Re Agriculturist Cattle Company (Baird's Case)

[1870] 5 ChApp 725

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(Judgment by: Sir W M James LJ)

Re: Agriculturist Cattle Company (Baird's Case)

Court:

Judge:
Sir W M James LJ

Subject References:
COMPANY
Deceased Shareholder
Extent of Liability of his Executors

Hearing date: 7-8 July 1870
Judgment date: 26 July 1870

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Judgment by:
Sir W M James LJ

In a joint stock company the presumption is, that the executors of a deceased shareholder succeed to the full liability, as well as to the rights of their testator. The deed of settlement is to be looked at, not to see whether it imposes such liability on the executors, but whether it takes it away or limits it.

The fact that by the deed of settlement executors are not entitled to the full privileges of shareholders until they or their nominees have been registered as shareholders, is no proof of an intention to limit their liability in their representative character.

Accordingly, in the case of a joint stock company formed in 1845, where, in the opinion of the Court, nothing appeared in the deed of settlement to limit the liability of the executors of a deceased shareholder, it was held, (reversing the decision of the Master of the Rolls) that their liability was not limited to debts incurred before the death of the testator.

THIS was an appeal from a decision of the Master of the Rolls, made in the winding up of the Agriculturist Cattle Insurance Company.

The company was formed in 1845, under a deed of settlement which was executed by the shareholders. By this deed, in the 1st clause, the parties thereto covenanted that the several persons parties thereto, all of whom were thereinafter distinguished by the title of shareholders, and the several persons who should become shareholders as thereinafter mentioned, should, while holding any share or shares in the capital of the company, and notwithstanding the death, bankruptcy, insolvency, or retirement of any or either of the shareholders, be and continue a company, by and under the title of the Agriculturist Cattle Insurance Company, for the term or period of fifty years, commencing from the day of the date thereof, unless the company should be sooner dissolved in pursuance of the provisions thereinafter contained, and for such further term or terms of years, if any, as might be thereafter resolved upon, under the provisions thereinafter contained, for the purposes and upon the terms and conditions thereinafter expressed and contained in the clauses following.

The 125th clause provided that, upon the neglect or refusal of any holder of shares to pay any instalment or subscription, or upon the neglect or refusal of any person, after his being approved of as a shareholder by the directors, to execute the deed of settlement, the directors might declare the shares to be forfeited, or might, if they should think fit, enforce the payment of any such instalment or subscription against such shareholder, or his executors, administrators, or assigns, instead of declaring such shares forfeited.

The 173rd clause provided that the husbands of female shareholders, and the executors or administrators of deceased shareholders, and the assignees of bankrupt or insolvent shareholders, should not, in such capacities, be holders of any shares, or be entitled to receive any dividends declared after such marriage, death, bankruptcy, or insolvency; but such dividends should remain in suspense until some purchaser should become a shareholder in respect of such shares; and then such husband, executors, administrators, or assigns should be entitled to receive the dividends or other profits which had been suspended.

By clause 175 the husbands of female shareholders, and the executors or administrators of deceased shareholders, had power to become shareholders themselves; or, by clause 176, they might procure some other persons to become shareholders in respect of any shares held by them, or might sell the same to the board of directors. The 179th clause provided that husbands of female shareholders, and representatives of deceased shareholders, must, previously to their becoming themselves, or procuring any other persons to be shareholders, deposit their certificates of marriage, and probates and letters of administration, at the office of the company.

The 185th clause provided that every person who should have been approved by the directors as a holder of shares should execute a deed of covenant to abide by the regulations of the company.

The 190th clause provided that, when and so often as any person, not a purchaser from the board of directors, should have become a holder of any share or shares in the company, and should have executed a deed of covenant to observe the covenants, agreements, and provisions contained in the deed of settlement, the last holder or owner of such share or shares, and all persons claiming through or under him other than the new shareholder, should, from the time of such new shareholder becoming such, and on payment of such moneys, if any, as might be owing to the company in respect of such shares, be, as between the company and such last shareholder, for ever acquitted and discharged from all farther claims, demands, and liabilities in respect of such shares; and the certificate of the directors, that he had ceased to be a shareholder, would be conclusive evidence of such acquittance and discharge.

