscribers before the registration, it was wholly void: Pigot's Case (6) established that principle, and shewed that such a defence could be set up by plea of non est factum. Doe d. Lewis v. Bingham (7) appears to place on this rule the restriction, if the alterations were such as to affect the interest of the party objecting to them, but it admits the general rule itself. Here the alteration was such as materially to affect the interest of all parties.

There was no resolution properly passed for a voluntary winding up of the company. The resolution that did pass was not regular,

(1) 2 De G. J. & S. 544.

(2) Law Rep. 1 Ch. Ap. 574.

(3) Ibid. 2 Eq. 741.

(4) 4 T. R. 320.

(5) 11 M. & W. 778.

(6) 11 Co. Rep. 26.

(7) 4 B. & A. 672.

for the notice which convened the meeting stated something very different from that which was adopted. There was, consequently, no valid voluntary winding up of the company, and the liquidators were improperly appointed: In re The Stearic Acid Company (1). If so, they had no right to make a call, and the order of the Vice-Chancellor, that they should be continued, could not make that valid which was originally and in itself invalid. The Vice-Chancellor's order was to continue the voluntary winding-up, and to continue the two persons appointed as liquidators. But there being no valid resolution for a voluntary winding-up, nor any valid appointment of liquidators, the Vice-Chancellor's order to continue both could not give force and validity to either of them. The New Brunswick Company v. Boore (2), is not applicable here, for the Appellant had not signed the memorandum of association, nor done any act as a member of the company. Ward and Garfitt's Case (3) was cited as to the power of the Court to alter the register.

Then, as to costs, there were two motions heard on two several notices. One order was made. Mr. Oakes and Mr. Peek were ordered, jointly and severally, to pay the costs. That was erroneous; there ought to have been separate orders, and each ought to have been ordered to pay his own costs. [THE LORD CHANCELLOR:- The House may make a proper order as to costs.]

Sir R. Palmer, Q.C., and Mr. Mellish, Q.C., for the Respondents, the liquidators:-

There are three questions in this case. First, whether on the original facts there ever was an equity of which Mr. Oakes would have been entitled to avail himself for the purpose of repudiating his shares in this company. On this question it was contended at much length that there had been no fraud practised and no misrepresentations put forth. Secondly, supposing there had been such an equity, if it had been taken advantage of in a proper time and manner, could it be so after the actual failure of the company? Thirdly, is it not clear by express enactment that this contract for shares entitled the creditors of the company, after the winding-up order was made, to come on these Appellants for contribution.

The Appellants here are liable to the creditors, no matter what

(1) 32 L. J. (Ch.) 784.

(2) 3 H. & N. 249.

(3) Law Rep. 4 Eq. 189.

equities they may have (if they have any), against the other shareholders. The party to be charged with liability must no doubt be a shareholder by the terms of the deed. That was so under the law which gave the creditor a remedy by scire facias: Steward v. Greaves (1); Ness v. Angas (2); and Ness v. Armstrong (3). That condition was fulfilled in this case. The Appellant was a shareholder by virtue of the deed of association, and the Act of 1862 makes him a shareholder as to creditors without reference to any equity as between himself and other shareholders. There was no necessity therefore to refer to the doctrine of "holding cut" and the rules as to private partnerships. The fact of being a shareholder involved the consequence of being liable as a contributory. It was so in Saunderson's Case (4), though the transfer of the shares had not been fully completed; and in Dodgson's Case (5), where it was alleged that the shareholder had been deceived into taking the shares, it was held that though he might have a remedy against the directors, yet they were not so much the agents of the whole company as to affect its rights, and prevent the shareholder from being placed on the list of those who were to contribute to its assets. Sutton's Case (6) is to the same effect. Then came Henderson v. The Royal British Bank (7), Daniell v. The Royal British Bank (8), and Powis v. Harding (9). The first of these cases was important, and if not overruled must govern the present. It decided that, under the 7 & 8 Vict. c. 113, if there was an unsatisfied judgment against a joint stock bank, and it was sought to charge a shareholder therewith, he could not resist the claim on the ground that he was induced to become a shareholder by fraud on the part of the bank, and repudiated the contract as soon as he discovered the fraud, which was not until after the bank had stopped payment. The expressions used in the judgment of the Court, as delivered by Lord Campbell, were very strong. The opinion attributed to Lord Cairns in the Reese River Mining Company's Case (10), has been mistaken. His Lordship, in denying that under the Act of 1862 there was any contract between a creditor

(1) 10 M. & W. 711.

(2) 3 Ex. 805.

(3) 4 Ex. 21.

(4) 3 De G. & Sm. 66.

(5) Ibid. 85.

(6) 3 De G. & Sm. 264.

(7) 7 E. & B. 356.

(8) 1 H. & N. 681.

(9) 1 C. B. (N.S.) 533.

(10) Law Rep. 2 Ch. 604, 616.

of the company and a shareholder of the company, did not mean to imply that the shareholder was freed from all liability to the creditor, but only to shew that under the Act of 1862 the liability did not assume the direct form of liability by contract. The contract may be with the company alone, but the shareholder is bound to the company to make good the engagements of the company, and is not protected against such an obligation farther than by the amount settled upon the principle of limited liability.

The Act of 1855 (18 & 19 Vict. c. 133) provided for the formation of limited liability companies, but kept them on the same footing as to general law as other companies. It abolished the proceeding by scire facias against the individual members, but it did not relieve them from all liability to creditors. It changed the form of enforcing their liability. The Act of the next year was similar to that afterwards passed in 1862, except that it omitted banking companies from its provisions. These were afterwards included by 21 & 22 Vict. c. 49. When new legislation was introduced the scire facias was not renewed, but the proceeding by winding up was adopted. The 18th, 23rd, 35th, 38th, 74th, and 82nd sections of the Act of 1862 (25 & 26 Vict. c. 89), are important clauses, on which the decision of this appeal must depend. They establish the liability of the shareholder to contribute to the debts of the company. The 18th section related to the incorporation of those who had subscribed the memorandum and of those who should afterwards become members, all of whom were to deemed incorporated by registration. The 23rd section answered the question who were to be members; they were, first, the subscribers to the memorandum, and next, "every other person who has agreed to become a member of the company, and whose name is entered on the register of members." The Appellants clearly come within that description. It is to be remarked that the 30th section prohibits any notice of a trust being received on the register, a prohibition, which shews the intention of making the register evidence of liability without allowing any question as to trust. In like manner, the 35th section shews that the register was intended to be conclusive evidence of the liability of the members. That section declares, that if the name of any person is improperly entered, or improperly omitted to be entered, on the

register, complaint may be made by the person aggrieved, by any member of the company, or by the company itself, to one of the Superior Courts, that the register may be rectified. Then, by the 38th section, in the event of a company formed under the Act being wound up, every present and past member shall be liable to contribute to the assets of the company to an amount sufficient for the payment of the debts and liabilities of the company. There is no restriction of any kind here. Membership is the test cf liability. On what principle is it that the creditors of this company are to be deprived of the benefit of this enactment? The 48th section provided, that if the company should be reduced to less than seven members, the members who, knowing that fact, continued to carry on the business, should be "severally liable to the payment of the whole of the debts of the company contracted during such time." The 74th section referred in substance to the 38th, when it declared the meaning of "contributory" to be, "every person liable to contribute to the assets of a company under this Act, in the event of the same being wound up." The 82nd section allowed applications for winding-up to be made by any creditor or any contributory. All these provisions shewed the intention of the Legislature to be, that every person on the list of members of the company must be treated as a contributory liable to bear his share in satisfying the debts of the company, and proved that though the right of the creditor to get payment was to be enforced against the company, it was, through the company, to be enforced against every individual person who, as a member, had joined in carrying on the trade of the company.

The cases decided on the general law, independently of the statute, do not weaken the rights of the creditors. The case of The Western Bank of Scotland v. Addie (1), justifies the judgment of the Court below. In Clarke v. Dickson (2) Lord Campbelldeclared that a contract made on fraudulent representations was not void, but voidable, and that the only remedy of the person defrauded was by an action of deceit. And that decision had since been sustained in other Courts. He must submit to the consequences of his contract; he must take his remedy against those who misled him into making it. Lord Campbell repeated that opinion in

(1) Law Rep. 1 H. L. Sc. 145.

(2) E. B. & E. 148.

Mixer's Case (1), and his opinion was adopted in this House in The Western Bank of Scotland v. Addie (2).

Many of the propositions contended for on the other side might be admitted, but they would not affect this case. Huguenin v. Basely (3) merely decided that persons claiming as volunteers under one who had obtained a benefit by fraud, could not enforce that benefit against the person defrauded. So, in Smith v. The Reese River Mining Company (4), and in The Venezuela Company v. Kisch (5), the contract made was not ad idem with that which was applied for, and the claim for relief was against the company, and before any order for winding up. In like manner, in Ship's Case (6), and in Stewart's Case (7), there was no contract. The same was the case in Kennedy v. The Panama Railway Company, recently decided(8). But in Chapman and Barker's Case (9), the party having been put on the register with his own assent, was held liable as a contributory to the claims of the creditors, though he might have a right to indemnity as against the company(10). The contract being not void, but voidable, the question is, whether that means void till affirmed, or valid till disaffirmed. It must be the latter: Kingsford v. Merry (11); Pease v. Gloahec (12). Then when must it be disaffirmed. The party seeking to avoid it must do so when he has the power to exercise such a right. He must exercise the right in due time: White v. Garden (13); Deposit Life Assurance Company v. Ayscough (14). Even then it will not have the effect of relating back to past transactions: Stevenson v. Newnham (15).

If a man thinks he has been deceived into joining a company, he cannot be relieved unless he proceeds for that purpose within a reasonable time: Wilkinson's Case (16); Lawrence's Case (17). Eighteen months were, in the first of these cases, held not to constitute a reasonable time. Nor will a much shorter time be

(1) 4 De G. & J. 575.

(2) Law Rep. 1 H. L. Sc. 145.

(3) 14 Ves. 273.

(4) Law Rep. 2 Eq. 264.

(5) 3 De G. J. & S. 122; Law Rep. 2 H. L. 99.

(6) 2 De G. J. & S. 544.

(7) Law Rep. 1 Ch. Ap. 574.

