C. A. 1897 In re WRAGG, LIMITED. A. L. Smith L.J. the contract was inadequate, unless it appears so upon the transaction itself; or, if not, if he desires to do so, must he not impeach the contract itself? If there be no consideration at all for the shares, and it be shewn, as in the case of In re Eddystone Marine Insurance Co. (1), that the words inserted in the registered contract, “in consideration of services," were placed there as a mere blind, that will suffice. Again, if in a registered contract a money value less than the face value of the share be placed upon the consideration which the company had agreed to accept as representing in money's worth the nominal value of the share, that share, I should think, would not be fully paid up; for instance, as was put in argument, a contract to supply to a limited company 100 tons of coal, valued at 10s. per ton, as a consideration for 100 17. shares in the company-i.e., a value of 50l. worth of coal for 100 17. shares these shares would not be, I think, fully paid up. There would be no necessity in such a case for impeaching the agreement, for that the shares were not fully paid up in money or money's worth would be apparent upon its face. Cotton L.J. in In re Almada and Tirito Co. (2) points to such a case as this, though he did not decide it. If, however, the consideration which the company has agreed to accept as representing in money's worth the nominal value of the shares be a consideration not clearly colourable nor illusory, then, in my judgment, the adequacy of the consideration cannot be impeached by a liquidator unless the contract can also be impeached; and I take it to be the law that it is not open to a liquidator, unless he is able to impeach the agreement, to go into the adequacy of the consideration to shew that the company have agreed to give an excessive value for what they have purchased. I will content myself with citing three of the earlier cases, and I will begin with Pell's Case. (3) Pell in this case had agreed to sell to a company the goodwill and stock-intrade of his business in consideration of 1500 201. shares of the (2) 38 Ch. D. 421. (1) [1893] 3 Ch. 9. (3) L. R. 5 Ch. 11. company fully paid up. The company was wound up, and no payment for these shares could be found in the books of the company. Lord Romilly M.R. directed an inquiry as to the value handed over by Pell to the company under his agreement with them, and declared that Pell was entitled to be allowed only the amount of that value. This decision was reversed upon appeal, Sir G. M. Giffard L.J. holding that as the agreement was not impeached the Court had no ground for going behind the agreement. In the next year (1870), in Forbes and Judd's Case (1), Hatherley L.C. deals with Pell's Case (2), and expressly states that if the consideration is to be impeached the contract must also be impeached. He says: "The only difference between Giffard L.J. and the Master of the Rolls in Pell's Case (2) was this. The Master of the Rolls thought that Pell, being bound to pay the full amount of 201. per share, was not to be taken to have paid it in full unless the property he handed over was worth that amount. That result, however, could only be arrived at by rescinding the contract to buy Pell's business, and Giffard L.J. thought that the contract not being impeached, must be treated as a good contract, and one that ought to be acted upon so, that no question could be raised as to the actual value of the business made over." The Lord Chancellor clearly approves, and in no way disapproves, of the decision of Giffard L.J. in Pell's Case. (2) In In re Baglan Hall Colliery Co. (3) Giffard L.J. again lays down what he had stated in Pell's Case. (2) It is true that in Leeke's Case (4) Stuart V.-C. did not like the decisions in Pell's and Forbes' cases by Lord Hatherley and Giffard L.J.; but many cases have been decided since then all in accord with Pell's Case (2), which Lindley L.J. has referred to, and I do not repeat them, and not a single case has been cited to the contrary. It appears to me that in the House of Lords, in the Ooregum Case (5), the principle of Pell's Case (2) and Forbes and Judd's C. A. 1897 In re WRAGG, LIMITED. A. L. Smith L.J. (1) L. R. 5 Ch. 273. (3) L. R. 5 Ch. 346. (4) L. R. 11 Eq. 107. (5) [1892] A. C. 125. C. A. 1897 In re WRAGG, LIMITED. A. L. Smith L.J. Case (1) was distinctly approved. Lord Watson (2) says: "It has been decided that, under the Act of 1862, shares may be lawfully issued as fully paid up, for considerations which the company has lawfully agreed to accept as representing in money's worth the nominal value of the shares. I do not think any other decision could have been given in the case of a genuine transaction of that nature where the consideration was the substantial equivalent of full payment of the shares in cash. The possible objection to such an arrangement is that the company may over-estimate the value of the consideration, and, therefore, receive less than nominal value for its shares. The Court would doubtless refuse effect to a colourable transaction, entered into for the purpose or with the obvious result of enabling the company to issue its shares at a discount; but it has been ruled that, so long as the company honestly regards the consideration given as fairly representing the nominal