The 203rd clause made the existing shareholders, and the executors and administrators of deceased shareholders, liable to contribute to the costs of actions and suits by and against the company in case the moneys of the company should be insufficient for that purpose.

Clause 208 contained a mutual covenant between the parties in proportion to their respective interests for the time being in the company, which interest was to be ascertained by the number of shares which they might respectively hold therein, as shewn by the books of the company, that each shareholder, his or her executors or administrators, should indemnify the other shareholders against all loss beyond their own shares and proportions, and should pay all calls and observe all the covenants contained in the deed.

In April, 1861, the company was ordered to be wound up.

Sir David Baird was the holder of ten shares in the company. He died in January, 1852, having appointed his widow, Lady Baird, his sole executrix.

In the year 1869 the name of Lady Baird was placed upon the list of contributories as executrix, and a summons was subsequently taken out by the official manager for a call of £190 per share upon Lady Baird as executrix.

The summons was adjourned into Court, and the Master of the Rolls decided that Lady Baird's liability must be confined to obligations incurred before the death of Sir D. Baird, and directed inquiries as to such liabilities. ^[F1]

Lord Romilly, Master of the Rolls

The first question is, what is the general law upon the subject; and in the absence of any special contract I think there is no doubt upon that point. In the case of an ordinary partnership, which this is, no partner is liable for debts incurred after he ceases to be a partner; about that there can be no question, and there are abundant authorities upon the subject. Accordingly, the executor of a deceased partner cannot complain of his testator's name being used by the partnership firm, because it entails no liability on him. Of course, for all debts incurred up to the time of his death he is liable.

In this company, as far as I can see, there has been no attempt, in cases of transfer or forfeiture, to make the person who has transferred or forfeited the shares liable for debts incurred subsequently to the transfer or subsequently to the forfeiture. The result is that, if the liability in the present case rests upon anything, it must rest upon the construction of the deed. Upon that point I have looked very carefully into the deed.

[His Lordship then referred to several clauses of the deed, particularly the 1st, 125th, 173rd, 176th, 179th, and 185th, and continued:-]

In my opinion this deed lays down with great distinctness all the exact steps and preliminaries which must be adopted for the purpose of obtaining a transfer of the shares. It appears to me impossible to consider that the meaning of it was that a shareholder's estate should be liable for those shares, notwithstanding his death. Of course it is not pretended that a man may not enter into a covenant of that description so as to make himself a partner for fifty years certain, if he thinks fit, and the only question is whether he has done so.

In my opinion, he has entered into no such covenant in this case; and I have now to consider whether the cases cited establish the proposition that what has been done here amounts to a contract. I find, in the cases which have been cited a distinct contract to be liable. The first is In re Northern Coal Mining Company. Blakeley's Case (13 Beav. 133; 3 Mac. & G. 726). There the company was to continue for forty years, unless previously dissolved; and the 5th article was to this effect: That all the estate, property, and effects of the company should be deemed personal estate, and the shares therein of deceased proprietors should belong to their personal representatives, and there should not be any benefit of survivorship amongst the proprietors.

There there is a distinct covenant and agreement that a man, by death, shall not lose the rights he would have got by remaining alive; if profits are made he is entitled to them. Then the amount of each share was to be paid by the proprietor for the time being, or his heirs, executors, and administrators; and the registered holder of the shares was to be deemed the absolute, sole, and beneficial owner, and the company was not bound to be affected by any trust unless it had been duly admitted as such.