(8) Weekly Notes, 6 July, p. 209.

(9) Law Rep. 3 Eq. 361.

(10) See Bargate v. Shortridge, 5 H. L. C. 297.

(11) 1 H. & N. 503.

(12) Law Rep. 1 P. C. 219.

(13) 10 C. B. 919.

(14) 6 E. & B. 761.

(15) 13 C. B. 285, 302.

(16) Law Rep. 2 Ch. Ap. 536.

(17) Law Rep. 2 Ch. Ap. 412.

reasonable when there is a better opportunity of knowing the facts than existed in that case, which related to a bank established at Madrid. Here Oakes took the chance of profit, and not till he found that chance gone by, and the company a failure, did he repudiate the shares. Elkington's Case (1) shews, that under such circumstances he is not entitled to relief. The contract here was executed, and the cases of Burnes v. Pennell (2), The National Exchange Company v. Drew (3), and New Brunswick Company v. Conybeare (4), all shew, that to set aside such a contract a case of fraud must be distinctly proved as against the company, or those who represent the company. There is no such proof here. This last case is a strong authority for the Respondents, and it becomes more so as applied to the facts of the present case, if one word of Lord Chelmsford's judgment in it is altered. His Lordship speaks of an important "fact not misrepresented, but concealed." The expression "not communicated," would more exactly have applied to the circumstances there and here. [THE LORD CHANCELLOR agreed to the correction as to that case.]

As to Mr. Peek, it is clear from Nicol's Case (5), Duranty's Case (6), and Ex parte Worth (7), that all the objections which apply to Mr. Oakes's claim to relief, apply with even greater force to that of Mr. Peek. No false representations were made to him by the party with whom he contracted - the person from whom he purchased the shares.

As to the registration of the company. The certificate of registration is a conclusive answer to the objections now taken. Under the 7 & 8 Vict. c. 110, the certificate was held effectually to incorporate a company, although the deed registered was a defective deed: The Barwen Iron Company v. Barnett (8). In Bird's Case (9) it was held, expressly adopting the previous case, that the certificate of the registrar was, under the same statute, evidence of complete registration, although all the requisite provisions might not have been fully complied with. The alteration proposed by the registrar, and agreed to by the attesting witness, without the

(1) Law Rep. 2 Ch. Ap. 511.

(2) 2 H. L. C. 497.

(3) 2 Macq. Sc. Ap. 103.

(4) 9 H. L. C. 711-742.

(5) 3 De G. & J. 387.

(6) 26 Beav. 268.

(7) 4 Drew. 529.

(8) 8 C. B. 406.

(9) 1 Sim. (N.S.) 47.

concurrence of the subscribers, is said to vitiate the deed, and Pigot's Case (1), was referred to. But that case, though it lays down the general proposition, that the alteration of a deed by strangers, and in a material part, will vitiate the deed, does not define the circumstances under which the alteration shall have that effect. Later cases have better explained that matter, and shew that the true ground of objection is, that the alteration has been made in the interest of the party making it: Henfree v. Bromley (2); French v. Patton (3); Taylor on Evidence(4); Smith'sLeading Cases(5).

Then as to the order for winding up. The Court has power, under the 79th section of 25 & 26 Vict. c. 89, to make a compulsory order "whenever the company is unable to pay its debts," or "the Court is of opinion that it is just and equitable that the company should be wound up." The notice was sufficient, and the resolution adopted at the meeting was in conformity with it. The addition did not vitiate the resolution at the meeting; but even if it had done so, the Court had the power to direct the winding up of the company.

Mr. Giffard replied.

15 Aug. THE LORD CHANCELLOR (Lord Chelmsford):-

My Lords, these are appeals from orders of Vice-Chancellor Malins, refusing to remove the names of the Appellants from the register of members of the company of Overend, Gurney, & Co., Limited, and from the list of contributories of the said company, and to rectify the register accordingly. The cases are of the greatest importance, and the decision of this House upon them will determine for the future the rights and liabilities of creditors and shareholders of a limited liability company upon its winding up under the Companies Act, 1862.

The Appellants dispute their liability to be placed upon the list of contributories, on the ground that they were induced to take shares in the company by false and fraudulent representations made by the directors in a prospectus issued by them on its formation;

(1) 11 Co. Rep. 26.

(2) 6 East, 310.

(3) 9 East, 351.

(4) ss. 1617-18.

(5) Ed. by Maude and Ch. 796, 831.

that, consequently, their agreements to become shareholders in the company are not binding upon them, and that they never, by any subsequent act, affirmed them or acquiesced in their validity. The Appellant Oakes was an original allottee of his shares; the Appellant Peek purchased his in the market, either from an allottee, or from a purchaser from an allottee. In considering the case, I shall look at it throughout as if Oakes was the only Appellant, because if he fails to establish his right to be relieved from liability, Peek cannot possibly succeed.

The prospectus of the company was dated on the 12th of July, 1865. Oakes, on the 15th of July, applied for 100 shares, but twenty-five only were allotted to him. There can be no doubt that Oakeswas induced by the prospectus to take his shares; and, therefore, the first question to be considered is, whether, as he alleges, the representations it contained were false and fraudulent.

The company was formed, as the prospectus states, "for the purpose of carrying into effect an arrangement for the purchase, from Overend, Gurney, & Co., of their long-established business of bill brokers and money dealers." In order to form an opinion of the true character of the statements made in the prospectus, it is necessary to know what was the state of the firm of Overend, Gurney, & Co., at the time when it was proposed to convert their partnership into a joint stock company. At this period they stood high in the commercial world. Their dealings and transactions were known to be of a most extensive description, and they were supposed to be carrying on their business upon a safe and sure basis. But it appears from the affirmation of Mr. John Henry Gurney, one of the firm, that, for some time before, the partners managing the business had been making considerable advances of an exceptional character to various parties and companies, upon securities of a speculative and uncertain nature, and that, "on a close examination which was undertaken prior to the transfer of the business to the company of 'Overend, Gurney, & Co., Limited,' it was found that the doubtful advances amounted to £4,199,000, of which sum it was estimated that £1,082,000 only would be realized, leaving the sum of £3,117,000 to be provided."

From the same source of information we learn, that from the year 1860 the total result of all the operations of the firm had

been a loss of about £500,000 a year. Mr. Gurney described the business carried on by Overend, Gurney, & Co. as having been of an exceedingly extensive and profitable nature, and stated that for the five years ending on the 31st December, 1860, after allowing interest upon capital, and upon the balances to the credit of the partners, the profits divided amongst the several partners averaged upwards of £190,000 per annum; but that, subsequent to that period, the actual net profits had not been ascertained or appropriated, but were reserved to meet the losses consequent upon the exceptional business before mentioned. From this statement it might be supposed that a different course was adopted with respect to the profits of the business after 1860 from that which had been pursued previously. But upon the cross-examination of Mr. Gurneyhe proved, that in 1855, and every succeeding year down to 1860, portions of the balances had always been employed in writing off losses.

Such was the condition of the partnership of Overend, Gurney, & Co., at the time when it was proposed to turn it into a joint stock company.

The partners in the firm, who were to become directors of the new company, were, of course, acquainted with all these particulars, and the other persons, whose names appear on the prospectus as directors, must have been fully informed of them.

Under these circumstances the prospectus, which the Appellant alleges to be false and fraudulent, was issued. It is headed, in very large characters, with a name likely to attract attention and inspire confidence, "Overend, Gurney, & Co., Limited," and describes the intended capital of the company to be £5,000,000, in 100,000 shares of £50 each, of which it is said it is not intended to call up more than £15 per share. After describing the purpose for which the company was formed, the prospectus proceeds: "the consideration for the goodwill being £500,000, one-half being paid in cash and the remainder in shares in the company, with £15 per share credited thereon, terms which, in the opinion of the directors, cannot fail to ensure a highly remunerative return to the shareholders."

It is said that everything which is stated in the prospectus is literally true, and so it is. But the objection to it is, not that it does not state the truth as far as it goes, but that it conceals most

material facts with which the public ought to have been made acquainted, the very concealment of which gives to the truth which is told the character of falsehood. If the real circumstances of the firm of Overend, Gurney, & Co. had been disclosed, it is not very probable that any company founded upon it would have been formed. Indeed, it was admitted in the course of the argument that if the true position of the affairs of Overend, Gurney, & Co. had been published it would have entailed the ruin of the old firm, and would have been utterly prohibitory of the formation of the new. To which the only answer which fairly suggests itself is, "Then no company ought ever to have been attempted, because it was only possible to entice persons to become shareholders by improper concealment of facts."

From the memorandum and articles of association and deed of covenant in relation to the business, to which applicants for shares were referred in the prospectus, nothing unfavourable to the prospects of the new company could be gathered. But from a deed of arrangement contemporaneous with the deed of covenant, the existence of which was not made known in the prospectus, the real conditions of the transfer of the business of Overend, Gurney, & Co. appear. It is true the prospectus states that the vendors guaranteed the company against any loss on the assets and liabilities transferred, which, it is said, was sufficient to inform, or, at least, to caution, persons disposed to take shares that there might be unsatisfied liabilities of Overend, Gurney, & Co. to be provided for. But without dwelling on the postponement of the full effect of the guarantie for three years by the private deed of arrangement, the statement that £500,000 were given as the consideration for the goodwill was calculated not merely to lull suspicion as to the state of the affairs of Overend, Gurney, & Co., but to attract persons to join the proposed company. No one can for a moment suppose that if it had been possible to take the goodwill of Overend, Gurney, & Co.'s business into the market with a disclosure of all the circumstances attending the business, it would have realized a single shilling; but the parties, some of whom were both vendors and purchasers, arranged amongst themselves for the payment of a sum for this unmarketable goodwill, the half of which must have come out of the moneys of the shareholders.

It is said that the directors believed bonâ fide that the company would be a profitable concern, and upon the strength of that opinion they themselves took shares, and never parted with those shares, although at one time they were at a premium.

With respect to this proof of the sincerity of their belief, it must be observed that they were each of them compelled to possess 200 shares as the qualification of a director under the articles of association. I entertain no doubt, however, that the directors were honestly and sincerely of opinion that lf they could procure additional capital, and could carry on some of the business of Overend, Gurney, & Co. on a healthier system, the company would succeed. But as the experiment was to be made with other people's money as well as with their own, I think they were bound to furnish to others the information which they possessed themselves, and so enable others to form a competent judgment as to the prudence of embarking in the new concern.

