No. 5.

1916.

IN numerous cases a Deed of Gift, or a document of a like nature, has been executed by a man in favour of his wife. The chattels comprised in the document have been subsequently treated as the wife's property, although the goods have remained in the house in which the husband and wife were living together, and no formal or manual delivery of the chattels has been effected. The question arises, in such a case, as to whether the document requires registration as a Bill of Sale? The question is complicated by reason of the decision of the Court of Appeal in Tuck v. Southern Counties Bank, 42 C. D. 471.

that after the execution of the Deed the chattels are treated as the wife's property. Such a proposition is distinctly opposed to the decision of Cave, J., in Ex parte Close (14 Q. B. D.), which was approved by the Court of Appeal in Ex parte Hubbard (17 Q. B. D. 690), which, in turn, was approved by the House of Lords in Charlesworth v. Mills ( (1892) A. C. 239). Ex parte Close decided that the Acts do not apply to any case where the effect of the transaction is to immediately transfer the possession from the grantor to the grantee; and Ex parte Hubbard decided that a document recording the transaction is not a Bill of Sale.

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THE question of possession, whether it arises under the Bills of Sale Acts in a case such as has been referred to, or otherwise, is not always understood, and it is not always easy to keep the question of manual or physical possession distinct in one's mind from legal possession. possession. When we sit on a chair we are in physical possession, but not necessarily in lawful possession. The man in possession is in lawful possession of all the goods in the house, although he may never come in contact with, or even so much as see, a hundredth part of the contents: he need not actually visit every room in the house and formally take possession of the entire contents. So where furniture is given by a husband to his wife, the possession, from the time of the gift, is in the wife, although no manual delivery of the chattels is effected and they remain in the house exactly as before the gift: it is not necessary, as was believed to be the case at one time, to move the articles, or some one

A VERY welcome addition to the Lawyers' Library has just appeared in the shape of Mews Digest of English Case Law covering the years 1911 to 1915 inclusive (cash price £2). Probably no law book is more frequently consulted by practitioners than Mews' Digest, and the fact that the cases reported in the years mentioned are now digested in one volume will be greatly appreciated by the profession. It may be mentioned that the publishers are taking in part exchange, and making an allowance of five shillings each for, Annual Digests covering the same period.

Dividends and Wasting Assets.

An Unsatisfactory Position.

IT is a well-established principle of Company Law that dividends may not be paid out of capital; but the proposition that dividends can only be paid out of profits is misleading and inaccurate. If a Company has any assets which are not its capital within the meaning of the Companies Acts (i.e., the capital specified in the memorandum of association) there is no law which prohibits the division of such assets amongst the shareholders.

Hence, a Company formed to work a wasting property, such as a leasehold quarry or a

dends out of the money produced by working, without setting aside any part of that money to keep the capital up to the original amount. There is no law," said Lord Lindley in the case of Verner v. General and Commercial Trust

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( (1894), 2 Ch. 239), "which prevents a Company from sinking its capital in the purchase or production of a money-making property or undertaking, and in dividing the money actually yielded by it without preserving the capital sunk so as to be able to reproduce it intact either before or after the winding-up of the Company."

This principle, which was laid down first by the Court of Appeal in Lee v. Neuchatel, etc., Co. (41 C. D. 1), is somewhat startling to men of business, and having regard to the dicta in Dovey v. Cory ((1901), A. C. 477), it is extremely doubtful whether it would be supported by the House of Lords.

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In connection with this subject, Palgrave's Dictionary of Political Economy," sub tit. Capital," contains the following statement:

of a perishable nature. Before ascertaining the profits "A trader's assets are in most cases wholly or partly derived from such assets in a given year, provision ought to be made for the depreciation estimated to have taken place during that year. If, for instance, a person who invested 1,000l. in the purchase of a patent having five years to run, and producing an annual profit of 5001., treats the whole of the annual 5001. as the profit of the respective year, he will find at the end of the five years that his source of income has disappeared. If, on the other hand, at the end of each year a sum of 2001. is carried to the credit of a sinking fund, and the remaining 3001. only are treated as income, the owner of the patent will, at the end of the five years, be able to invest his original 1,000l. in some other profitable manner. Where the facts are so very plain this seems almost a truism, but in many cases it is more difficult to distinguish between income in the proper sense and repayment of capital. The inquiry ought, however, always to be made and acted on. The importance of taking the depreciation of property into account in ascertaining the profits of a given year is even more obvious in the case of a company than in the case of a private individual. The gradual disappearance of wasting property must, in the end, materially damnify preference shareholders, debenture holders, and ordinary creditors, and must also cause great injustice as between the persons entitled to the income of shares for limited periods and the person ultimately entitled to the property tegrity of the capital of limited companies is in other of the shares. It seems strange that, although the in

