Commonwealth Homes and Investment Company Limited v Smith [1937] HCA 73

Commonwealth Homes and Investment Company Limited v Smith [1937] HCA 73 - HCA 1937 case summary — Zoe

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a prospectus in the office of the Registrar of Companies, but this prospectus (so far as the company knew) was never printed or issued to the public. About 21st September 1925 a prospectus was issued which varied from that on the file. On 30th September 1925 applications for 2,000 shares were received and allotted in addition to those allotted to the subscribers to the memorandum and articles of association, and at this date no other shares had been allotted. At some time subsequent to 30th September 1925, a document was issued which was stated to be an abridged prospectus, and which invited persons to subscribe for shares. This was not filed. This document stated that "a further 25,000 shares are now being offered for subscription in South Australia," and that "the full prospectus can be had on application at the company's office." The document stated no minimum number of shares that must be applied for before allotment. It did not state that the vendor was receiving 5,000 fully-paid shares and £1,000 in cash, that he was to be employed by the company at £500 a year for the first year and £1,000 a year for the following four years if he so desired, that he was entitled to five per cent of all bond premiums received by the company, and that he was entitled to five per cent of all profits made by the company on bonds. The document was distributed in South Australia. Attached to the document was a printed application form for shares. Just prior to Ist July 1927 the managing director of the company interviewed the plaintiff at his home and left with him a copy of the abridged prospectus. Asa result the plaintiff applied for 500 shares, paid £50 in cash and gave a promissory note for £200. The plaintifi's name was entered in the register of members on Ist July 1927, although the shares were not allotted to him until 15th July 1927, when he was advised of the allotment. On Ist July 1927 16,455 shares had been allotted and £7,712 1s. had been paid thereon. On 15th July 1927 16,455 shares had been allotted and £8,062 1s. had been paid thereon. On 3rd October 1927 26,455 shares had been applied for and allotted and £10,562 1s. had been paid thereon. On 11th May 1928 the plaintiff's scrip was signed and sealed, and it was sent to him on the same day. On 24th September 1928 the company sent a letter to the plaintiff stating that the South-Australian quota

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that number according to the offer and acceptance. To my mind there is no magic whatever in the term ' allotment ' as used in these circumstances. It is said that the allotment is an appropriation of a specific number of shares. It is an appropriation, not of specific shares, but of a certain number of shares. It does not, however, make the person who has thus agreed to take the shares a member from that moment; all that it does is simply this - it constitutes a binding contract under which the company is bound to make a complete allotment of the specified number of shares, and under which the person who has made the offer and is now bound by the acceptance is bound to take that particular number of shares." The law is clearly stated in Halsbury's Laws of England, 2nd ed., vol. 5. pp. 253, 254: - ''In most cases the contract with the company is constituted by an application being made by the intend- ing shareholder to the company for an allotment to him of so many shares. and by an allotment being made, and notified to him. The application is an offer by him to take a certain number of shares, and the allotment by the company is an acceptance of the offer." When. therefore. sec. 226 provides that the allotment shall not be binding upon the applicant, it must mean simply that the allot- ment does not operate as the acceptance of the offer of the applicant so as to create a contract by him to take the shares. In other words, the allotment is ineffective in law to impose any obligation of any kind upon the applicant. Ordinarily an allotment is binding, not because it is some specific and particular act called an allotment, but because it is an acceptance of an offer and results in the forma- tion of a contract. Then sec. 26 of the Act would come into opera- tion. This section provides that "every . . . person who has agreed to become a member of a company, and whose name is entered on the register of members, shall be deemed to be a member of the company." Where the allotment is the only acceptance of the applicant's offer upon which reliance can be placed to establish an agreement to take shares, and where the allotment is not binding upon the applicant, the necessary and inevitable result is that the allotment is not effective to create an agreement to take any shares,

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become a party to a contract and would have agreed to take the shares and would have become a member of the company. It would therefore have been necessary for him, in order to obtain any relief, to get his contract to take shares set aside, because the entry of his - name in the share register would have been supported by an actual though possibly voidable, agreement to take shares. But, unless the plaintiff accepted the counter-offer, there was certainly no con- tract. He might have accepted it by simply saying that he accepted the shares or by any conduct showing that he accepted the shares, such, for example, as paying a call or taking a dividend or otherwise acting as a shareholder. The plaintiff would then have been bound, not because the allotment was binding, but because he had accepted the counter-offer constituted by the allotment. What would bind him would not be the allotment, but the acceptance by him of the allotment. j Whether a person has accepted an offer is a question of fact. If a person in fact accepts an offer, the offer being capable of being the foundation of a contract, he has none the less made the contract because he was deceived as to some aspect of the transaction, or because he was not aware of all the circumstances in which the offer was made. In the present case, for example, the plaintiff was not _ aware of the provisions of sec. 226, and he was not aware that the minimum number of shares mentioned by that section had not been applied for. But his ignorance of these matters would not have prevented an acceptance of the counter-offer contained in the allot- ment from constituting a contract if in fact he had accepted it. The knowledge of the plaintiff would be most material in considering questions of acquiescence, waiver, ratification and the like. But it cannot be material in considering whether or not he has accepted - an offer. In this case, however, the plaintiff did nothing from which - an acceptance of the counter-offer contained in the allotment can be inferred. He did receive scrip for the shares, but this fact cannot be relied upon as amounting to an acceptance of an offer. In the law of contracts silence does not give consent (Felthouse y. Bindley

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Judgment (129 paragraphs)