If this had been a case between Oakes and the company, in which he sought to be relieved from his contract, as in Venezuela Railway Company v. Kisch (1), or the company had been suing him for calls, as in The Bwlch-y-Plwm Lead Mining Company v. Baynes (2), he would have succeeded in the one case, and the company would have failed in the other, on the ground - which, I venture to think, was correctly laid down in the recent case of The Western Bank of Scotland v. Addie (3) in this House - that "where a person has been drawn into a contract to purchase shares belonging to a company by fraudulent misrepresentations" (and I would here add, "by fraudulent concealment") "of the directors, and the directors seek to enforce that contract, or the person who has been deceived institutes a suit against the company to rescind the contract on the ground of fraud, the purchaser cannot be held to his contract, because a company cannot retain any benefit which they have obtained through the fraud of their agent."

It is quite clear, therefore, that Oakes might originally have disaffirmed that contract, and divested himself of his shares, and that he never did any act to affirm it, nor was aware of the true state of the firm of Overend, Gurney, & Co. at the time of the

(1) Law Rep. 2 H. L. 99.

(2) Law Rep. 2 Ex. 324.

(3) Law Rep. 1 H. L Sc. 145.

formation of the new company, nor until after the failure. No dividend was paid to the shareholders, and no general meeting was called, the articles of association prescribing that the first general meeting should be held not more than twelve, nor less than ten months from the day of incorporation, and the company having come to an end before the twelve or even the ten months had expired.

Such was the position of Oakes when the order for winding up the company was made on the 22nd of June, 1866. His name being upon the register of shareholders, was placed (as a matter of course) by the liquidators upon the list of contributories. A motion was made before Vice-Chancellor Malins to remove his name from the list, when His Honour refused to make any order, and from that refusal the present appeal is brought.

The question, as I have already said, is one of the highest importance, involving present pecuniary interests to an enormous extent, and calling for a final decision upon the relation to each other of creditors and shareholders of limited companies in every case of a winding-up under the Companies Act, 1862.

On the part of the creditors, it is said that every person whose name is found upon the register at the time when the order for winding up is made is a shareholder, and liable to contribute towards the payment of the debts of the company to the extent of the sums due upon his shares, unless he can prove that his name was put upon the register without his consent.

On the part of the shareholders it is contended that a person who has been induced by fraud to enter into a contract to take shares, and whose name is afterwards placed upon the register, never becomes a shareholder, because his agreement, being obtained by fraud, is of no validity. In support of this proposition, the words of my noble and learned friend (Lord Cranworth) in The Venezuela Railway Company v. Kisch (1), were cited, where he said "The case of the Respondent is, that he never was a member, for that he was induced to take shares by fraudulent representations, which entitle him to repudiate and treat as null all which he was induced to do." My noble and learned friend never meant to deny the distinction between void and voidable contracts, or to say that

(1) Law Rep. 2 H. L. 99.

an agreement obtained by fraud is in no case any agreement at all. His language must be understood in its application to the case before him, in which the Respondent seeking relief from the contract into which he had been drawn by fraud, was entitled, if he chose to repudiate it, to treat it as null and void ab initio, and therefore to say that he never was a member.

The distinction between void and voidable contracts is one which will be found very necessary to be borne in mind when we come to consider the words of the Companies Act, 1862, upon which the question of Oakes's liability will ultimately turn. It is a settled rule of law, as Mr. Justice Crompton said, in Clarke v. Dickson (1): "that a contract induced by fraud is not void, but voidable only at the option of the party defrauded." If it were otherwise, if a contract induced by fraud were void, there would be an end of the question in this case, because a contract void in itself can have no valid beginning, and Oakes never would have become a shareholder of the company.

Before considering the provisions of the Companies Act, 1862, it will be necessary to advert to some of the previous Acts in pari materiâ, because it was pressed upon us in argument that, whatever may have been the decisions under former Acts, they are inapplicable to the case of companies with limited liability. A distinction between the Companies Act, 1862, and former Acts was suggested by Lord Cairns in the case of The Reese River Mining Company, Ex parte J. Smith (2), where His Lordship says: "There is, with regard to companies established under the Act of 1862, no contract whatever between a creditor and a shareholder in the company. The contract is between the creditor and the company, and when the Legislature introduced the principle of limited liability, it was absolutely necessary to give effect to that principle by setting up the company, and the company alone, as that with which creditors, or third persons, could contract."

The first Act, however, which enabled joint stock companies to limit their liability is the 18 & 19 Vict. c. 133 (1855), and that Act, by the 7th section, gave the same remedy, by execution against the shareholders, to the extent of the unpaid portions of their shares in the capital of the company, as creditors could use

(1) E. B. & E. 148.

(2) Law Rep. 2 Eq. 264.

against shareholders of companies with unlimited liability, under the former Acts of 1844, 1848, and 1849.

The first Act which enabled a creditor to become a party to the winding-up of a company, whether with limited or unlimited liability, was the 19 & 20 Vict. c. 47, s. 69, and by the 61st section of this Act, in the event of a company being wound up, the existing shareholders were to be liable to contribute to the assets of the company to an amount sufficient to pay the debts of the company, and the costs, charges, and expenses of winding up the same, with this qualification, that if the company was limited no contribution should be required from any shareholder exceeding the amount (if any) unpaid on the shares held by him. This Act was followed by the 20 & 21 Vict. c. 77, which, by the 1st section, enacted that where an order was made for the winding-up of a company the Judge, in all cases in which it appeared expedient, and for the benefit of all parties interested, might call upon the creditors to appoint a person to represent them, and after the appointment of such representative the creditors were to be deemed parties to the winding-up.

These, and the subsequent Act of the 21 & 22 Vict. c. 60, contained all the provisions with respect to the rights of creditors against shareholders prior to the Companies Act, 1862. As I understand these Acts, they merely changed the remedy which the creditor previously possessed of issuing execution against the shareholder (which, as I have shewn, was continued to him when companies with limited liability were first established), into a right to obtain satisfaction of his debt by means of forced contributions, either by compelling a winding up of the company, or by becoming a party to a winding-up which had been already ordered. They do not appear to me to have changed the right of the creditor on the one hand, or the liability of the shareholder on the other; and therefore, I cannot adopt the argument of the counsel for the Appellant, that the cases which were decided upon the Acts prior to 1856 must be considered as inapplicable.

The case of Henderson v. The Royal British Bank (1), upon which, in his judgment, the Vice-Chancellor Malins placed great reliance, seems to me, unless the law has been altered by the

(1) 7 E. & B. 356.

Companies Act, 1862, to be an authority of great weight against the Appellant. Lord Campbell, in describing the attempt of a shareholder to relieve himself from liability under similar circumstances to those in which the Appellant is placed, expressed his opinion in the strongest language. He said: "It would be monstrous to say, he having become a partner and a shareholder, and having held himself out to the world as such, and having so remained until the concern stopped payment, could by repudiating the shares on the ground that he had been defrauded, make himself no longer a shareholder, and thus get lid of his liability to the creditors of the bank, who had given credit to it on the faith that he was a shareholder." The decision in this case was considered so satisfactory that it was followed by the Court of Common Pleas in Dossett v. Harding (1), and by the Court of Exchequer in Daniell v. The Official Manager of the Royal British Bank (2), without anything more being said in either Court than an expression of acquiescence in the judgment.

The case of Henderson v. The Royal British Bank, being supported by such a weight of authority, will materially influence my opinion upon the present case, unless I can be satisfied that the Companies Act, 1862, has placed creditor and shareholders in a different relation to each other than that in which they previously stood.

I have shewn that if it was necessary to give effect to the principle of limited liability by setting up the company alone as that with which third persons could contract, this was done the very year after companies with limited liability were established, by taking away the scire facias of creditors, and enabling them to intervene in the winding up of a company. This power of petitioning for the winding up of a company was not first conferred upon, but merely continued to, creditors by the 82nd section of the Act of 1862.

The real question in this appeal is, whether the Companies Actof 1862 has placed a shareholder on such a different footing from that in which he stood at the time of the decision in Henderson v. The Royal British Bank, that his name being upon the register when the order for winding up was made, it is competent to him

(1) 1 C. B. (N.S.) 524; Powis v. Harding, Ibid. 533.

(2) 1 H. & N. 681.

to defend himself against his primâ facie liability to contribute, by alleging and proving that he was induced by fraud to become a shareholder. There are very few sections of the Act which it will be necessary to consider.

By the 18th section, upon the registration of the memorandum of association and of the articles of association, the registrar shall certify that the company is incorporated, and, in the case of a limited company, that the company is limited, the subscribers of the memorandum of association, together with such other persons as may from time to time become members of the company, shall thereupon be a body corporate, &c., but with such liability on the part of the members to contribute to the assets of the company in the event of the same being wound up as is hereinafter mentioned.

The 38th section is here referred to, which, amongst the qualifications of the liabilities of contributories, provides that, in the case of a company limited by shares, no contribution shall be required from any member exceeding the amount (if any) unpaid on the shares in respect of which he is liable as a present or past member.

By the 23rd section, every person who has agreed to become a member of the company under this Act, and whose name is entered on the register of members, shall be deemed to be a member of the company.

And by sect. 74, the term "contributory" shall mean every person liable to contribute to the assets of a company under this Act, in the event of the same being wound up.

The result of these provisions of the Act is, that a contributory is a person who has agreed to become a member of the company, and whose name is upon the register.

Did the Appellant then agree to become a member? His counsel answer this question in the negative, because they say that a person who is induced by fraud to enter into an agreement cannot be said to have agreed; the word "agreed" meaning having entered into a binding agreement. But this is a fallacy. The consent which binds the will and constitutes the agreement is totally different from the motive and inducement which led to the consent. An agreement induced by fraud is certainly, in one sense, not a binding agreement, as it is entirely at the

option of the person defrauded whether he will be bound by it or not. In the present case, if the company formed on the basis of the partnership of Overend, Gurney, & Co., had realized the expectations held out by the prospectus, the Appellant would probably have retained his shares, as he would have had an undoubted right to do. But when the order for winding up came, and found him with the shares in his possession, and his name upon the register, the agreement was a subsisting one. How could it then be said that he was not a person who had agreed to become a member? To hold otherwise would be to disregard the long and well-established distinction between void and voidable contracts.