value of the shares in cash, its estimate ought not to be critically examined. That state of the law is certainly calculated to induce companies who are in want of money, and whose shares are unsaleable except at a discount, to pay extravagant prices for goods or work to persons who are willing to take payment in shares. The rule is capable of being abused, and I have little doubt that it has been liberally construed in practice." Lord Herschell (3) is very distinct upon this point. He says: "But the contrary has been determined. And not only may a share be allotted as fully paid up in respect of property, goods, or services received by the company, but the Courts will not inquire into the adequacy of the consideration, and certainly have not required it to be proved that the consideration given was equivalent in cash value to the nominal amount of the share"; and Lord Macnaghten (4) says: "It seems to me that all that has been determined so far is that the Court will decline to rip up a transaction not impeached as dishonest, and not proved to be such, merely because the company may have paid an extravagant price." In my judgment, whether the facts of this case are looked at, or whether the laws applicable thereto are looked at, the liquidator is in the wrong, and my brother Williams was quite right in dismissing this application. RIGBY L.J. In this case the respondents Wragg and Martin were two of the first three directors of the company now in course of being wound up, the third, Harrison, having been also made a respondent to the summons, though not interested in the appeal. Wragg and Martin had for a considerable time before the incorporation of the company carried on the business of omnibus and cab proprietors at Whitechapel and elsewhere in London. What their respective interests as between themselves were in the assets of the business we cannot infer from the evidence, nor is it necessary that we should know. Wragg and Martin were minded to turn their business, as the phrase goes, into a private limited company-that is to say, a limited company in which the vendors were to take, at any rate in the first instance, practically all the shares in the company, which were to be allotted, as part of the consideration for the purchase of the goodwill and assets of the partnership, to the vendors or their nominees, including, as I understand, the subscribers of the memorandum of association. The property to be sold to the new company consisted of freehold estate of sufficient value to have been accepted as security for a first mortgage debt of 8000l. with interest at 6 per cent., and a second mortgage debt of 20007. with interest at 5 per cent. These mortgages were apparently treated by the mortgagees as fair security. There were leaseholds of small value, a considerable stock-in-trade consisting, among other things, of omnibuses, cabs, and horses, worth at any rate not less, according to the evidence, than 15,000. The business was therefore a very substantial one. The assets (notably the goodwill of the business) could not from the nature of them be said to have any market value; and what they would be worth to a company incorporated to carry on the business would depend upon considerations as to which C. A. 1897 In re WRAGG, LIMITED. C. A. 1897 In re WRAGG, LIMITED. Rigby L.J. there would be room for considerable honest difference of opinion. The vendors were of course able to settle the constitution of the company according to their own wishes, and they determined that it should be brought out with a capital of 20,000l. in 2000 shares of 101. each, and that there should be an issue of first debentures for 10,0001. Neither the amount of capital nor the amount proposed to be raised on first debentures can be said to have been on the face of the matter extravagantly large, regard being had to the nature of the business to be transferred. The only effect, beyond the appearance of greater importance to be given to the company, of putting down 20,000l., instead of, say, 10,000l., as the capital of the company, would be to make the value of each share proportionately smaller. The vendors or their nominees might be able to dispose of their shares on better terms if the capital were larger; but it is only fair to observe that the vendors in fact retained by far the largest part of the share capital until the winding up of the company. The vendors determined to fix the price for the property to be sold at 46,3001. How this sum was arrived at we do not know. No doubt it included a large amount of what would be profit to the vendors if they disposed of their shares favourably, but so long as they continued to hold them this would be nominal profit only. The vendors did not require to be paid a large amount in cash, and arranged that the 46,300l. should be paid as follows: 10,000l. by the company taking over the existing mortgages on the freeholds; 70007. in cash (which was expected to be raised by means of first debentures for that amount); 30007., the residue of the first debentures; 20,000l. in shares to be treated as fully paid up. This left 63001. to be raised somehow or other, and I think Mr. Eve's suggestion a probable one, that the balance so remaining determines the amount, 63007., of the second debentures. This arrangement was carried out by an agreement dated |