directions most jealously watched by our courts, the greatest laxity is allowed with reference to the valuation of assets of a wasting nature. In the leading case of Lee v. Neuchatel Asphalte Co., 41 C. D. 1, it was held by the Court of Appeal that there is nothing in the Companies Acts to prohibit a company formed to work a wasting pro

perty, as, e.g., a mine or a patent, from distributing as dividend the excess of the proceeds of working above the expenses of working, nor to impose on the company any obligation to set apart a sinking fund to meet the depreciation in the value of the wasting property.'"

The decision in Lee v. Neuchatel, etc., Co., approved in Verner v. General and Commercial Trust, involves that if a Company with a paidup capital of £50,000 acquires a patent for £50,000, which produces, after payment of establishment charges, £10,000 per annum, the whole of that £10,000 may be distributed by way of dividend and there is no necessity to treat any part of it as capital, although, at the expiration of fourteen years, the patent will have expired and the £50,000 be lost.

In discussing the decision Sir Francis Beaufort Palmer, in his "Company Pre

cedents

(Part I.), 11th Ed., at page 893, says: "If this system is correct, no balance sheet is necessary in order to ascertain divisible profits; all that you want is an account of income and expenditure. And although a Company may not directly pay dividends out of capital, there is not by this method the slightest objection, in point of law, to its doing so indirectly, for, according to Lord Lindley's view, there is nothing in the Act to prevent that. Accordingly, if a Company with a paidup capital of £100,000 likes to buy, say, 10 acres of coal for £100,000, and works one acre per annum, and, after paying expenses of raising the coal and of management, has, say, £15,000 per annum in hand, that sum is profit available for dividend-and when at the end of ten years the coal has been worked out, and the £100,000 has disappeared, and the capital has thus been reduced to nil, we are not to regard this as a reduction of capital prohibited by the Act. But is it not obvious that each year's income in such a case includes a return to the Company of part of its capital outlay, and therefore that the Company is each year paying dividends consisting in part of capital? What would become of debenture holders whose principal was payable, say, 15 years after issue?

Thus the law stands to-day; but, as mentioned, the case of Dovey v. Cory (supra) shows that the proposition laid down by the Court of Appeal would probably not be assented to by the House of Lords. In that case it was not necessary actually to decide the point: but the Lord Chancellor said :

"The mode and manner in which a business is carried on, and what is usual or the reverse, may have a considerable influence in determining the question what may be treated as profits and what as capital. Even the distinction between fixed and floating capital, which may be appropriate enough in an abstract treatise like Adam Smith's Wealth of Nations,' may with reference to a concrete case be quite inappropriate. It is easy to lay down as an abstract proposition that you must not pay dividends out of capital, but the application of that very plain proposition may raise questions of the utmost difficulty in their solution. I desire, as I have said, not to express any opinion. But as an illustration of what difficulties may arise, the example given by the learned counsel of one ship being lost out of a considerable num. ber, and the question whether all dividends must be stopped until the value of that lost ship is made good out of the further earnings of the company or partnership, is one which one would have to deal with. On the one hand, people put their money into a trading concern to give them an income, and the sudden stoppage of all dividends would send down the value of their shares to zero, and possibly involve its ruin. On the other hand, companies cannot at their will, and without the precautions enforced by the statute, reduce their capital. But what are profits and what is capital may be a difficult and sometimes an almost impossible problem to solve. When the time comes that these questions come before us in a concrete case we must deal with them, but until they do, I for one decline to express an opinion not called for by the particular facts before us, and I am the more averse to doing so because I foreses that many matters will have to be considered by men of business which are not altogether familiar to a court of law."