It was said by the counsel for the Appellant that the Companies Act, 1862, was to be regarded merely as adjusting the rights of the shareholders inter se, and that, as the liquidators represented the company, the liability of the Appellant must be determined as between himself and the company, and not as respects creditors with whom he never contracted. It is true that there was no contract between the creditor and the shareholders, and that the creditor probably never thought of the shareholders in his dealings with the company. But he must be taken to have known what his rights were under the Act, and that he had the security of all the persons whose names were to be found upon the register, and who had agreed to become shareholders. The liability of the shareholders is not under a contract with the creditors, but it is a statutable liability under which the creditors have a right which attaches upon the shareholders to compel them to contribute to the extent of their shares towards the payment of the debts of the company.

It is not the mere fact of the name appearing upon the register which makes a person liable as a member of the company. If he has not agreed to become a member he cannot be made a contributory. This was the ground of decision in some of the cases which were cited to shew that the order for winding up did not preclude the Appellant from disputing his liability. As Vice-Chancellor Wood said, in Chapman and Barker's Case (1): "If the mere placing the name upon the register, rightly or wrongly, is to

(1) Law Rep. 3 Eq. 365.

give the creditors a right to proceed against the individual, any one of us now in this Court might find himself upon the register of some company, and liable to its creditors. It is an absurdity to say that I am to be liable because directors choose to put me down upon the register as a shareholder."

The want of consent was the ground on which Ship's Case (1) was decided. There the prospectus of a proposed company, described as a finance bank, stated several objects, some of which went beyond ordinary banking business. Ship, on the footing of the prospectus, applied, in May, 1864, for shares, and paid a deposit. On the 1st of June the company was registered, with a memorandum of association defining its objects, which went considerably beyond the objects mentioned in the prospectus, and on the same day the directors sent Ship a letter of allotment of his shares. In the December following the company failed. Upon an application by Ship to have his name removed from the register, on the ground that he never had agreed to become a shareholder in the company with these extended objects, and upon his oath that he never had notice of the extension of the objects of the company beyond those named in the prospectus, Vice-Chancellor Wood removed his name from the register, and his decision was afterwards affirmed by the Lords Justices. This case was followed by Webster's Case (2) and by Stewart's Case (3) both of which related to the same company, the Russian (Vyksounsky) Ironworks Company, where the objects of the company, as stated in the memorandum and articles of association, were more extensive than those stated in the prospectus, and in both of which cases the parties who were induced by the prospectus to become shareholders were removed from the list of contributories.

I confess that these decisions are not at all satisfactory to my mind. I think that persons who have taken shares in a company are bound to make themselves acquainted with the memorandum of association, which is the basis upon which the company is established. If they fail to do so, and the objects of the company are extended beyond those described in the prospectus (a fact which may be easily ascertained), the persons who have so taken

(1) 2 De G. J. & S. 544.

(2) Law Rep. 2 Eq. 741.

(3) Law Rep. 1 Ch. 574.

shares on the faith of the prospectus ought, in my opinion, to be held to be bound by acquiescence. In Ship's Case the Judges partly proceeded on the oath of the party that he never had notice of the extension of the objects of the company. However true this may be, it depends entirely upon the party's own assertion; and the answer to it is, "You might have made yourself acquainted with the proceedings of the company, and ought to have done so." Accordingly, in subsequent cases connected with the Russian Iron Company, Lawrence's Case (1), and Kincaid's Case (2), and in Wilkinson's Case, In re Madrid Bank (3), in which last case also there was a material variance between the prospectus and the memorandum of association, it was held that persons were bound, within a reasonable time after the allotment of shares, to inform themselves of the nature of the documents of title under which they and the company were proceeding to carry on trade, and in all these cases the parties were retained on the list of contributories.

In a still later case, that of Ex parte Peel, In re Barned's Banking Company (4), Lord Cairns expressed an opinion on the subject to which I entirely subscribe. He said: "It is the bounden duty of a person to ascertain, at the earliest practicable moment, what is the charter or title deed under which the company in which he has agreed to become a shareholder is carrying on business. I think he ought to be held bound to look to the memorandum and articles of association before he applies for shares. But even when the memorandum and articles of association are not in existence at the time, I think, at the very latest, when he receives his allotment of shares he ought to satisfy himself that there is nothing in the memorandum or articles of association to which he desires to make any objection." This appears to me to lay down a clear and precise rule, which will render unnecessary the consideration in each case whether a reasonable time has or has not elapsed from which acquiescence may be assumed, a question which has occasioned some variety, and apparent, if not actual, discrepancy in the decisions.

These views, thus expressed by Lord Cairns, in some degree apply to the case of the Reese River Silver Mining Company (5),

(1) Law Rep. 2 Ch. 412.

(2) Law Rep. 2 Ch. 426.

(3) Law Rep. 2 Ch. 536.

(4) Not reported.

(5) Law Rep. 2 Eq. 264.

which appears to me not to have been well decided upon another ground. There is no doubt that Smith had been led to take shares in the company by the false representations of the flourishing condition of the mines contained in the prospectus. When the order for winding up the company was made, his name was upon the register. It is true that he had filed his bill against the company to be relieved of his shares, but he still held them, and the winding-up order found him in the condition of a person who had agreed to become a member, and whose name was upon the register, and who, therefore, exactly answered the description of a contributory contained in the Companies Act, 1862.

In the conclusion at which I have arrived in this case I rely altogether upon the words of the Act. I do not take into consideration the principle which has governed many decisions, as to which of two innocent persons is to suffer; but I cannot help remarking upon the singular state of things which would result from relieving the Appellant from his liability. The same right of relief established by him would belong to all the allottees of shares who had retained them in their possession; and in the winding up of this company the only contributories to the debts of the company would be the directors and those unfortunate shareholders who had purchased their shares in the market. So that although the shareholders who had suffered by the fraud of the directors might recover from them the full amount of the damages sustained, the creditors could only make the directors of this limited liability company contribute towards payment of their debts to the extent of their shares.

Upon the principal and important question in this case I entirely agree with the decision of Vice-Chancellor Malins.

But after His Honour had given judgment in this case, and even after his decree was enrolled, the Appellants made a fresh motion to have their names removed from the list of contributories upon grounds which were clearly open to them upon the original motion.

Two of them, indeed, are preliminary objections, which, if well founded, would have superseded all farther argument. For if there was no valid winding-up order, and no liquidators were duly appointed, there could be no list of contributories upon which the Appellant's names could be placed, and the whole of the proceedings

must have fallen to the ground. The Vice-Chancellor, therefore, rightly refused to entertain the motion; but as the objections have been argued before your Lordships, it will be proper to consider them.

The first of them strikes at the root of the company's existence, for it asserts that there was no memorandum of association subscribed by seven persons, and, consequently, that there never was any incorporated company. This, as I understand, is founded upon an alleged variance between the prospectus and the memorandum of association, which is made the ground of a separate objection. The short answer to this objection is found in the Companies Act,1862, which, in the 6th section, provides that any seven or more persons may, by subscribing their names to a memorandum of association, and otherwise complying with the requisitions of the Act in respect of registration, form an incorporated company. And, by the 18th section, upon the registration of the memorandum of association, &c., the registrar shall certify under his hand that the company is incorporated, and a certificate of the incorporation of the company given by the registrar shall be conclusive evidence that all the requisitions of the Act in respect of registration have been complied with. I think the certificate prevents all recurrence to prior matters essential to registration, amongst which is the subscription of a memorandum of association by seven persons, and that it is conclusive in this case, that all previous requisites had been complied with.

The next objection to be considered is, that the official liquidators were not duly appointed. The ground of this objection is, that in the case of a voluntary winding-up, the appointment of liquidators can be made only at an extraordinary general meeting, the notice of which must specify the objects for which it is called, and that the notice issued by the directors omitted all mention of the intention to appoint liquidators. That notice, which was intituled "In the Matter of the Companies Act, 1862, as well as of Overend, Gurney, & Co., Limited," stated that the meeting would be held "to consider the position of the affairs of the company, and, if deemed expedient, to pass the following resolution: 'That the company cannot by reason of its liabilities continue its business, and that it is advisable to wind up the same voluntarily.'"

The 133rd section of the Companies Act, 1862 (under which the notice was given), enacts that certain consequences shall ensue upon the voluntary winding up of a company, and amongst them that "liquidators shall be appointed for the purpose of winding up the affairs of the company, and distributing the property." The necessary consequence of a voluntary winding-up being the appointment of liquidators, I am disposed to think that they may be appointed at the same general meeting at which the resolution for voluntarily winding up is passed, without special notice.

But if it is doubtful whether liquidators were duly appointed at the extraordinary general meeting of the company, I think the Respondents may rely upon the appointments made by the orders of Vice-Chancellor Kindersley.

On the 11th of May, 1866, the Vice-Chancellor made an order, under the 85th section of the Companies Act, 1862, appointing, provisionally, Messrs. Turquand & Harding, to be the official liquidators of the estate and effects of the company. At the extraordinary general meeting, held on the 11th of June, 1866, it was resolved that the same two gentlemen should be appointed liquidators If this was not a valid appointment, then as by the 141st section of the Act, "if from any cause whatever there is no liquidator acting in the case of a voluntary winding-up, the Court may, on the application of a contributory, appoint a liquidator or liquidators;" it was competent to Vice-Chancellor Kindersleyto make an appointment. This he did by his order of the 22nd of June, 1866, for although that order is in terms "that Turquandand Harding be continued liquidators," it would be mere trifling to hold that, if necessary, it may not be held to be an original appointment.

