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J. Brown (Holl with him), for the plaintiffs. The whole transaction between Stafford and the defendants was illegal, and ultra vires, and cannot bind the plaintiffs as a company. They are entitled to take advantage of the fact that the guarantie was a fraud, and can recover the whole amount-Gray v. Lewis (1). The plaintiffs' shareholders, including Stafford's allottees, are contributories under 25 & 26 Vict. c. 89. ss. 23, 38, and must have a remedy against some one. They cannot sue Stafford who is not a contributory. The defendants are estopped by their acts from denying that the money is the plaintiffs'-Burry v. Croskey (2). The knowledge of the defendants' manager is the knowledge of the defendants-Dresser v. Norwood (3); In re Carew's Estate Act (4); Barwick v. English Joint Stock Bank (5).

Pollock (R. G. Williams with him), for the defendants.-The transaction is entire and cannot be severed, and none of the money can be recovered-Brownrigg v. Rae (6). The bank directors are not bound by their manager's fraud. Brown replied.

Cur, adv. vult.

BRAMWELL, B. (on Jan. 20), delivered the judgment of himself, Channell, B., and Pigott, B.

It will be convenient to state the facts of this case to shew how we appreciate them. The plaintiff company is now in liquidation under a winding up order. It was formed, probably bona fide, for the purpose indicated by its name. It invited applications for shares, received some in the usual way, and allotted some shares on which deposits were paid (7), but not

(1) Law Rep. 8 Eq. 526.

(2) 2 Jo. & H. 24.

(3) 34 Law J. Rep. (N.s.) C.P. 43. (4) 31 Beav. 39.

(5) 36 Law J. Rep. (N.s.) Exch. 147.

(6) 5 Exch. Rep. 489.

(7) The shares were 207. each. The deposits of 27. on each share had been paid only upon 2,324 shares, amounting to 4,6487. These were bonâ fide held by 75 persons, who all became shareholders

enough to enable it to procure a settling day for its shares on the Stock Exchange. This being thought desirable in order to make the public apply for or purchase shares, the following plan was resolved on (8). The directors of the plaintiff company, or some of them, Stafford, a promoter of the company, and Challis, the general manager of the defendants, agreed that an account should be opened in Stafford's name with the defendants; that another account should be opened with the defendants in the name of the plaintiffs; that the plaintiffs should guarantee to the defendants the repayment of any money with interest drawn by Stafford on the account in his name, and charge with such repayment any balance in their favour on the account in their name; that the defendants should have a bonus of 6007. for this; that Stafford should then get persons to apply for shares, which the directors of the plaintiff's should allot to them; that Stafford should draw on the account in his name with the defendants, and with the money thereby obtained pay into the plaintiffs' account with the defendants the requisite deposits on the allotments, taking blank transfers from the allottees or pretended allottees. Cha lis was to have a bribe of 1,0007., and there were to be various other persons rewarded. The object of this was that the defendant bank might certify to the committee of the Stock Exchange that the requisite amount of shares to get a settling day had been applied for and paid on.

This plan was carried into execution. The accounts were opened: that in the plaintiffs' name with a payment in of 1,5001. of the plaintiffs' money; that in Stafford's name with a loan or advance of 1,500l. from the defendants. Persons were procured by Stafford and one of plaintiffs' directors to apply, or pretend to apply, and to sign letters of applica tion for shares. Shares were allotted by the directors of the plaintiffs, or some of them, thereon. Stafford drew on

long before June 1867, and were now subject to an uncalled liability of 18. per share, amounting to 41,8321.

(8) In June 1867.

the account in his name, and with the proceeds of such drawings paid into the account in the plaintiffs' name the requisite deposits. Sometimes he paid in the identical notes he received, sometimes in change he had procured for them at the Bank, and sometimes it was managed otherwise. But he never kept for twentyfour hours any of the money he drew, and when it was thought desirable that he should go to Paris and seek shareholders, and that 6,000l. should be sent there to pretend to pay their deposits, a clerk of the defendants was sent with the money for that purpose; Challis probably not being willing to trust Stafford with so large a sum. The bona fide real bankers of the plaintiffs were Dimsdale & Co., and the London & County Bank. The allottees, or pretended allottees, so procured, were real persons, but as we were informed wholly incapable of paying the amounts of the shares allotted to them, and without any intention of really being shareholders. They immediately handed their letters of allotment and blank transfers to Stafford (9). In the result

