stock. Where any company, incorporated either before or after the Debenture passing of the Companies Clauses Act of 1863, is authorized by any special act subsequently passed and incorporating Part III. of the Act of 1863 to create and issue debenture stock, the company may, with the same sanction as that just specified in the case of issuing new shares, create and issue debenture stock in such amounts and manner, on such terms and conditions, and with such rights. and privileges as may be deemed proper, instead of and to the same amount as the whole or any part of the money for the time being owing by the company on mortgage or bond, or which they have power to raise by mortgage or bond, and may attach to the stock so created such fixed and perpetual preferential interest not exceeding the prescribed rate, and otherwise not exceeding four per cent. per annum, as is thought fit. The interest may be made payable halfyearly or otherwise, and may be made to commence at once or at any future time or times as the debenture stock is issued (sec. 22). This debenture stock and the interest thereon is a charge on the undertaking of the company prior to all other shares or stock; but in other respects it is transmissible and transferable in the same manner and under the same provisions and regulations as the other company stock. It is personal estate (sec. 23). The holders of debenture stock have no preference among themselves; but the interest accruing thereon has a preference over all dividends and interest on other company stock or shares, whether ordinary, preference, or guaranteed, and ranks next to the interest payable on mortgages or bonds granted before the creation of the debenture stock (sec. 24). If the interest on this debenture stock is not paid within thirty Judicial factor. days after it becomes payable, any one or more debenture-holders, holding individually or collectively the sum in nominal amount prescribed, and if none prescribed, then a sum equal to a tenth of the aggregate amount which the company is for the time being authorized to raise by mortgage, bond, or debenture stock, or the sum of £10,000 sterling, whichever of the two last-mentioned sums is the smallest, may (without prejudice to the right to sue for the interest in arrear) require the appointment of a judicial factor (sec. 25). This application is made to the Court of Session, who, after hearing parties, may, if they see fit, make the appointment. The judicial Ordinary action. General rules as to debenture stock. factor, on being appointed, receives all the tolls or sums liable for the interest until the arrears then due on the debenture stock, with all costs and charges, are paid; and distributes the same rateably and without priority among all the debenture-holders whose interest is in arrear, after applying a sufficient part thereof towards extinction of the interest on the mortgages or bonds, if any, according to their priorities. As soon as the full amount of interest and costs has been paid, the powers of the judicial factor cease, and he is bound to account to the company for his intromissions, and to pay over to them any balance in his hands (sec. 26). Without prejudice to his power to apply for a judicial factor, any debenture-holder may recover the arrears of his interest by action against the company (sec. 27). The debenture stock must be entered in a register kept for that purpose, with the names and addresses of the holders, and the respective amounts to which they are entitled. This register is accessible to any mortgagee, bond-holder, holder of debenture stock or shares, and to any shareholder, free of charge (sec. 28). Debenture-holders are entitled to certificates from the company, stating the amount of the debenture stock held by them. These certificates are framed in conformity to the regulations as to certificates of shares in force for the time being, mutatis mutandis (sec. 29). Existing mortgages or bonds are not affected as to priorities, rights, and privileges, by the issue of debenture stock (sec. 30). Money raised by debenture stock must be applied exclusively either in payment of existing mortgages or bonds, or else for the purposes to which it would be applicable if it were raised on mortgage or bond (sec. 32). Separate accounts must be kept by the company, so as to distinguish money borrowed on debenture stock from that raised by mortgage or bond, and to show how much money raised in the latter form has been paid off by the former (sec. 33). Whatever powers of borrowing and re-borrowing may be possessed by the company are extinguished, in so far as they are exercised by the issue of debenture stock (sec. 34). The holders of debenture stock are in the same position as mortgagees, and are not, in virtue of their debentures, entitled to be present or vote at meetings like other stockholders (sec. 31). The provisions of the Act as to debenture stock are declared to apply to mortgage preference stock, and funded debt, as the case may be, in all respects as if these latter phrases occurred whenever the former is used (sec. 35). BILLS AND NOTES. These documents are of such general use in mercantile transac- General rule. tions, that it has been long settled that any partner of a trading firm has implied power to draw, accept, grant, or indorse bills and notes in the company name (a). But it is very doubtful whether this rule applies to firms that are not properly mercantile or trading. According to the English authorities, it seems that the power of granting and accepting such documents is not presumed where its existence is not necessary or usual in carrying on the particular business in which the company is engaged (b). And it has accordingly been held not to exist in companies of solicitors (c), farmers (d), quarriers (e), and the like, where no usage or necessity to support its exercise could be shown (ƒ). For a similar reason, this power will not be held to exist in relation to matters plainly without the line of business pursued by the firm (g). Whenever, again, it can be made to appear that the creditor knew