The last objection is founded upon an alleged variance between the prospectus and the memorandum of association. It is said by the Appellant, that the proposal in the prospectus is limited to carrying on the business of Overend, Gurney, & Co.; but that the memorandum of the association extends to "the acquisition, whether by way of purchase, or amalgamation, or otherwise, of such other business or businesses of a like character, and upon such terms as the directors shall think expedient." And he contends, upon the authority of Ship's Case, that this variance

releases him from the obligation of his contract. His excuse for not bringing this forward upon the original argument is, that until the first order of Vice-Chancellor Malins, made on the 9th of February, 1867, he believed that the memorandum and articles of association of the company were strictly confined to the company mentioned in the prospectus. But although the Appellant might have remained ignorant of the variance between the prospectus and the memorandum of association until the time that he mentions, it must have been previously known to his solicitor, and the memoraudum of association is actually made an exhibit to an affidavit sworn by the Appellant's accountant on the 2nd of November, 1866. There is, therefore, no excuse for keeping back this objection at the time of the original hearing.

But the cases which have been mentioned in the course of my observations upon the principal question in this case will satisfy your Lordships that this objection ought not to prevail. There may be some doubt whether the terms of the memorandum of association are such a departure from the object put forward in the prospectus as to constitute a different company. But be that as it may, the Appellant had an opportunity during ten months of inspecting the memorandum of association, of which he was bound to avail himself; and his voluntary ignorance upon the subject until the winding-up order came precludes him from raising the objection.

It only remains to observe that all that has been said with respect to Oakes applies with greater force to Peek, even if his situation as a purchaser of shares in the market did not preclude him from most of the objections which have been raised in Oakes's Case.

In my opinion, my Lords, the decree of the Vice-Chancellor ought to be affirmed, but with a variation as to the costs, which must be borne by each of the Appellants in respect of his own case. I submit to your Lordships that these appeals ought to be dismissed with costs.

LORD CRANWORTH:-

My Lords, the Appellant, Mr. Oakes, in order to sustain his appeal, must make out two propositions. He must satisfy the

House, first, that he was induced to take his shares in Overend, Gurney, & Co., Limited, by the fraud of the company, or of those for whom the company became responsible; and, secondly, if that is made out, that he ought not to be retained on the list of contributories. The first question is one of fact, and its determination, however important to the parties concerned, is of no general interest. The other question is of very extensive consequence in the mercantile world. It is of the utmost importance that persons dealing with joint stock companies should be in no doubt as to who are the persons to whom they are entitled to look as liable to perform the obligations and pay the debts of the partnership.

I shall proceed at once to consider this second question - to determine wl at are the relative rights of Mr. Oakes and the creditors, and for this purpose shall assume it to be true that he was induced to take shares by the fraud of the company, or of those for whom the company became responsible. There is no doubt that the direct remedy of a creditor is solely against the incorporated company. He has no dealing with any individual shareholder, and if he is driven to bring an action to enforce any right he may have acquired, he must sue the company, and not any of the members of whom it is composed. This being so, the argument of the Appellant is, that it is only to the assets of the company that the creditor can resort, and so that the only question is, of what those assets consist. This question, he contends, so far as the assets consist of money to be recovered by legal process against other persons, whether shareholders or not, can only be solved by ascertaining what rights the company has against those other persons. If in any proceeding by the company instituted for the purpose of recovering money from any person, that person has a valid defence, whether legal or equitable, the Appellant contends that the sum claimed from him does not form part of the assets of the company. These assets, he says, consist solely of property in the actual possession of the company, or which the company can recover by means of legal proceedings. In this case the Appellant contends that he was induced to become a shareholder by means of a fraud which entitles him to repudiate the status of shareholder; and to say, as between himself and the company, that he never held a share. And if he can say this against the company, then

the Appellant contends he can say it against all the world, for his liability is a liability to the company and to no one else.

But it must be borne in mind that a company formed under the statutes of 1862 is not a mere common law corporation; its rights and liabilities depend, in great measure, on statutable provisions; and in order fully to understand and interpret them we must consider not merely the enactments of the Companies Act, 1862, under which the firm of Overend, Gurney, & Co., Limited, was incorporated, but also the other Acts previously passed in pari materia. When it became the habit and interest of persons engaged in commerce to unite in great numbers for carrying on any particular trade, it soon became evident that the ordinary provisions of the laws of this country were ill adapted to the business of such bodies. It is a general principle of mercantile law that when two or more persons are associated in partnership for carrying on a trade every partner can bind his co-partners in all contracts made in the ordinary course of the business. But where a hundred persons or upwards are engaged in any particular trade to be managed by directors acting for the whole body, that principle plainly became very inconvenient in its application. So, again, it was a principle of our Courts that in any proceeding by or against a partnership, all the partners must either, as Plaintiffs or Defendants, be made parties to the proceeding. But when numerous members of a partnership, to the extent of many hundreds of persons, were concerned as partners, this rule would, if adhered to, have made litigation practically impossible, and would often have amounted to a denial of justice.

To meet these and many other difficulties arising from the same or similar causes, the Legislature has from time to time interfered, the last general Act on the subject being the Companies Act, 1862, under which Overend, Gurney, & Co., became incorporated. I have already observed, that in order to understand the true effect of that statute it is necessary to consider some of those which preceded it. The first general statute to which I need refer is the Banking Act,7 Geo. 4, c. 46. Before the passing of that Act it was not lawful for more than six persons to be united together as partners in carrying on the business of bankers. This restriction was removed by that statute as to banking partnerships carrying on business at

a distance of more than sixty-five miles from London. The Act. provides that the company shall file annually at the Stamp Office a list of all the partners, open to general inspection. And in order to make it possible for such companies, the number of whose partners was unlimited, to maintain and defend suits instituted by and against them, they were bound to appoint a public officer, who, in all disputes between the company and third persons, should represent the company - an officer by whom the company might sue and be sued. Any creditor, or other person, having a demand on the company might proceed against the public officer, and on recovering judgment against him might issue execution against any member of the company, or any person who had ceased for not more than three years to be a member, but who was a member when the contract recovered on was entered into. Companies trading under the provisions of this Act were not incorporated. They were mere associations of individuals trading in partnership, but with several important statutable incidents connected with them. This Act was confined to banking partnerships. No general Act relating to partnerships in any other business was passed until the year 1844, although numerous private Acts had before that time been obtained by persons engaged in speculations requiring capital beyond what could be supplied from private resources, incorporating them, and introducing regulations for the benefit of creditors and other persons dealing with them.

In 1844 the Legislature passed the 7 & 8 Vict. c. 110, being the first general joint stock company Act. The provisions of that Act material for the question now before us, were as follows:- It was declared to apply, with some exceptions, to all companies the capital of which was divided into shares transferable without the consent of all the other shareholders. The persons intending to become shareholders were obliged to execute a deed stating the nature and particulars of the proposed business. A public office was appointed for keeping a register of, amongst other things, the name of every projected company; a statement of the nature of its intended business; the amount of its capital, and the names and addresses of every subscriber, with the number of the shares to be taken by him. The persons intending to form themselves into a company were obliged to furnish to the registrar these particulars,

with many others to which I do not feel it necessary to advert, and on its being certified that this had been done, it is enacted that the shareholders shall be thenceforth incorporated for the purpose of carrying on the business mentioned in the deed, and shall so continue until it is dissolved and its affairs are wound up, but so, nevertheless, as not to restrict the liability of any shareholder under a judgment recovered against the company, it being expressly declared that every shareholder shall continue liable as if the company had not been incorporated.

As the company thus became incorporated for the purpose of its business, it was unnecessary that it should (as in the case of banking companies trading under 7 Geo. 4, c. 46) appoint a public officer for the purpose of suing and being sued. The company itself was able to bring and defend actions and suits in its own name without any special enactment for that purpose, but the statute provides that any person having recovered judgment against the company may, if he cannot obtain satisfaction from the funds of the incorporated body, obtain execution against any shareholder, or against any person who should have ceased for less than three years to be a shareholder, and who was a shareholder when the debt or liability accrued in respect of which the judgment was recovered. I have said that certain companies were excepted from the operation of this Act, and amongst those so excepted were all banking companies.

But concurrently with this Act another Act was passed, 7 & 8 Vict. c. 113, intituled "An Act to regulate Joint Stock Banks in England." It differed in some important particulars from the other Act. It did not incorporate any joint stock banking company, but it enabled persons desirous of forming themselves into such a company, upon complying with certain requisitions, to obtain, under the sanction of the Board of Trade, a royal charter of incorporation, subject to various statutable qualifications, and, amongst other things, that, notwithstanding the incorporation, the shareholders should be liable as if they were not incorporated, and there is the same provision as in the former Banking Act, and in the general Joint Stock Companies Act, making former shareholders liable in certain cases for a term of years after they have ceased to be shareholders.

It thus appears that, under the Act of the 7 & 8 Vict. c. 110, or the Banking Act, 7 & 8 Vict. c. 113, the provisions in these two statutes, so far as regards the present question, being nearly the same, the course which a creditor was to take in order to enforce a debt or demand, was to sue the incorporated company as his debtor, and having recovered judgment against that body, he was, in the first instance, to endeavour to levy his debt by an execution against it, and if that did not produce sufficient to satisfy him, then he was entitled to issue execution against any shareholder, or, within certain limits, against any of those who had been shareholders when his right arose. If the present question had arisen under either of these statutes the right of the creditor could not have been controverted. It would have been no answer on the part of any person who had agreed that his name should be on the list of shareholders, and against whom a fi. fa. had been sued out, to say that he had been induced by fraud to become a shareholder. This was decided by the Court of Queen's Bench, in a judgment delivered by Lord Campbell in the case of Henderson v. Royal British Bank (1), and nearly at the same time by the Courts of Common Pleas and Exchequer, in cases before them in which the circumstances were similar. Lord Campbell said: "It would be monstrous to say that the party against whom the application was made, having become a partner and a shareholder, and having held himself out to the world as such, and having so remained until the concern stopped payment, could, by repudiating the shares on the ground that he had been defrauded, make himself no longer liable." This observation commends itself so entirely to common sense that I cannot hesitate at once to accede to it.

When this passage was quoted in the argument at the bar, I doubted, and I believe I expressed a doubt, whether Lord Campbellhad not been wrong in attributing the liability of the person against whom the application was made, in any respect to his having held himself out to the world as a partner, for a shareholder never takes any part in managing the joint business. But on farther reflection I think the observation was just. The application of the creditor was resisted by the shareholder on the ground that he had been induced by fraud to take shares. It is a fair answer,

(1) 7 E. & B. 356.

by a creditor, to such a defence to say, "I know nothing of the circumstances which led you to become a shareholder; all I know is, that you in fact allowed yourself to be represented as being a shareholder, and on the faith of your being so I trusted the company." But whether the observation of Lord Campbell was or was not altogether warranted, the decision itself seems to me to be incontrovertible, and the only question, therefore, is, whether the same principles ought to govern a case like the present, arising not under the Act of 7 & 8 Vict. c. 113, but under the subsequent Act of 1862.