Then the 16th article was to this effect: That the executors, administrators, and legatees of deceased proprietors, and the husbands of female proprietors, should never be deemed or considered as proprietors in respect of shares in the said copartnership held by them in any of these capacities until they should be duly admitted as proprietors, in pursuance of the provisions of the deed; and before they were to be admitted they were to give notice of their desire to be admitted, and to produce a probate copy of the will under which they claimed, and were executors and legatees; and when admitted to be proprietors, they were to execute the deed of settlement, and then, but not before, they were to become proprietors. Then when that was done, and the transfer took place, the shares became vested in the new proprietor, and he executed the deed, and then, but not till then, all future liabilities of the previous proprietor were to cease. It is to be observed that this applies to executors, and therefore it is expressly stated that, until the transfer took place in respect of executors, the liability of the previous proprietor was not to cease. Lord Langdale held in that case that, upon the death of the proprietor, his estate continued liable until a new liability had been created, pursuant to the deed; and the clauses to which I have referred clearly laid down that principle.

This went by appeal before Lord Truro, who was a very careful Judge. Lord Truro, after referring to all the articles, and going through them very elaborately, says:

"Although this principle, by reason of the great number of partners, and of the power of each partner to transfer, with the consent of the directors, his interest in the partnership, varies from the case of an ordinary partnership, still the partners and their representatives, as in all other partnerships, must be regulated and governed by the contract into which they have entered."

Then he refers to all the clauses, which I do not think it necessary to go through, and decides it upon the principle of the contract which had been entered into. He refers to a passage in Lord Langdale's judgment, which he approves of entirely:

"Although it is provided that no one has a right to receive profits until a transfer of the shares has been made, and a new personal liability has been thereby created, yet I consider it to be clear that if the profits do accrue during the interval between the testator's death and the creation of such liability, such accrued profits must on the transfer become payable by the company to the transferor or transferee, as may be agreed between them.

The shares do not survive as in ordinary cases, and because they do not survive, but are expressly declared to belong to the personal estate of the deceased proprietor, they must, I think, belong to it, or form part of it, subject to the incidents affecting the possession of a portion of the capital or estates of the partnership under the management of the directors, as provided for by the deed, and if profits or losses arise, I think that a right to a share of the profits, and with that a liability to contribute a share of the losses, are necessarily incident to the shares themselves, or to the right to the shares."

Then Lord Truro says:

"There appears to have been no authority applicable to the present case, but upon principle I agree with the Master of the Rolls."

In that case, therefore, it was expressly directed that the shares should smelting part of the estate of the person deceased. After referring to that, Lord Truro affirms the decision of the Master of the Rolls.

The other case that was cited before me is the case of Ex parte Gouthwaite (3 Mac. & G. 187). There was a covenant to exactly the same purport in this case as there was in Blakeley's Case. It was there held, in the winding up of the company, that in the absence of any proof that the executrix had done any acts constituting her a member of the company, the estate of the deceased partner was liable to contribute, and that the name of the executrix ought to be placed on the list of contributories in her representative character. It was upon that ground alone that she was held to be liable upon the construction of the deed. The Lord Chancellor did not go at length into the question further than to decide that she was to be put on the list of contributories in the character of a contributory as the executrix of the testator. Accordingly, when the Lord Chancellor held that the decision of Vice-Chancellor Knight Bruce was right, Mr. Rolt said:

"Your Lordship does not intend to determine anything as to the period to which Mrs. Gouthwaite's liability continued, or whether it continued subsequent to the period of her husband's death?"

The Lord Chancellor replied:

"No; I only say that her name ought to be put on the list of contributories."

If His Lordship had said the opposite, I do not think it would affect this case, because there was an express covenant that the estate was to remain liable until the contract was at an end, and I do not find that in this case. It is, I am satisfied, a mere question upon the construction of the articles themselves. I have read through the deed as carefully as I can. It is a very carefully prepared deed, and I cannot find any clauses which bear on the subject, except those I have mentioned. They all appear to me to go upon this principle, that the liability only lasts as long as a person is a shareholder, that he ceases to be a shareholder in case of forfeiture, in case of transfer, or in case of death, and that thereupon all his subsequent liability ceases, and he cannot be called upon in respect of future liability.