(9) The letters of allotment were made out in the names of the allottees, who thereupon executed blank transfers and delivered them, with the letters of allotment, to Stafford. Stafford presented to the defendant bank the letters of allotment, and in exchange for his cheques or notes received from the defendant bank deposit receipts. The company having applied to the committee of the Stock Exchange for the appointment of a "settling day," with a view to assisting in obtaining such settling day the following certificate was given by Challis without the knowledge of the directors of the bank, for the purpose of being produced before the Committee.

"Certificate of the Albion Bank, Limited. "11th of September, 1867. "We hereby certify that 11,593 shares have been applied for in the British and American Telegraph Company, Limited, and that deposits of 21. per share, amounting to 23,0067. have been paid thereon.


P. P. Albion Bank, Limited,
T. C. Challis, Gen. Manager."

the plaintiffs' account with the defendants stood with a credit of 24,5051. 18s. 6d., made up of the real 1,500l. paid in, and the deposits or pretended deposits so paid in by Stafford, less a trifle for stamps. Stafford's account on the other hand stood with a debit of 24,5067. 8s. 4d., made up of the sums he had drawn or purported to draw to pay the deposits, and of the 1,5007. which he drew out, partly to pay the 6007. bonus to the defendants who have received it, partly for himself, partly for some of his confederates, and partly for the purposes of the scheme. The defendants have debited the plaintiffs' account with this amount, and say nothing is due to them (10). They have, however, paid into Court the 6007. they have received for themselves, and the question now is whether the plaintiff's are entitled to recover the whole or any part of the balance, 23,905l. 18s. 6d.

At the same time the pass-book of the company with the defendant bank, shewing a balance in favour of the company of 24,5957. 18s. 6d., was produced to the committee. The committee refused to appoint a settling day. In November 1867, the Court of Chancery ordered the company to be wound up by the Court, under the Companies Act 1862, and afterwards appointed an official liquidator.

(10) The accounts stood thus in the defendants' books, on October 9th, 1867, and the company's pass-book, when made up by the defendants and sent by them to the official liquidator, corresponded with the company's account entered in the defendants' books. The shareholders of the company had no knowledge of the arrangement for placing shares, or of the guarantie. The guarantie was dated the 21st of June, 1867, sealed with the common seal of the company, and signed by two of the directors, who thereby requested the bank to honour Stafford's cheques, or advance him cash on demand up to 30,000., and on behalf of the company guaranteed the repayment of such payments and advances, with interest, and charged such payments and advances, and interest on all moneys, from time to time standing to the credit of the company in the bank books until repayment.


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Now it is necessary for the purposes of for the plaintiffs, except the 1,5001. Treatour judgment, and right that it may not ing the contract as valid, if the plaintiffs be supposed our opinion is otherwise, that had demanded any of the money nomiwe should say that the scheme we have nally standing to their credit, the defenmentioned was fraudulent and illegal, and dants would have said, “That sum is brought the parties to it within the crimi- charged with your guarantie, you have nal law; and we must equally regret and no right to it;” and that would have wonder that gentlemen of character and been an answer. Treating it as invalid, position could have been parties to it, a the plaintiffs in effect say, “ We opened thing we can only account for by sup. no account with you, we gave you no au. posing some extraordinary self-deception. thority to receive money on account;"

This being the case, of course the plain and if they add, " but you have done so, tiffs are not bound by what was agreed to and we elect to take it," the answer would on their behalf. The act of the directors be and would truly be, “No money has who were parties to it was void, and been paid to us or received by us to be bound the plaintiff company as little as paid by us to you absolutely; but only thongh it had been entered into by the conditionally and subject to our lien for plaintiffs' secretary or messenger; and as Stafford's balance." Let us suppose that the facts were known to their man ger instead of the directors being parties to Challis, the defendants have notice of the this scheme, it had been done by the secillegality and invalidity of the trans- retary or manager, or by Stafford alone. action. On the other hand the defendants How, then, could the plaintiffs have are bound to refund any money they have claimed this money, except subject to the received, because although Challis had conditions and on the terms on which no authority to bind them to any such Stafford paid it in, and the defendants contract as he entered into, yet if the de- received it? But the case is the same, fendants received the plaintiff's' money though some or all the plaintiffs' directors under it, the plaintiffs (though not their are parties to the scheme. If the defendirectors) being innocent parties, the dants are liable to pay to the plaintiffs any defendants must refund it. If A, the of this money, it must be because they have clerk of B, without B's authority, pays made a contract with them or some one money into the bank of C, having pre- else that they, the defendants, would pay viously made an arrangement with D, them, the plaintiffs, this money, but they the clerk of C, for some application of have made no such contract. If, therethat money, which neither A nor D had fore, the realities only are looked at, it authority from their masters to make, seems to us the plaintiffs could not recover C must refund to B. It seems to us