There are important differences between the provisions of the Act of 1862 and the two Acts of 1844. In the first place, all the enactments contained in the previous Acts for enforcing a debt or demand by execution against a shareholder are repealed. The creditor must, as under the former Acts, proceed against the company; but if, on recovering judgment against the company, he was unable to obtain satisfaction, he has no power to proceed against any individual shareholder. He must obtain an order for winding up the affairs of the company, by causing all its assets to be called in and distributed among all the creditors rateably, as in a bankruptcy. But there is another very material distinction between the two statutes, arising from the power given by the Act of 1862, of constituting a company whose shareholders shall not, like partners at common law, or like shareholders under the Acts of 7 & 8 Vict. c. 110 and c. 113, be indefinitely liable for all obligations of the partnership, but whose liability shall be limited to the extent and in the manner specified in the articles under which the incorporation takes place.

Two modes of limiting the responsibility of the shareholders are provided by the Act, but we need only advert to that which is described in the Act as a limitation by shares. Any joint stock company may adopt such a limitation by making it part of its constitution that the shareholders shall be liable only to the extent of so much of their shares as has not been paid up. This was the principle of limitation on which the firm of Overend, Gurney, & Co., Limited, was formed, and with which alone we have to deal.

It may be well to remark that the Act of 1862 (so far as we

have to deal with it) is identical with a previous Act passed in 1856, and for convenience, therefore, I will refer only to the Act of 1862.

It is obvious that when the Legislature had sanctioned the principle of limited liability, the powers given by the former Acts of taking out execution against individual shareholders necessarily fell to the ground. It would be impossible for a creditor to know to what extent his right to take the shareholder's goods in execution would exist. This difficulty, indeed, would not arise under the Act of 1862 as to companies formed with unlimited liability; but experience had shewn that the system of execution against individual shareholders often, operated very unfairly, and the Legislature probably thought, and correctly thought, that companies with unlimited liability would be but few in number, and the remedy by winding up, which was necessarily adopted in the case of limited companies, was equally just and efficacious where there was no limit, and the same course of proceeding was therefore prescribed in both cases.

The first question then is, whether the change in the mode in which a creditor is obliged, under the Act of 1862, to seek relief, makes any difference as to who are liable to him as shareholders? I think not. In order to bring this question to a test, we may consider how the case would have stood if there had been no change effected by the Act of 1862, except in the mode of making a judgment available. Suppose that the statute of 1862 had only said that, in case of a judgment recovered against the company, the creditor should not levy execution against any individual shareholder, but should proceed to wind up the affairs of the company in the manner there pointed out, I can discover nothing which would in such circumstances relieve from responsibility any person who, if there had been no such change, would have been liable to an execution. The winding-up is but a mode of enforcing payment. It closely resembles a bankruptcy, and a bankruptcy has been called, not improperly, a statutable execution for the benefit of all creditors. The same description may be given to a winding-up, and as in the bankruptcy of an ordinary partnership every person against whom a judgment creditor of the firm could have levied execution as a partner, would be liable to have his

estate administered in the bankruptcy, just so must every person against whom a creditor might, under the Acts of 1844, have levied execution as a shareholder, be liable to have his estate dealt with under a winding-up order. The change, therefore, from a right in the creditor to levy execution to a right to wind up the affairs of the company, does not seem to me to affect the question who are liable to the creditors; and as, according to the principle acted on in Henderson v. The Royal British Bank, the Appellant would certainly have been liable to have his goods taken in execution, so also he must be liable to be dealt with under a winding-up order.

But, if this change in the mode in which the creditor is to seek his remedy, makes no difference as to the persons liable to him, how is he affected by the introduction of the principle of limited liability? I cannot see that he is at all affected by it. His remedy is cut down in amount, but as to the persons liable to him the principle of limited liability has no effect. The introduction of that principle rendered necessary, as I have already stated, some substitute for the remedy by execution against individual shareholders, but it did no more. It plainly left every shareholder subject to all previous liabilities, except only that a line or boundary was fixed, beyond which his obligations could not be extended. I have, therefore, satisfied myself that if the Act of 1862 had done no more than introduce the principle of limited liability, and substitute a winding up of the affairs of the company for execution against individual shareholders, it left the law just as it stood when Henderson's Case was decided.

But it was argued that there are provisions in the Acts of 1844 expressly declaring the liability of shareholders to be the same as that of ordinary partners, but which provisions are not found in the Act of 1862. This difference, it was said, makes the principle of Henderson's Case inapplicable. The clause relied on for this purpose is the 25th section of the 7 & 8 Vict. c. 110, which, after providing that the persons taking shares, forming themselves into a company, and complying with the requirements of the Act, shall become incorporated, proceeds to say that such incorporation shall not in anywise restrict the liability of any shareholder under any judgment for payment of money recovered against the company;

but every shareholder shall, in respect of such moneys, be and continue liable as if the company had not been incorporated. This is the provision in the general Joint Stock Companies Act of 1844. and in the Banking Act, 7 & 8 Vict. c. 113, passed on the same day, there is, in sect. 7, a provision to the same effect. There is no such provision in the Act of 1862, and so it was contended that the Legislature must be understood to have contemplated a change in this particular.

I cannot, however, think that this is a fair inference. The introduction of limited liability made the retention of such a provision as those which existed in the Acts of 1844, and to which I have just referred, impossible; and the question is, whether we are to suppose that the Legislature contemplated any other changes as to the liability of shareholders beyond those which were the natural, indeed the necessary, consequence of limited liability? I think not. In the first place, the object of legislation on the subject of these companies has been to enable capitalists to carry on commercial speculations in numbers beyond what the ordinary machinery of the law could deal with. Except by the introduction of the principle of limited liability, legislation has been confined to the giving facilities for carrying on businesses differing in no respect from ordinary commercial partnerships save in the vast extent of capital embarked, and the great number of the partners engaged. I cannot conceive that the Legislature intended by the Act of 1862 to introduce any rules or principles as to the acts or conduct whereby a person should render himself liable to be treated as a shareholder different from those which existed previously. The omission of the clauses declaring shareholders to be liable, as if not incorporated, was, as I have pointed out, necessary; but the Act seems to me to contain, on the face of it, ample proof that the rights of creditors were not intended to be affected, except only by the introduction of the principle of limited liability.

In the first place, I will refer to the 49th section of the Act of 1844, 7 & 8 Vict. c. 110. It is there provided that the directors of every company shall keep a register of shareholders containing their names and addresses, shewing also the number of shares they respectively hold, and the amount paid up; and, by the 50th section, every shareholder is to have liberty to search this register

at all reasonable times. Nobody, however, was to be at liberty to search it who was not a shareholder. There is a similar obligation in the Act of 1862 as to keeping a register; but there is an important change; for, by the 32nd section of that Act, it is provided that the register shall be open to the inspection not only of shareholders, but, on payment of one shilling, of all other persons, which would therefore include creditors. This seems to me strongly to indicate the intention of the Legislature that the creditors were to look to this document as shewing them to what extent they might trust the company. Before the introduction of the principle of limited liability such a power of inspection was not necessary, or, certainly, not at all so necessary. A creditor could hardly fail to know who were some at least of the shareholders, and there was no limit to the extent to which he might obtain execution against shareholders of wealth. But when the Legislature enabled shareholders to limit their liability, not merely to the amount of their shares, but to so much of that amount as should remain unpaid, it is obvious that no creditor could safely trust the company without having the means of ascertaining, first, who the shareholders might be, and, secondly, to what extent they would be liable. This is obviously the reason why the new statute opened the register to the inspection of all the world, indicating, as I think, very clearly that persons dealing with the company might trust to that register as containing a true exposition of the assets they had to rely on. The permission to all persons not shareholders to inspect the register, and so to ascertain who are shareholders, and to what extent they are liable, would have been an unwarrantable exposure of the affairs of the company, were it not that all persons have, or may have, an interest in knowing who are liable, and to what extent.

This view of the case is strongly confirmed by the language of the statute where it defines contributories. Sect. 74 defines contributories to be all persons liable to contribute to the assets in the event of the company being wound up; and sect. 38 declares that on that event every present and past member shall be liable to contribute subject to certain qualifications. In order to ascertain who are designated by the word "members" in sect. 38, we must refer to sect. 23, which states that every person who has

agreed to become a member, and whose name is entered on the register, shall be deemed to be a member of the company.

The name of Mr. Oakes was certainly entered on the register; if, therefore, he agreed to become a member within the meaning of this 23rd section, he is a contributory. The argument is, that he did not so agree, because all which he did, he did under the influence of fraud and misrepresentation. But assuming all that to be, and I believe it was, just as Mr. Oakes represents it, still he did agree to become a member - that is, he in fact agreed. He may have full rights against those who deceived him, but with that the outer world can have no concern. The Legislature took care to provide the register as the means of enabling persons dealing with the company to know to whom and to what they had to trust. It intended to put the persons whose names are on it in the same position towards creditors (subject, of course, to the statutable restrictions) as persons engaged in an ordinary partnership, or persons trading formerly under the Acts of 1844. In neither of those cases would it have been any answer to a creditor, that the person sought to be charged had been induced by fraud to become a partner or a shareholder, and I see no reason whatever for adopting any other principle here.

