N. Stephen V Buildco (Nig) Ltd (1968)
LawGlobal-Hub Lead Judgment Report
BRETT, J.S.C.
This is an appeal against the judgment of Bate J. given in consolidated suits JD23 and 49/65 between the two parties. Briefly, in 1961 Mr. Nageb Stephen and Mr. Mustafa Hussain Said agreed to form a private limited company for the purpose of carrying out building contracts, and the company was formed with an authorised capital of 10,000 £t shares under the name of Stephen & Co. Ltd., later changed to Buildco (Nigeria) Ltd.
Stephen and Said were not among the subscribers to the Memorandum of association but they and Alhaji Ahmadu Arabi were appointed the fist directors of the company and the first board meeting was held on the 31st May, 1961, with Stephen and Said and the secretary of the company in attendance. The minutes record the appointment of bankers and auditors and then go on:-
“Allotment It was agreed to allot the Shares of Shares as follows:
M. Said 51%
N. Stephen 49%.”
Said paid for his shares in full in cash and received a share certificate reciting this fact, which Stephen signed. When Stephen was called on to pay for his shares he asked for time to find the money, but he never did pay for them and at a board meeting held on the 27th November, 1964, his shares were declared for-felted and it was noted that his office as director had been vacated on other grounds. In April, 1965, Stephen instituted suit No.JD23/1965 against the company, asking for the restoration of his shares; an account a declaration that he was still a director: and £10,725 damages.
In August, 1965, the company instituted suit No. JD49, 1965 against Stephen, claiming two sums of £75,018.19s.0d. and £690.2s.9d. In his judgment in the consolidated suits Bate J. dismissed Stephen’s claims entirely and gave the company judgment for £15,018.19s.0d. with costs. By his amended notice of appeal Stephen asks for a reversal only of the part of the judgment which dismisses his claim for the restoration of his shares.
In support of the appeal Mr. Impey relies on the rule that a limited company cannot ratify or adopt any contract made before its incorporation, and submits that while there may be evidence that Stephen and Said agreed, before the company was incorporated, that on allotment they should pay in cash for the shares they intended to take, there is no evidence of any such agreement between the company and the persons to whom shares were allotted at the meeting of the 31st May, 1961. He says that there is no presumption in law that the allotment of shares is for cash and that Alexander v. Automatic Telephone Co. [1900] 2 Ch. 56 shows that Stephen’s only liability would be to meet calls made in accordance with regulation 12 in Table A, which reads:-
‘The directors may from time to time make calls upon the members in respect of any moneys unpaid on their shares, provided that no call shall exceed one fourth of the nominal amount of the share, or be payable at less than one month from the last call: and each member shall (subject to receiving at least fourteen days’ notice specifying the time or times of payment) pay to the company at the time or times specified the amount called on his shares.”
Bate J. accepted the evidence of a previous agreement between Said and Stephen and held that the shares were allotted on the terms of that agreement. What he said was:-
“I accept Mr. Said’s evidence that there was an oral agreement between himself and Mr. Stephen that the shares would be payable in full on allotment. I concluded that this was what must have been in their minds when they gave instructions for the company to be formed and when the company was incorporated. It is difficult to believe that the terms of issue were intended to be otherwise and that neither of the shareholders in the company’s small capital was under any obligation to pay anything for the shares on allotment.
From the foregoing I conclude that it was intended that the shares should be payable in full on allotment and that the shares were is-sued on those terms. Mr. Stephen’s shares were therefore payable in full on allotment and, since they were apparently issued at par, he owed the whole sum of £4,900 on allotment in May, 1961.”
The appellant’s argument affords a good example of the artificiality of company law, and it is hardly a matter for surprise if Said and Stephen overlooked the fact that a personal agreement made between them before the company was formed cannot by any process of ratification be turned into an agreement between the company acting through its directors, Said and Stephen, who were also to be its only shareholders, of the first part, Said individually of the second part and Stephen individually of the third part.
However, Stephen’s claim for the restoration of his shares presupposes that there was a binding agreement between him and the company and ff the terms of payment were not expressly set out they must have been agreed by necessary implication.
Alexander v. Automatic Telephone Co. was concerned with the liability of the subscribers to the memorandum of association, which was held to be governed by the Companies Act, 1862, but it was recognised that the liability of persons to whom shares were allotted by the company after its formation, which is the position of Said and Stephen, was governed by the agreements between them and the company. Common sense supports the view adopted by Bate J. that if at the board meeting of the 31st May, 1961, the secretary had suggested that an express decision should be recorded that the shares were to be paid for at once in cash Said and Stephen would both have said that that was taken for granted.
Alternatively, we should be prepared to regard it as an implied condition that the shares were to be paid for within a reasonable time, and three and a half years exceeds what is reasonable. We can see no ground for holding that the implied condition was that nothing should be payable for the shares until calls were made under regulation 12. The appeal is therefore dismissed with costs assessed at 36 guineas.
Other Citation: (1968) LCN/1596(SC)