I am of opinion, therefore, that Lady Baird's contention is a right one in this case, and I think the proper order to make will not be to dismiss the summons, but to order it to stand over and direct an inquiry what liability or debts there were of this company which existed previously to the death of Sir David Baird. The parties will know what they have to meet, as some questions may arise possibly about marshalling.

From this decision the official manager appealed.

Mr. Southgate, Q.C., and Mr. C. T. Simpson, for the Appellant:-

This is not the case of an ordinary partnership, in which the partnership is ended by the death of any of the partners. The deed of settlement expressly stipulates that the partnership is to continue for fifty years, notwithstanding the death or bankruptcy of any of the partners. That being so, it is for the other side to shew, from the deed, that the liability does not continue after the death of the shareholder. On the contrary, every part of the deed shows that the executors of deceased shareholders were intended to be liable in their representative capacity. They are entitled to have the shares registered in their names, or in the names of their nominees, and they are entitled to the accumulations of dividends as soon as this is done. If they have the benefit of the shares, they must also be subject to the liability. They are, moreover, expressly named in the covenant for mutual indemnity, and in the other clauses for contribution among the shareholders; and there is no mention of any limitation to such liability.

The case is concluded by Blakeley's Case, ^[F2] which is precisely in point; but there are many other cases which support the same view: Ex parte Gouthwaite; ^[F3] Houldsworth v. Evans; ^[F4] Harmer's Devisees Case; ^[F5] Heward v. Wheatley; ^[F6] Keene's Executors' Case; ^[F7] Turquand v. Kirby; ^[F8] Wills v. Murray; ^[F9] Straffon's Executors' Case. ^[F10]

Mr. Jessel, Q.C., and Mr. B. B. Rogers for Lady Baird:-

The present partnership does not differ from an ordinary partnership, except so far as it is modified by the express provisions of the deed. Therefore, unless there is an express covenant that the liability of estates of deceased shareholders shall extend to dealings after their death, the ordinary rule prevails. The mere fact of the partnership being for a term certain does not make the representatives of a deceased member partners: Gillespie v. Hamilton; ^[F11] Pearce v. Chamberlain; ^[F12] Ex parte Williams. ^[F13] In the present case the meaning of the 1st clause is that, on the death of a partner, the partnership between the other partners should continue. The value of the share of the deceased partner belongs to his executors, but the share itself lapses to the other shareholders, in the same way as in an ordinary partnership the executors of a deceased partner have a share in the assets, but not in the partnership; although the share could be taken up by the executors if thew chose to become registered members. There is a distinction throughout the deed between "holders of shares" who are not necessarily members of the company, and "shareholders" who are. This case is distinguishable from Blakeley's Case ^[F14] and Ex parte Gouthwaite; for in the deeds in those cases there was an express covenant that the liability should continue till a new shareholder was substituted.

This case also differs from those which arose in going concerns. Assuming that we should be liable to a call by the directors, which would be a specialty debt, it does not follow that we are liable to a balance order in a winding-up to pay the ordinary simple contract debts of the partnership, contracted after the testator's death: Robinson's Executor's Case. ^[F15]

July 26. Sir W. M. James, L.J. :-

In this case the Master of the Rolls, in placing the executrix of a deceased shareholder on the list of contributories, has placed her with a qualification limiting her liability to the death of her testator, and giving consequential directions for ascertaining such liability.

This is the first instance in which any such qualification has been annexed to the liability of a representative contributory, although there must have been very many cases of executors made contributories in such character; and it would be difficult to exaggerate the inconvenience, the complication, and the confusion which would arise in the liquidation of joint stock companies if separate accounts had to be taken at the time of the death, or of the bankruptcy, of each shareholder in respect of whose shares there are only representative contributories.

But, of course, if the law compels the Court to embarrass itself with such difficulties, it must encounter them as it best may.