It was strongly pressed upon us that a decision against Mr. Oakes would be at variance with the case of the Venezuela Railway Company v. Kisch (1), decided in this House a few months since. But there is no inconsistency between the two decisions. The question there was not one in which creditors were concerned. It was the case of a person seeking, against a company, to be relieved from a contract into which he had by fraudulent representations of that company been induced to enter. This House held, conformably with the decision of the Lords Justices, considering the fraud to be established, that the company could not compel the person thus deceived to retain the shares which he had thus been fraudulently induced to purchase. This decision proceeded on grounds of obvious justice and good sense, on which Courts both of law and equity, including this House, have of late frequently acted. But it has no bearing on a question between the shareholders and creditors. Great stress was laid on a part of the language which I

(1) Law Rep. 2 H. L. 99.

used in expressing my opinion, and which is supposed to be inconsistent with what I have given as my opinion in the present case; but I do not see any such inconsistency. The question there was, whether, as between Kisch the Respondent and the company, he was to be treated as a shareholder. This House held that he was not. He had been imposed upon by means of a fraudulent concealment of something which the company ought to have disclosed. The company contended that he must be taken to have known the facts which were concealed from him, for that those facts appeared on the face of the articles of association, and the statute provides that the articles of association shall bind every member whether he seals them or not. Mr. Kisch did not seal them, but the company contended that he must be taken, according to the statute, to have done so, and so to be aware of their contents. I thought that such an argument did not lie in the mouth of the directors, that they could not by fraudulently concealing what they ought to have disclosed, induce a person to become a member, and then say, your membership gives you, by force of the statute, knowledge which prevents you from alleging that there was fraudulent concealment. I was then, and am still, of opinion, that as between the parties then in litigation, and with reference to the clause in the statute to which I have referred, he was not a member. But such a case has evidently no bearing on a question between the shareholder and a creditor.

The conclusion at which I have thus arrived makes it not absolutely necessary that I should express any opinion on the question of fact. But it must not be supposed that because I do not investigate closely the question of fact, therefore I doubt the soundness of the opinion expressed by my noble and learned friend.

For the honour of the great mercantile community of the city of London, I wish I could have believed that the prospectus was honestly and fairly framed. But I cannot; I must believe that the truth was intentionally concealed, and hopes held out which those who framed the prospectus must have known would deceive those who trusted to it. There were both suggestio falsi and suppressio veri. But, for the reasons I have stated, this does not, in my view of the case, affect the liability of Mr. Oakes.

There were two or three matters of a minor character put forward in a supplemental form, to which I may advert, though I think they rest on no solid grounds. It was said Mr. Oakes never agreed to become a member of the company whose business is indicated by the memorandum of association actually filed. A change was made in that memorandum after he had agreed to take shares, and before it was filed. The change was not of any great importance, but I am far from saying that if Mr. Oakes had, within a reasonable time after he agreed to take shares, examined the memorandum, and found that it differed, in however small a degree, from that on the faith of which he had acted, he might not thereupon have repudiated his status as a shareholder. But it is impossible to allow a person who has taken shares, and has gone on for nearly a year taking his chance of profit, to turn round when the speculation has proved a failure, and claim to be released on the ground that he was ignorant of something with which the least diligence must have made him acquainted. It is the duty of a person taking shares in a company to use all reasonable diligence in ascertaining the terms of the memorandum of association, which is, in fact, his title deed. It was certainly very wrong to make any change in the language of the memorandum of association, but there is no reason to suppose that that act was done otherwise than with honest intentions.

The Appellant then contends, that in consequence of this change there never was an incorporated company. I think that the section of the Act giving effect to the certificate of the registrar is an answer to this suggestion. But farther, if there never was a company, then there could be no valid winding-up order, and the proper remedy of Mr. Oakes would be to get rid of that order, or to take such steps as might be right on the assumption that no such order exists. The same observation applies to the objection that there was no proper meeting sanctioning the winding-up.

The only point on which I think the decree of the Vice-Chancellor was wrong, is the mode in which he has given the costs. It was wrong to mix up together the costs of Mr. Oakes, and of the other Appellant, Mr. Peek. Each of these gentlemen must be answerable for the costs incurred in his own petition, and the decree must, in that respect, be varied.

I need say nothing as to Mr. Peek's appeal, except that he certainly stands in no better position than Mr. Oakes.

I entirely agree with the opinion of my noble and learned friend with reference to the manner in which he recommended your Lordships to dispose of these appeals.

LORD COLONSAY:-

My Lords, in regard to one important part of the Appellant's case there is, unhappily, no room to doubt. I allude to the deceptive character of the prospectus. The evidence contained in the case itself discloses a state of matters to which no Court of law, no Court of equity, no Court administering law and equity, can hesitate to attach the legal character which the Vice-Chancellor has attached to it. The suggestions and arguments by which it was attempted to give to these transactions a different complexion, may have a legitimate influence on the judgment to be pronounced by a more numerous tribunal out of doors on the morality of some of the actions that have been brought before us, but they were not such as could weigh with this tribunal in dealing, as a Court, with the rights of contending parties. Upon this part of the case I do not consider it necessary to say more.

But out of the state of matters to which I have been alluding, the fictitious origin, and the disastrous termination of this great scheme of Overend, Gurney, & Co., Limited, has arisen the important question we are now called upon to decide. The company was announced as incorporated under the Act of 1862, with limited liability. The prospectus bore date the 12th of July, 1865. The company stopped payment the 11th of May, 1866. Proceedings were adopted for having the company wound up under the Act of 1862, and on the 22nd of June, 1866, Vice-Chancellor Kindersleymade an order for winding up under the supervision of the Court.

Assuming, for the present, that the registration, and the proceedings for winding-up, to which I shall afterwards advert, were regular, and that the company is now properly in course of being wound up under the supervision of the Court, what is the position of the Appellant, Mr. Oakes? On the 16th of July, 1865, he applied for shares, which were allotted to him, on the 28th of July

he made the stipulated payments, and his name was placed on the register.

After the stoppage of the company, in May, 1866, some of the shareholders caused investigations to be made, which resulted in certain discoveries that have led to the present litigation. It does not distinctly appear whether Mr. Oakes was or was not a party to those investigations, but I think he is entitled to have it assumed in his favour that, if he was not directly a party to there investigations, he was at least watching those proceedings, and intending to avail himself of the result, of the investigations. In the meantime the liquidators had been making up a list of contributories, and had placed the name of Mr. Oakes on that list, and on, I think, the 20th of August, 1866 (there seems to be some difference in the statements as to the date, but at any rate it was about that time), they made a call of £10 per share on Mr. Oakes, and others. On the 30th of October, 1866, the Appellant's solicitors gave notice of a motion to have the Appellant's name taken off the register, and off the list of contributories, and to stay proceedings for enforcing the call. That application was ultimately refused by Vice-Chancellor Malins, and we are now reviewing his judgment.

The ground on which the Appellant rested his application was, that he had been induced to apply for, and accept, shares in the company entirely through fraud on the part of the directors, the fraudulent character of the prospectus issued by them, and that as soon as he became aware of the fraud, or could have become aware of it, and before he had dealt with the shares in any way, or had derived any benefit from them, he had challenged the transaction, and demanded to be relieved. He refers to the case of Railway Company of Venezuela v. Kisch (1), and other cases, as shewing that, at all events, in a question with the company he would be entitled to repudiate the contract, and to have his name removed from the register. Then, starting £rom that point, he says, as to the creditors of the company, that there was no privity of contract between him and them, that they did not transact with him, or with the shareholders, but only with the company in its corporate capacity, and that they cannot, through the liquidator, subject him to any liability to which the company could not have

(1) Law Rep. 2 H. L. 99.

subjected him; that the liquidator could only take up the rights of the company subject to such equities as could be pleaded against the company; and, consequently, subject to the Appellant's right to be relieved from the contract to which he had been induced by the fraud of the company.

This view is rested, in some measure, on the corporate character of the company, and on certain recognised principles of law as to the relative position of the creditors of corporations and the individual members of such corporations, and it is contended that the the Act of 1862 must be read and construed with reference to these principles, and giving effect to them in so far as that Act has not expressly, or by necessary implication, displaced them as to companies such as this. The Appellant says that certain decisions and dicta that have been founded on by the liquidators are inapplicable, inasmuch as they occurred under a different state of the law, and as to companies which were then governed by a different statute - a statute that expressly provided that, in regard to such questions, they should be dealt with as if the companies were not incorporated. Farther, he examines the Act of 1862, and contends that there is nothing in the provisions of that Act, when read according to their true intendment, which can be held to deprive him of the relief he demands. The case of the Reese River Mining Company (1) is referred to as a recent and direct authority in favour of the Appellant.

Such is a brief outline of the case that was presented to us on behalf of the Appellant, and which was elucidated and enforced in argument with remarkable ability.

Up to a certain point the argument for the Appellant commanded my assent at the time, and I have not, on reflection, seen any sufficient reason to withdraw that assent. If this case had been presented to us in circumstances similar to those which existed in the case of Kisch - if while Overend, Gurney, & Company, Limited, was a going company, it had made a demand on Mr. Oakes for a call, and he had resisted it on the ground of fraud, I think he might have been entitled to succeed in that resistance, and to have his name removed from the register. Whether that would have finally exempted him from any possible contingent

(1) Law Rep. 2 Eq. 264; see also Law Rep. 2 Ch. Ap. 604.

demand in the event of an immediate stoppage and winding up of the company, I do not think it necessary to inquire. The case now before us has reference to a company which had stopped payment, and was in course of being wound up, while the Appellant's name was still on the register, and before any challenge was made. The cases, therefore, are not the same. It may be that the decision in the case of Kisch advances the Appellant a step in his argument. It may even be that it gives him a resting place for the engines by which he is to endeavour to remove other obstacles. But those other obstacles required to be removed, and the question is, whether they have been effectually removed by the power of the argument that was used?

Having given to the case the most careful consideration, I have come to the conclusion that the argument for the Appellant ought not to prevail. I think it proceeds on an erroneous view of the nature of these companies, and of the relative positions of the creditors and the members of these companies.

This company was formed under the provisions of the Act of 1862, which was a comprehensive, repealing, and consolidating Act, collecting, as it were, into one code the provisions which were thenceforth to be applicable to such companies.

During the immediately preceding period of thirty-seven years there had been a continuous course of legislation on the subject, beginning, in 1825, with the 6 Geo. 4, c. 91, which repealed the Act of the 6 Geo. 1, c. 18. After 1825 statute after statute followed in rapid succession, some fifteen or eighteen statutes having been passed on the subject before matters were brought into the position in which they have been placed by the Act of 1862.

