Joseph v Campbell (Liquidator of the London Furnishing Company Limited (In Liquidation)) [1933] HCA 34

[30]

shows that shares allotted to the appellant were paid for either by stock supplied, or directly by cheque for £1,800. Payment by cheque is payment by cash, and is operative from the time the cheque is handed over. It is a payment which is effective unless it is shown that the cheque was dishonoured. It follows then that the shares in question were paid for in cash. The transaction was carried out honestly and the liquidator has not discharged the burden which lies upon him of establishing a specific fraud. The cheque for £1,800 received from the appellant by the respondent company must be taken as a cash payment for the shares, which therefore, must be regarded as fully paid up. The payment for the shares was actually received by the company. What the company did with the money after its receipt is immaterial. The surrounding circumstances do not disclose any fraud on the part of the appellant. The facts show that there was in law an under- taking by the respondent company to indemnify the prior owner of the business against the debts which had been incurred in respect of that business. That implied indemnity warranted the payment made by the respondent company, which by virtue of that indemnity owed the money on account of the business taken over. The company cannot be said to have acted ultra vires, improperly, or fraudulently by reason of having paid all its debts before due date. If fraud is alleged it should have been charged in clear and definite terms (Salomon v. Salomon & Co. (1); Larocque v. Beauchemin (2)). The fact that the appellant took exactly the number of shares necessary to liquidate the company's obligation shows that his object was to assist the company, not to control it. He could have achieved the latter object by taking a much smaller number of shares. When used by laymen, accountancy terms, e.g., book- entry, cross-entry, should be given a liberal interpretation. The entries here in question are adjusting entries and, without more, are not fraudulent (In re Washington Diamond Mining Co. (3); Spargo's Case (4) ). Payment is effected as soon as the cheque is received by the payee (Marreco v. Richardson (5) ). The parties

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in the discharge of its liabilities or for some other legitimate purpose. Tn other words, has share capital been paid but applied in the acquisition of assets or the discharge of liabilities ? If the Company had been registered on or before the date when the business was commenced, and the cheque for £1,800 in favour of L. Joseph Pty. ltd. had been given in respect of stock-in-trade supplied by it, we think no doubt could be entertained of the propriety and efficacy of the transaction. But, because the registration of the Company was delayed, the Proprietary Company advanced the sum of £1,000 and supplied goods for the purpose of the Newcastle business. When the liquidating Company took over the business as a going concern a formal agreement might have been made imposing on the Company, as part of the consideration for the acquisition of the business, the obligation to reimburse the Proprietary Company in respect of these advances and goods, and in that case, we think that there could have been no doubt that the shares would have been effectually paid up. But the transfer of the business to the new Company was "accomplished merely by putting the Company in possession of the enterprise, and was accompanied by no express statement of the terms upon which it was done. Did it involve the Company in any implied obligation to discharge the debts of the business, or to reimburse the expenditure incurred in connection with it? In the judgment appealed from, Harvey C.J. in Eq. answers this question in effect, by saying that it is a reasonable inference that the Company took over the business on a " walk in, walk out " basis, indemnifying the appellant against any liabilities which he had incurred up to the date of the Company's taking over the business and that his Honor believes this is what would be held to be the implied contract. We agree that a contractual relationship was created between the appellant and the new Company, but we think the obligation implied is a little more than mere indemnity. When the affairs of two or more companies or enterprises are governed by the decisions of one mind, the absence of any formal expression of an intention to contract often means that no contractual intention existed. But, in the _ present case, the plan upon which the transaction proceeded is clear, and, in our opinion, that plan necessarily involved the assumption of obligations on the part of the Company. The plan was that the

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Rich J. the receipts, whether of capital or revenue, its receipts; and the Metiernan J, expenditure, its expenditure. The first balance-sheet was made up as for an accounting period beginning at the end of January when the business was established and before the Company was incor porated. Even apart from the oral evidence and depositions, all this makes it clear that there was a real intention that, in acquiring the benefit of the business, the Company should do so upon terms that it should bear all the burdens incurred as from the establishment of the business which was set up in anticipation of the Company's formation. Those burdens had necessarily been imposed upon the appellant, and the books, particularly the private ledger, show that - they were considered as undertaken by the Company. The true implication is, we think, that the Company should reimburse the moneys provided and discharge the expenditure incurred pending its registration. In the accounts the sum of £1,800 represented by its cheque of 18th April 1928 is treated as a payment on account of the liabilities of the business to Louis Joseph Pty. Ltd., incurred from 28th January to 31st December 1928, that is, by the successive proprietors for the time being of the business. Among these liabilities are included the advance of £1,000 and the price of the goods supplied. Tt follows that the payment should be taken as made in intended discharge or recoupment of these sums. The books of Louis Joseph Pty. Ltd. are not in evidence, but we do not think we should assume that the payment was not there credited accordingly. In these circumstances we are of opinion that the cross-cheque was given and used to discharge an actual liability of the Company incurred in the acquisition of its assets. The result appears to us to be strictly in accordance with the policy of the company law, because the actual outlay incurred in establishing the enterprise for the benefit of the intended Company was thrown against share capital and this was done when the enterprise was fresh and before it underwent any material change or deterioration. Although payment and counter-payment by cross-cheques may raise suspicion, -

Joseph v Campbell (Liquidator of the London Furnishing Company Limited (In Liquidation)) [1933] HCA 34 - HCA 1933 case summary — Zoe

At a glance

Court

Decision date

Source

Judgment (63 paragraphs)