And Lord Davey, in the same case,

said:

"I desire to express my dissent from some propositions of law which were laid down in the Court of Appeal, and on which your Lordships thought it right to hear the respondent's counsel. The learned judges seem to have thought that a joint stock company incorporated under the Companies Acts may write off to capital losses incurred in previous years, and may in any subsequent year, if the receipts for that year exceed the outgoings, pay dividends out of such excess without making up the capital account. If this proposition be well founded it appears to me that a company whose capital is not represented by available assets need never trouble itself to reduce its capital with the leave of the Court, and subject to the other conditions imposed by the Act of 1877, in order to enable itself to pay dividends out of current receipts. My Lords, it may be that I have misapprehended the statement of law intended to be made by learned judges in the Court of Appeal. I think that is possible, because I find that in Verner v. General and Commercial Investment Trust (1894), 2 Ch. 239, at page 266, Lord Lindley says: Perhaps the shortest way of expressing the distinction which I am endeavouring to explain is to say that fixed capital may be sunk and lost, and yet that the excess of current receipts over current payments may be divided; but that floating or circulating capital must be kept up, as otherwise it would enter into and form part of such excess, in which case to divide such excess without deducting the capital which forms part of it will be contrary to law.' I reserve my opinion as to the effect of an actual and ascertained loss of part of the company's fixed capital, as in the case put by Mr. Swinfen Eady of a loss of a ship

uninsured. But, subject to this observation, I think that the statement of law contained in the passage I have quoted is not open to objection, and it is only because the learned judge appears to me to have departed from it in his judgment in the present case that I have troubled your Lordships with these remarks.

It is clear, therefore, that the principle laid down by the Court of Appeal in Lee v. Neuchatel, etc., Co. must be treated with caution; and that pending a decision by the House of Lords upon the actual question, the law must be considered in a state which is not wholly satisfactory. Reference should also be made to Bond v. Barrow Hæmatite Steel Co. (1902), 1 Ch. 353, where the dicta of Lindley, L.J., in Lee v. Neuchatel, etc., Co. and Verner v. General and Commercial Trust were considered by Farwell, J.

It is well settled law that an offer may be withdrawn at any time before it is unconditionally accepted, unless, indeed, some valuable consideration is given for keeping the offer open (Cooke v. Oxley, 3 Term. Rep. 653) or the offer is made by deed; and the fact that the person making the offer has specified that it is open to acceptance within a certain period does not prevent him withdrawing the offer before the expiration of that period (Offord v. Davies, 12 C. B. (N.S.) 748).

It must be remembered, however, that the withdrawal of an offer, unlike an acceptance, is not complete when posted; it has no effect until brought home to the mind of the person to whom the offer was made (Henthorn v. Fraser (1892), 2 Ch. 27; Byrne & Co. v. Van Tienhoven & Co., 5 C. P. D. 344). Hence, if A. makes an offer, but changes his mind and subsequently posts a letter revoking the offer, he will be bound if, before receipt of the letter, the person to whom the offer was made posts an acceptance.

Withdrawal of an offer may be made verbally (Wilson's Case, 20 L. T. 692) and, in the case of a Company, to a clerk at the registered office in the absence of the Secretary (Truman's Case (1894), 3 Ch. 272).

Different considerations apply to the acceptance of an offer. In this case, the acceptance need not necessarily be brought home to the mind of the proposer; the acceptance is complete when it is made in the manner prescribed or indicated by the person making the offer (Carlill v. Carbolic Smoke Ball Co. (1893), 1 Q. B. 256, 269). An offer made by post invites an acceptance by post; and the contract is complete when the letter of acceptance is posted (Henthorn v. Fraser, supra; and see Bruner v. Moore (1904), 1 Ch. 305). The fact that the letter is lost in the post, and never, therefore, reaches the proposer, makes no difference (Household Fire, etc., Co. v. Grant, 4 Ex. D. 216).

In order that the time of acceptance may be considered the time of posting, the letter of acceptance must be properly and actually posted. For instance, the handing of a letter to a postman in the street is not a posting of the letter (Re London and Northern Bank (1900), 1 Ch. 220). And the acceptance must be properly addressed (Robinson's Case, 4 Ch. 322). But if the wrong address was furnished by the proposer himself, he will be bound by a letter directed to that address (see Townsend's Case, 13 Eq. 148).

If an offer is made by telegram, it is presumptive evidence that a prompt reply is necessary, and an acceptance by post may be evidence of such unreasonable delay as to justify a withdrawal of the offer (Quenerduaine v. Cole, 32 W. R. 185; Bruner v. Moore (1904), 1 Ch. 305).

As to the right to withdraw tenders after acceptance, see Islington Union v. Brentnall, 71 J. P. 407.

To create a binding contract, the acceptance must be unconditional. If the letter of acceptance introduces any new term, this amounts to a counter offer (Hyde v. Wrench, 3 Beav. 334) which must be accepted before there is any contract (Hussey v. Horne Payne, 8 C. D. at p. 678). But if a term is left open by the parties intentionally, that will not prevent the contract being complete (see Morrell v. Studd (1913), 2 Ch. 648). A mere inquiry as to whether the terms of an offer will be modified