this sum. clear, therefore, that the plaintiff's must But the case was put in another way. It recover the 9001, balance of the 1,5001. was put as an estoppel. It was said, “We, of the plaintiffs' real money, paid into the the plaintiffs, have allotted 11,503 shares, defendants' bank. The defendants have and you, the defendants, have signed received that money-what right have certain deposit receipts to the amount they to retain it ? None, unless under of 23,0061., therefore there are sharethe guarantie. But that guarantie is holders who are entitled to say as against not binding on the plaintiff's. For this us that they are shareholders entitled to all reason, then, our judgment must be for rights and benefits as such ; that they the plaintiffs for that sum at least. It have paid 23,0061., which our agents, the remains to consider the other amount. bank, acknowledge they have received ;

Now, as to that, the defendants nerer therefore we, the plaintiffs, say, you, the received any money which they were to pay defendants, are estopped from saying you to the plaintiffs. We are not referring to have not received that amount." But it any special pleading matter of money had seems to us that this is not so. We think and received or money lent, but in sub- no allottee under the scheme could have stance and reality the defendants never claimed to be a shareholder. In all the had any of the plaintiffs' money, or money cases Stafford was the allottee's agent in the matter, and his knowledge of the the plaintiffs make an enormous profit fraud and invalidity would affect the out of this fraud, as they will if they reallottee. May be the plaintiffs could cover ? Because, suppose the allottees ratify what had been done, and treat the should claim a dividend, suppose one was allottees as such; but then they must ratify payable, how could they make out their in toto, and their doing so would be case ? Even if they could, the losses of voluntary. They are not bound by the de

the company will be distributed over fendants' acts, but would, if they adopted 13,827 shares instead of over 2,324, and them, be so, because they chose to adopt that by virtue of an illegal and fraudulent and take advantage of them.

transaction which the plaintiff's repudiate; Further, without wishing needlessly to fraudulent shareholders will be entitled to prejudge any matter, it seems to us that claim dividends, or if not there may be these allottees cannot say they have paid a large surplus distributable among the their deposits. They applied for shares, it holders of the 2,324 shares which will may be there was some director or direc- come out of the pockets of the defendants, tors who, not knowing of this scheme, who (though their manager has,) have made the allotment, which would there- done nothing wrong, with no remedy for fore be valid. Then the allottee being them, except against Stafford or the liable, employs Stafford to pay his deposit, pauper allottees, or their manager or perand undoubtedly the letter of allotment haps directors. says


may be paid at defendants' bank. We have been pressed with the case But that in the mind of an innocent of Gray v. Lewis (1). Now, in the director and an innocent allottee would first place, that case was expressly demean to an ordinary account, really to the cided on equitable considerations. We credit of the plaintiffs, and which the plain- must decide this on legal principles, so tiffs might draw on. But the deposit money that even if the cases were indistinguishis paid by Stafford, the allottee's agent, able in their facts, this is not necessarily to the defendants, and received by them, governed by that. But in truth the cases so far as it is paid and received, not really are distinguishable. on the account and for the benefit of the The whole of the reasoning of that plaintiffs, but for that of Stafford and judgment (except that addressed to techthe defendants. It seems to us, there- nical points relating to the form of the fore, that these allottees cannot say they suit) goes to this, that the defendants are have paid their deposits. But further, if bound to “restore" the plaintiffs' money,

' they can, they have done so by borrowing thus assuming that the money in quesmoney of the plaintiffs or of Stafford. tion had actually become the plaintiffs', If of the plaintiffs, they owe it to them which indeed in one passage the Vice in a different form. If of Stafford, they Chancellor expressly states that he did owe him, and he owes the plaintiffs; and