the bill was granted for a private and not for a company debt, it will not be effectual against the company (h), even though the company have been benefited by the transaction (); and the (a) 2 Bell's Com. 615. Selkrig v. Dunlop, 1804, Hume 277; Turnbull v. M'Kie, 1822, 1 S. 331; Anderston, Vict. So., 1828, 6 S. 928; Blair Iron Co., 1855, House of Lords, 18 D. 49, 27 Jur. 614; Gordon v. Sutherland, 1761, M. 14677; Naughton v. Ritchie, M. 1490; Dewar v. Miller, 1766, M. 14569; Smith v. Jarves, Lord Raymond 1484; Lane v. Williams, 2 Vern. 277. (b) Dickinson v. Valpy, 10 B. and C. 128, 3 Ross L. C. 561. Chitty on Bills, p. 35. (c) Hedley v. Bainbridge, 3 Q. B. 316. (d) Greenslade v. Dower, 7 B. and C. 635. (e) Thicknesse v. Bromilow, 2 Cr. and J. 425. (f) See, on this subject, Proudfoot v. Lindsay, 1825, 3 S. 310. Story on Part. s. 102a, and ss. 126-7; Coll. 269; Lind. 214; Bisset 67. (g) Kennedy, 1814, 18 F. C. 122. (h) Miller v. Douglas, 1811, 16 F. (i) Johnston and Co., House of Does not apply to firms other than trading. Nor without line of busi ness. What if exer cise of this power is pro hibited? Directors, etc. company will not be bound by the signature of a partner socio nomine when he was prohibited from accepting for the company, and the creditor had notice of this restriction (a). But if the creditor had no notice that a restriction of this kind existed, and if the nature of the company business implied the power of drawing bills, the company will be bound (b). If, however, it be proved that the bill was issued by a partner in fraud of his fellows, it has been held in England that the holder will have to show that he gave value (c). This rule is extremely equitable, and there seems no reason to doubt that it is law in Scotland (d). In one case a firm consisted of two partners, viz. Charles Archer and Son, who were also partners of the Perth Foundry Company, which consisted of four partners. The first firm were indebted by promissory-note to one Proudfoot for £1000; and having fallen into difficulties, they prevailed on the manager to concur with them in granting a promissory-note for the same amount, in name of the Foundry Company, in consideration of which Proudfoot cancelled his note by the firm of Charles Archer and Son. This was done without the knowledge of the other partner of the Foundry Company, which was afterwards sequestrated. Proudfoot claimed on the note, but his claim was rejected on the ground that the note was ultra vires of even a majority to grant (e). E converso, a partner of a bank, who discounted a bill as an individual, was held not to be identified with the agent of the bank of which he was a partner, so as to subject him to exceptions pleadable against the bank agent, and so prevent his recovering on the bill (ƒ). Directors, managers, and other officials of public companies, stand in a somewhat different position from partners in a private firm as to the power of binding their companies by bills and notes. According to the old common law of England, corporations could (a) Galway v. Matthew, 10 East 263, 3 Ross L. C. 507; Willis v. Dyson, 1 Stark. 164; Vice v. Fleming, 1 Yo. and Jer. 227. See M'Leod v. Tosh, 1836, 14 S. 1058. Here the company was dissolved, and the creditor knew that the partner who signed was only empowered to wind up the concern. (b) Per Lord Chancellor, ex parte Bonbonus, 8 Ves. 542. (c) Grant v. Hawkes, Chitty 32, No. 9. (d) See, however, Wilson's Thomson on Bills, p. 159. (e) Proudfoot v. Lindsay, 1825, 3 S. 310. (ƒ) Downes v. M'Fie and Co., 1829, 8 S. 246. contract only by deed under the corporate seal. Hence their officebearers were held to have no power to bind them by negotiable documents (a). The tendency, however, in modern times has been towards a relaxation of this rule in incorporated mercantile companies, where the interests of commerce seemed to require it; and this is particularly to be observed in the American branch of English law (b). In Scotland, the rule requiring contracts by corporations to be under seal has not, at least in modern times, been much insisted in; but agreements or obligations by such associations have been held valid when subscribed by their office-bearers for the time being (c). Hence in this country the question whether an incorporated company can be bound by bills or notes signed by its directors or officials, does not seem to have been complicated by the same technical difficulties as in England. As regards unincorporated joint-stock companies managed by directors or other officials, it has more than once been decided in England, that as these officials are to be considered special agents, they do not bind the company by signing bills or notes, unless this power has been specially conferred; and that even as regards unincorporated associations, the public are bound to make themselves aware of the regulations of the company in this respect (d). In Scotland, the tendency would seem to be to hold the power as implied both in corporate and unincorporate associations, whenever its exercise is plainly necessary for the management of the company business, though the articles of association or even the incorporating instrument do not bear it per expressum, so long at least as they contain no regulation to the contrary. And this will hold, à fortiori, when the power in question has been exercised practically without objection for a considerable time (e). It is even a matter of doubt whether this is not also the drift of the English decisions in modern times (ƒ). (a) Chitty on Bills 9. (b) Story on Bills, s. 79; Bayley 78–9. (c) Menzies' Lectures 209. (d) See Thomson v. Un. Salvage Co., 1 Ex. 694; Brown v. Byers, 16 M. and W. 252; Bramah v. Roberts, 3 Bingham N. C. 963; Dickinson v. Valpy, 10 B. and C. 128, 3 Ross L. C. 561. (e) See Swinburne v. West. Bank of Scotland, 1856, 18 D. 1025; North British Bank v. Ayrshire Iron Co., 15 (ƒ) See Gordon v. Assur. Co., 1 H. and N. 599; Thompson, 8 C. B. 849; Allen, 9 C. B. 574; Aggs, 1 H. and N. 165; Lindus, 2 H. and N. 293}; Halford, 16 Q. B. 442; Edwards, 6 Ex. 269. But see also Lindley 215. |