Does the law so compel the Court? The conclusion to which the Master of the Rolls has come, and the argument addressed to me in support of that conclusion, are mainly based on the general law of partnership, that a man ceases to be a partner by his death, and that he is therefore a stranger to all subsequent proceedings, dealings, and transactions of the surviving partners after his death, and cannot therefore be under any liability in respect of them; that therefore, in construing the deed of partnership, this, the ordinary law, the natural and ordinary incident and consequence which flows out of the contract of partnership, must always be kept in mind; that the burden of proof is thrown on those who contend that such ordinary law is superseded by the express contract of the parties, and that such burden can only be discharged by shewing in the contract express words or plain implication.

I am bound to state, at the very outset of the case, my entire dissent from this. I hold that no such principle is applicable to the case of a joint stock company.

Ordinary partnerships are essentially in kind, and not merely in the magnitude of the partnership or the number of the partners, different from joint stock companies.

Ordinary partnerships are by the law assumed and presumed to be based on the mutual trust and confidence of each partner in the skill, knowledge, and integrity of every other partner. As between the partners and the outside world (whatever may be their private arrangements between themselves), each partner is the unlimited agent of every other in every matter connected with the partnership business, or which he represents as partnership business, and not being in its nature beyond the scope of the partnership. A partner who may not have a farthing of capital left may take moneys or assets of this partnership to the value of millions, may bind the partnership by contracts to any amount, may give the partnership acceptances for any amount, and may even - as has been shewn in many painful instances in this Court - involve his innocent partners in unlimited amounts for frauds which he has craftily concealed from them.

That being the relation between partners, of course, when the Court had to consider whether a partner could substitute or let in some other person for or with him, or whether a partner's executor could claim to succeed to him, there could be no difficulty in saying that this could not be done without the consent of all the partners. The death of a partner, therefore, necessarily put an end to the partnership, so far as he was concerned; and as, in the absence of express stipulation, the right of the representative was to have all the assets realized and divided, it necessarily put an end to the whole subject matter of the partnership; as indeed, independently of that right, a contract between A., B., and C. to be partners, is essentially a different thing from a contract that they, or the survivors of them, should be partners.

Therefore, when the simple case was presented to the Court of an agreement between A., B., and C. to be partners for a long term of years, and nothing more, it was of course held that, in the absence of express stipulation, the mere length of the term afforded no sufficient presumption to prevent the application of the ordinary law, and therefore it was held that the death of one was the dissolution of the society as to all. But it was because these were the ordinary law and consequences of an ordinary partnership - it was to escape from these, that joint stock companies were invented. That was the very cause and reason of their existence.

At first they existed under the favour of the Crown, which gave them charters of incorporation, and nobody ever supposed that the holders of stock in the Bank of England or the East India Company had anything to do with the law of partnership, or were partners.

But there were large societies on which the sun of royal or legislative favour did not shine, and as to whom the whole desire of the associates, and the whole aim of the ablest legal assistants they could obtain, was to make them as nearly a corporation as possible, with continuous existence, with transmissible and transferable stock, but without any individual right in any associate to bind the other associates, or to deal with the assets of the association.

A joint stock company is not an agreement between a great many persons that they will be co-partners, but is an agreement between the owners of shares, or the owners of stock, that they or their duly recognized assigns, the owners of the shares for the time being, whoever they may be, shall be and continue an association together, sharing profits and bearing losses. No shareholder in a joint stock company is, in the legal sense of the word, any more a partner than the owner of bank stock is; he may not have the same limit of liability, but in every other respect he is the same; he has the same right to take part in public meetings of the body, he has the same right to elect or remove directors, he has the same right to vote for or against the resolutions of the body, he has the same right to such dividends as may be declared, and he has the same right to dispose of his share as a separate and distinct piece of property, and no other rights in or over the association, its assets, or its transactions, and if he is liable under any contracts or obligation, or in respect of any act of the body, it is not because they are the contracts, obligations, or acts of his partners or partner, but because they are the contracts, obligations, and acts of the quasi body corporate (under present legislation the actual body corporate), by its properly constituted agents. It may be, and generally is, no doubt, that the agents, the directors, are shareholders, and in that sense partners, but it is certain that there may be a board of directors perfectly competent to bind the whole body, although every one of them may have disqualified himself by parting with every share.