He made this assumption upon though that owing may be of small value, facts very similar to those in the present the plaintiffs cannot be entitled to the case, though, as we shall shew, not identimoney twice-ouce from the defendants, cal. For in Gray v. Lewis (1) the ad. once from Stafford.

vances by the National Bank to the It seems to us, then, that the plaintiffs are International Contract Company (which not entitled to recover this sum. It would stood in the same position as Stafford be hard upon the defendants if they could. in the present case) were made by disThe defendants' manager has behaved very counting their promissory notes. Certain ill and ought to be punished; but the were placed to the credit of the directors are acquitted by the arbitrator of Contract Company as the proceeds of the any complicity with him, though we can- notes, and the sums so credited appear to not but think it wonderful their suspicions have been drawn out from time to time should not have been aroused by so by cheque. When the proceeds of the unusual a transaction, if indeed they first lot of notes were thus exhausted, attend to their duties. But why should fresh notes were discounted and another their shareholders suffer? Why should guarantie taken.




This may

The notes discounted may have been Lafitte & Co.'s balance) having been and probably were of little value; still so acted

as to affect the consti. during the currency of the notes so held tution of the company, and to make perby the National Bank, it could scarcely be sons liable as contributories who would said that the sums of money dealt with in not otherwise have been so liable, the account, and representing the proceeds of statement became binding on the National these notes, were wholly fictitious. Bank, so that they could not be allowed

In the present case, however, there was to set up the argument that they had not even so much appearance of reality not really received money for Lafitte in the matter as was there presented by & Co., for which they were accountthe discount of the notes. On looking at able. As we said, the Vice Chancellor Stafford's account, it will be seen that, scarcely states his reasons for assuming even giving him credit for the supposed that the money in question was actual loans, it was almost always, if not always, money of Lafitte & Co. overdrawn. In fact, the account was have been because he thought it unevidently balanced or nearly so from time

necessary to allude to a doctrine so to time by entering on the credit side familiar to the Court of Chancery as that loans to about the amount of the sums according to which statements not binding already drawn out for payment to the in the first instance become so by being plaintiffs' account.

acted on. Whatever his reasons may It may be, therefore, that the payments have been, we think there is a sufficient made to the account of Lafitte & Co. difference between the facts of the two (Limited) out of the proceeds of the cases to prevent our being bound to notes discounted and held by the National follow the Vice Chancellor to the full ex. Bank, ought to have been treated as tent of directing payment of the whole actual payments independently of any nominal balance at one time shewn upon estoppel. But further than this, there the account between the plaintiffs and the was more ground in that case than here defendants. for saying there was an estoppel.

We agree with him upon the question Here the committee of the Stock with which he mainly dealt, viz., that the Exchange refused the settling day, and it money appropriated to the satisfaction of is expressly found in the 37th paragraph the guarantie must be restored ; that is of the case that the bona fide shareholders to say, applying the decision to the facts in the plaintiff company had all taken and pleadings in the present case, that the their shares before the commencement of defendants' set-off cannot be maintained. these transactions. In Gray v. Lewis (1) But we think that the plaintiffs fail to the committee of the Stock Exchange sliew a greater amount of money payable had, upon the faith of the statement to them than 1,5007. Of this 6001. has made to them as to Lafitte & Co.'s been paid into Court, and there should balance, granted the settling day. This therefore in our opinion be judgment fact is not distinctly stated in the report for the plaintiffs for 9001. No question of Gray v. Lewis (1) in the Law Reports, will probably be raised as to the few though it might be inferred from that shillings charged for stamps, which are report that it was so. In the report in the only items appearing in the account the Weekly Reporter (17 W. R. p. 433), besides those with which we have dealt. the fact is distinctly stated. There can

Judgment for plaintiff's for 9001. be little doubt that the result of the settling day being granted was that

Attorneys - Lewis, Munns & Co., for plaintiffs ; many transfers of shares were carried out,

W. & H. P. Sharp, for defendants. and new shareholders put on the register, so that in all probability the constitution of the company, as regards its individual members, was materially altered. It may well be that in that state of things the statement of the National Bank (as to

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