Now, what was the tendency and scope of that course of legislation? An important part of it, indeed the great object of it, was to give to the formation of joint stock trading companies facilities and encouragement which had previously been withheld from them. The genius of the law of England, which regarded with disfavour the notion of an incorporated company having a personadistinguishable from its component members, was very unfavourable, if not an absolute barrier to the formation of joint stock companies. Accordingly the efforts of the Legislature were directed to giving to these companies a separate persona, yet not conferring

upon them all the attributes of proper corporations without qualification. That principle pervades the whole of the legislation on the subject. I am not speaking of limited liability companies only. Limited liability is merely a step, and a recent step, in the progress. My observations apply to joint stock trading companies generally. The course of legislation was to rear up the company into a separate persona, with certain powers and privileges, but without conferring on it in an unqualified manner all the attributes of a perfect corporation. The companies were said to be incorporated, but they were only incorporated to certain effects - they were quasicorporations.

In giving this position to joint stock trading companies, provisions were introduced on the one hand to preserve the members from unnecessary molestation by creditors of the company, and on the other hand to preserve the rights of creditors to ultimate payment out of the estates of the members. Among the most important of these were the provisions as to registration of the companies and of the shareholders, and the right of any one to inspect the register (which is given in the two next statutes) and the provisions for winding up, which were some of them embodied in separate statutes, of which there are two or three.

In 1855 came the first Limited Liability Act. Beyond giving power to limit the pecuniary amount of the liability of each shareholder it made no important alteration, I think, in law, in the relative position or rights of creditors or members. Indeed sect. 16 provides that it is to be taken as part of the Act of 1844, the 7 & 8 Vict. c. 110. In 1856 came an Act of the nature of a consolidating Act. In 1858 the limited liability principle was extended to banking companies.

In 1862 came the Act now in force, and which, I think, must be taken as the code applicable to these companies. It bears in the preamble of it to be intended to consolidate and extend the principles of those companies. It also sets forth the various departments into which it is divided, and seems to be a comprehensive code of law applicable to them.

Such having been the course of legislation, and such the character of the Act of 1862, we may expect to find in it a solution of the question, who are to be regarded and treated as contributories

when such companies come to be wound up? If we are not to look beyond the words of the Act of 1862 for a solution of that question, it does not appear to me that there would be much difficulty in the case. The 74th section tells us that "a 'contributory' shall mean every person liable to contribute to the assets of a company under this Act in the event of the same being wound up." Sect. 38, which relates to the liability of members, tells us that "in the event of a company formed under this Act being wound up, every present and past member of such company shall be liable to contribute to the assets" of such company. And sect. 23, which defines a member, tells us that every "person who has agreed to become a member of a company under this Act, and whose name is registered on the register of members, shall be deemed to be a member of the company."

The Appellant says that he cannot be held to have agreed to become a member, inasmuch as his application for an acceptance of shares was induced by fraud, and never having done anything to affirm the contract, he is still entitled to disaffirm it. I cannot agree in that. The contract was not void, it was only voidable. What does that mean? I think that point was well put by Mr. Mellish in the course of his arguments. He said, that a contract obtained by fraud is voidable, but not void; does it mean void till ratified, or valid till rescinded? The latter is the rule where the rights of third parties intervene. That I hold to be clearly the import of the doctrine that a contract induced by fraud is not void but voidable. I hold that the Appellant did agree to become a member of the company. He may have been induced to agree by fraud, but, having regard to the language of the statute, what we have to look to is, whether he has agreed to become a member or not. It might be a different case, and would be a different case, in regard to a party who had no power, no will, to give an assent, such as an insane person or a pupil. But when the question comes to be as to a party who has the power to act, although he may afterwards recall what he has done upon a certain footing, still in the meantime he has agreed, and what is only voidable, and not void, cannot be held as invalid until it has been rescinded. I do not very well see how that is to be got over.

In this case the Appellant says that all this must be read

subject to the overruling operation of certain legal principles. First, the principle that in corporations there is no privity of contract between the individual corporators and the creditors of the corporation; second, that in such questions there is no room for the doctrine of "holding out;" and thirdly, that as the claims or rights of the creditors can only be enforced through the corporation, they must be subject to any latent equities competent to the corporator as against the incorporation. These three propositions appear to me to involve several fallacies. First, it is a fallacy to hold that the liability of the partners of these companies must rest entirely on the same principle of contract which was the foundation of the liability of the partners of unincorporated companies prior to the institution of this class of associations. The question is, not whether there was any privity of contract between the Appellant and the creditors of the company, but it is, whether, under the constitution of these newly-created societies, there is a statutory liability imposed on persons in the position of the Appellant. Secondly, it is an error to hold that creditors are not supposed to trust to the responsibility of the shareholders. The careful regulations as to registers of shareholders, and the publicity to be given to them, form a sufficient answer to that argument. Indeed it is plain from the reason of the thing that no credit would otherwise be given to the abstraction of a company.

It is also a mistake to hold that these companies must, to all legal effects and consequences, be regarded as unqualified corporations, and in no respect as partnerships. I have already shewn that they partake in some respects of both capacities, and I have shewn how and why that condition of matters came into existence. Let us for a moment relieve our minds from the trammels imposed by a technical use of words, and look to the substance and reality of the thing. Why are these companies not partnerships? They are associations of individuals for the purpose of trading with the capital they contribute, and of participating in the profits to be derived from that trade. In several of the statutes they are called partnerships, and in one, if not more of them, provision is made for a deed of partnership. As to their being corporations, I have already shewn that they are so only subject to certain qualifications, and, indeed, in this very statute of 1862, the clause which incorporates

them provides that, nevertheless, they shall be subject to certain qualifications and liabilities, and when we look to the subsequent part of the statute we find amongst those liabilities the liability of being contributories in the sense that I have described. I think it would be contrary to the tendency and scope of all the statutes to hold that these companies are stripped of all the characteristics of mercantile partnerships, and clothed with all the attributes of perfect corporations, without qualification.

I am, therefore, inclined to distrust an argument which seeks to subjugate the plain provisions of this code to the rules of law applicable to a state of things when no such companies existed.

There is another consideration which leads me to distrust this mode of moulding the provisions of the Act of 1862 into a different shape from that in which the statute presents them. That statute, as I have already observed, professes to consolidate into one code all the laws and rules applicable to these associations or aggregate societies. It prohibits their existence except under the cover and control of its provisions. It is a general statute, applicable to all parts of the kingdom, to Scotland as well as to England, which was not the case with several of the statutes preceding it in the series. In several of them Scotland was excepted - and why? Your Lordships know that the law of Scotland in regard to partnerships was not the same as the law of England - that in Scotland, as in some other countries, the separate persona of an unincorporated trading company was fully recognised, and that joint stock share companies for trading existed there at common law, and that the country had derived great advantage from them, as is recorded in a statute passed in the reign of George IV. There were other differences also.

Now, I apprehend that the Act of 1862 was intended to establish a uniform system of law in both ends of the island in regard to such companies. But if, in reference to joint stock companies in England, the provisions of the statute are not to be read in a literal or obvious sense, but are to be overridden, and qualified, and controlled by implications and inferences deduced from rules of the law of England applicable to a state of things antecedent to the existence of any such companies, then, by parity of reasoning in reference to joint stock companies in Scotland, the statute would

be qualified and controlled by implications and inferences deduced from the different principles that had prevailed in Scotland; and thus there would be again produced a diversity instead of the uniformity which it was the object of the statute to establish. For these reasons I think that the line of argument which was put forward by the Appellant cannot be maintained.

My Lords, reference was made to the case of The Reese River Mining Company as being a direct authority in point(1). I do not think that the decision in that case was necessarily an authority in point, for the circumstances under which that case presented itself for decision appear, from the reports that I have seen of it, to have been materially different from the present. It appears that in that case the party had made an application to have his name removed from the register on the ground of fraud before there had been any proceedings for winding up the concern; and the import of the decision appears to have been, that the case must be dealt with in reference to the state of matters at the time that he made that application, and sought to repudiate the contract. Whether that decision was one which would, upon a consideration of the law, be upheld or not, is not a matter that I have occasion to go into now. I receive it with all the respect that is due to the Court that pronounced it; but it is, in that aspect of it, not the same as the present case. An opinion, indeed, was expressed by one of the Lords Justices which might go to an adverse view of the law to that which I have endeavoured to state, but with all the respect I must have for that opinion, and with all the deference I should be disposed to pay to it, I cannot yield up the opinion which I have now expressed as the deliberate result of a full investigation of the cases and the whole course of legislation in regard to these contracts.

As regards other objections which have been stated, and which are of a sort of subsidiary and supplementary character, I shall not add anything to the observations which have been made by my noble and learned friends who have already addressed the House on the subject. I entirely concur in their observations.

With reference to some questions that I myself put at the close of the argument, as to the effect that would be produced by sustaining

(1) Law Rep. 2 Eq. 264; Law Rep. 2 Ch. Ap. 604.

the plea of the Appellant, whether it would not practically reduce the company to the mere directors who had originally issued the prospectus or not, I wish to explain that in putting those questions I did not form any opinion whatever as to the effect that would be due to that result. I had not at that time considered the whole matter of this case; but I wished to have before me all the facts which I thought might, or might not, enter as elements into the formation of my opinion. In forming my opinion I found it my duty to discharge altogether that element, and to hold that the fact of the Appellant being only associated as a dupe along with others, would not be a reason why he should not have justice dealt to him in the same manner as if he had been the only dupe. In such a proceeding the number of the dupes does not affect the character of the transaction. The greater number of dupes only shews the greater dexterity of the process of inflating the bubble of these concerns.

I therefore concur in the judgment which your Lordships have been advised to pronounce.

Mr. Swanston:- Will your Lordships permit me to ask your directions as to one point which I think, if not mentioned now, might afterwards lead to some misunderstanding of your judgment? The application to the Vice-Chancellor was to remove the Appellant's name from the list of contributories. Your Lordships have held that his name should not be removed as against the creditors. May I ask whether your Lordships would now think it right to express an opinion in your judgment as to whether his name should be removed from the list of contributories after the debts are paid?

THE LORD CHANCELLOR:- I really do not think these points ought to be allowed to be raised at this stage. It is becoming very much the fashion to bring up points after the original hearing. I do not think that that is right, or that it is a practice we ought to encourage.

Solicitors for the Appellants: J. & J. Linklater, Hackwood, & Addison.

Solicitors for the Respondents: Maynard, Son, Markby, & Denton.