Starting then, with this view of the relation which exists between the associates in a joint stock adventure, the presumption is that the death of a shareholder makes not the slightest difference, either in right or liability; that the executor of a deceased shareholder, who succeeds in point of property to the share, takes it (of course in his executorial character) on exactly the same terms and conditions as every other owner of a share - equal benefit, equal liability; and the deed has therefore to be scrutinized, not to see whether it gives or creates such equal benefit and liability, but whether it takes away the one or releases the other.

Now when we come to examine the deed, which is substantially like all other joint stock deeds, it seems to me clear that, so far from excluding it does in every clause, from beginning to the end, attach the same liability to executors as to others:- [His Lordship then referred to the 1st, 190th, 203rd, and 208th clauses, and continued:-]

The only difference made with respect to executors is that, although they are talked of throughout as "holders of shares," they are talked of as only having a right to become "shareholders," and they are not actually to receive dividends, or to exercise any right in respect of their shares until they shall have either got themselves or procured other persons to become formally registered as shareholders, having duly bound themselves by covenant to the articles of association.

The object of these provisions is so plain, so reasonable, so natural, that it is impossible to draw from them any implication adverse to the conclusions to be drawn from the nature of the association or the rest of the deed. The dead shareholder remains - that is, his estate remains - a member, but the association would of course like something more than a dead man or an estate; they would like a living member, actually bound by personal covenant like all the others, and so they put this pressure on the executors:

"You cannot actually draw out the property, you cannot vote, you cannot exercise any other right;"

but they do not forfeit the shares, they do not absorb them, they do not even suspend the dividends; the share remains untouched, all dividends declared are declared upon the executor's share like all others; whenever he chooses to deal with the shares the dividends are there for him, and if the company were to be wound up and to wind up prosperously and not disastrously, those dividends would have to be paid to the executor before any distribution of capital, and in the final distribution of capital the executor's share would be credited with the same quota as every other holder's share. It appears to me, therefore, that on every principle of equity, as well as on the plain construction of the deed, it is impossible to draw any distinction between the dead shareholder's estate and the living shareholders', as to the extent and measure of liability.

I have so far expressed my opinion without reference to authorities, but it appears to me that the case is abundantly concluded by authorities. I am unable to draw any substantial distinction between this case and Blakeley's Case: ^[F16] the only verbal distinction is, that in specifying the circumstances under which a shareholder is to be discharged, the clauses in that company's deed contained those negative words "and not till then;" words which, in my judgment, add nothing to the real meaning of the provision.

It has, indeed, been pressed upon me that the authorities only conclude that which comes within the very terms of the covenant: that a man's executors are liable to that which he has covenanted for; but that the liability to a winding-up call is not a liability under the covenant, but a liability arising out of the partnership relation. That, in truth, is repeating in another form the main assumption which I have dealt with. The winding-up call is for the purpose of obtaining the proper contributions from all the owners of shares, whoever they are, to provide for the losses and expenses which have fallen upon the association at large; and there is no ground, in my judgment, for making a distinction between a representative owner and any other owner. This, too, is concluded by authority, and by the authority of the Master of the Rolls himself: Turquand v. Kirby. ^[F17] In that case the claim was for the entire call, and there was no suggestion that the estate was to be released from everything since the death, which would probably have reduced the demand to something very small, if not to nothing.

I have taken some considerable time to consider this question. I have felt that I might be misled by knowing what I, as the draftsman in my early professional life of more than one of these deeds, knew to be the intention of the draftsman - at least my intention as draftsman; but, on the fullest consideration, I cannot bring myself in the result to entertain any doubt that that intention is sufficiently and clearly expressed, and that it is in accordance with the truth and honesty of the case. I am obliged therefore, to discharge the Master of the Rolls' order so far as it imposes any limit or condition on the liability of the executrix, and to declare that she ought to be put on the list simplifier as a contributory, of course in her character of executrix, and so as to make her liable in respect of assets.