liable at the option of the cestuis que trust to account either for the value at the time he received the present, or to account for the thing itself and its proceeds if it has increased in value. 2.-Receiving Presents of Paid-up Shares-MisfeasanceLiability to pay Value-Companies Act, 1862, s. 165. (See QUALIFICATION.) A summons by the liquidator of a company, under section 165 of the Companies Act, 1862, called upon M., a former director, to contribute to the assets of the company the value of a number of fully paid-up shares, which had been given to him by the vendor of the property to the company. With respect to some of these shares, it had been stipulated that the company should retain the certificates for two years. Some of the shares given to M. remained standing in his name at the commencement of the winding-up; others had been transferred by him for value, and others had been transferred for a nominal consideration. There was evidence that the public had been giving the full nominal value for the shares of the company. Held, that the same principle applied to those shares, the certificates of which were to be retained for two years, as applied to the others; that M. had been guilty of misfeasance in relation to the company; and that he must pay the full nominal value of all the shares which had been given to him.-Re Diamond Fuel Co., Mitcalfe's Case, 1879, Ct. of App. (Jessel, M. R., Baggallay and Thesiger, L. JJ.); L. R. 13 Ch. Div. 169; 41 L. T. (N. s.) 717; 28 W. R. 417. (Fry, J., affirmed.) DIRECTORS' QUALIFICATION. DIVIDENDS GUARANTEED. Guarantee Fund created to secure payment of Dividends. 1.-Where a fund was to be provided out of the purchase money, and paid to the directors in order to guarantee dividends, it was held to be the property of the company, and not of the shareholders individually, and that it should be paid to the liquidator of the company, Bacon, V.-C., observing that it was the duty of the company to pay its debts before dividing profits.Re Stuart's Trusts, 1876; L. R. 4 Ch. D. 213; 46 L. J., Ch., 86; 25 W. R. 295. 2. In the next case, under somewhat different arrangements with the vendor, a different decision was arrived at by the Court of Appeal. By an agreement for the sale of a colliery to a trustee for a company in course of formation, the vendor ageeed to pay to the company during two years from the date of its incorporation, such a sum as, together with the net profits of the company, should be equal to interest at five per cent. per annum on the paid up capital of the company. This agreement was stated and adopted in the articles of association of the company. One of the articles provided that no dividend should be payable except out of the profits arising from the business of the company. Each half-year the vendor had to make a payment under this agreement to the directors for distribution among the shareholders, the profits not amounting to five per cent. After the expiration of the second year, but before the deficiency of dividend for the fourth half-year had been paid, the company went into voluntary liquidation, and the vendor afterwards paid to the individual shareholders the amount necessary to make their fourth half-year's dividend equal to five per cent. Held, that the agreement created a Trust for the individual shareholders; and that the Liquidator could not claim the amount so paid by the vendor as part of the assets of the company. In this case, James, L. J., observed that he was "unable to see anything on the face of the agreement that can be considered as a fraudulent device." So, also, per Cotton, L. J.:- "The real question on the contract was whether the payment of dividend was to be made by the seller to the company as part of their property, or whether it was to be made to the company as a trust fund appropriated to certain persons, and not as part of the company's property available for payment of their creditors. . "It was a sum appropriated to the shareholders, and was not to form part of the profits and certainly not part of the capital of the company. Therefore the liquidator had no right to say that it ought to have been paid to the company. "It is true that in Re Stuart's Trusts (scc supra) the sum payable was held to be part of the profits; but in that case it was expressly stipulated that the payment under the guarantee should be applied as a dividend. So that the question was avoided by the special form of the contract. Could the money in this case have been applied by the company as part of the general assets? No one could arrive at such a conclusion." Re South Llanharran Colliery Co., Ex parte Jegon, 1879, Ct. of App. (James, Brett, and Cotton, L. JJ.); L. R. 12 Ch. Div. 503; 41 L. T. (N. s.) 567. (Hall, V.-C., reversed.) 3.-A similar decision was given in the following case: The agreement for the sale of mining property to a trustee for a company in course of formation provided that the sum of £15,000 should be paid in cash by the vendors to two trustees, who should hold the same in trust to secure the payment of, and, if necessary, thereout to pay a minimum dividend of ten per cent. per annum on the preferred shares of the company for a term of three years, payable quarterly, and subject thereto for the vendors. The guarantee was announced in a prospectus, and the agreement confirmed by the articles of association of a company which was registered shortly afterwards. The trustees paid the sums necessary to make up the guaranteed dividend for every quarter during the three years, except the last, to the directors who distributed them to the shareholders. The trustees had also paid some surplus monies to the vendors, retaining sufficient to meet the accruing dividends. Shortly after the last quarter's payment became duc the company was ordered to be wound up, and the official liquidators claimed the fund then remaining in the hands of the trustees. Held, that the agreement created a trust for the individual shareholders; that the fund had never belonged to the company, and was not liable for its debts.-Re Gelly Deg Colliery Co., 1878, Ch. D., Malins, V.-C.; 38 L. T. (N. s.) 440; W. N., 1878, p. 101. DIVIDENDS -INTEREST. Dividends paid under the Name of Interest at 5 per cent., but not out of Profits-Liability of Directors to make good the Capital spent in error. 1. The articles of association of a limited company provided that the directors might, without the sanction of a general meeting, pay interest at the rate of 5 per cent. per annum upon the paid-up capital. The directors, acting on this power, paid interest from time to time to the shareholders. No profits, however, had ever been made, and the company being ordered to be wound up :— Held, that the directors had, in making payments to shareholders out of capital, acted ultra vires and committed a breach of trust, and that they were, therefore, liable jointly and severally to make good the amount of such payment, but without prejudice to their right to recover from each shareholder the amount of capital he had received. Per Jessel, M. R. :— "I cannot find, from the beginning to the end of the articles [of the company], anything like a power to return capital. The only section or clause which was at all relied upon was the 122nd, which says that the directors may, without the sanction of a general meeting, pay interest at the rate of 5 per cent. per annum upon the paid-up capital of the company.' "Then the 123rd article says that no dividend shall be payable except out of profits; and dividends can only be paid with the sanction of a general meeting. It does not appear to me that the 122nd article, rightly considered, authorizes the payment of interest out of capital, but only out of income." Re National Funds Assurance Co., 1878, Jessel, M. R.; L. R. 10 Ch. D. 118; 39 L. T. (N. s.) 420; 27 W. R. 302; 48 L. J., Ch., 163. 2. A similar decision (not reported) was given by Hall, V.-C., in 1879, in the case of Re British Imperial Insurance Corporation, to the effect: (i.)—That the directors were liable to make good to the liquidator of the British Imperial Insurance Corporation |