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Cite as: [1878] ScotLR 15_384, [1878] SLR 15_384

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SCOTTISH_SLR_Court_of_Session

Page: 384↓

Court of Session Inner House First Division.

Tuesday, February 26. 1878.

15 SLR 384

Cowan. Official Liquidator of The Edinburgh Theatre Company, Petitioner (Shaw's Case).

Subject_1Public Company
Subject_2Liquidation
Subject_3Compensation by Account Due, where Calls on Shares sued for.

Proof
Subject_4Discharge — Verbal or Written.
Facts:

Terms of a verbal agreement between the chairman of a limited company and a creditor, who was also a shareholder of the company, and in arrear of calls on his shares, held irrelevant to infer a crossing of the claim for arrears of calls by the debt due to the shareholder, so as to entitle him to set the one against the other when the company came into liquidation.

Question whether compensation whereby two debts are discharged can be proved verbally, the mutual obligations having been constituted in writing.

Headnote:

This was another case ( vide Gowans' case, ante, p. 315), arising in the petition by the official liquidator of the Edinburgh Theatre Company to settle a list of contributories. The official liquidator proposed to put Mr Shaw on the list for thirty shares, and stated the amount due by him for arrears of calls on these shares at £255. Mr Shaw objected to the amount set down as due by him, and claimed to be entitled to set against this demand a sum of £215, 15s. 6d. due to him by the company. The balance of £39, 4s. 6d. he was willing to pay. The cross claim arose in this way—Mr Shaw was, like Mr Gowans, one of the contractors for the building of the theatre, and averred that he had subscribed for thirty-one shares on the understanding that his claims for work done were to be set against the company's claims for calls.

Mr Shaw, in his answers to the liquidator's petition, averred further, that his “work was executed in the months of December 1875 and January 1876, and an account therefor, amounting to £215, 15s. 6d., was shortly thereafter rendered to the company, and was not disputed. It was subsequently, on 7th December 1876, certified by the company's architect that the respondent was entitled to receive
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under his contract the said sum of £215, 15s. 6d., and this sum accordingly became at that date a liquid debt due by the company to the respondent. At the second statutory meeting of the company, held on 14th October 1876 (the respondent being at that time in arrear of calls to the extent of £210), the matter of the accounts due by the company to the respondent and certain other contractors who held shares was brought before the meeting, and the respondent put publicly to the chairman of the directors the question in what position the respondent and the other contractors were to be placed as regarded their arrears of calls. The answer made by the chairman, with the authority of the directors and with the approval of the meeting, was that the two amounts would be set off the one against the other, and with this the respondent expressed himself satisfied. There had been shortly before a meeting of certain of the contractors with Mr Mitchell, the law agent and a director of the company, at the latter's office, and at this meeting a similar question was put to Mr Mitchell, and the same answer was given.”

This transaction, the respondent maintained, amounted to a crossing of the claims due to the company and to him as a contractor, and extinguished both. He asked for a proof of his averments as to what passed at this meeting. If receipts had been exchanged or a document written out at that meeting (February 8, 1868), this would have been Habershon's case over again—L.R. 5 Eq. 286; Lindley on Partnership, 1358. Now, here the respondent could prove an agreement which was equivalent.

It was answered for the petitioner—All that the averment amounted to was, that an agreement was made to set the accounts against one another at some future date. Besides, if it were relevant, it was not competent to prove it verbally.

At advising—

Judgment:

Lord President—The only point of distinction between this case and Gowans' case, which we disposed of lately, consists of an averment of something that passed at a statutory meeting of the company on 14th October 1876. At this time the company was owing accounts to a number of tradesmen, and among the others to the respondent. The amount of his account, as ultimately ascertained, was £215, 15s. 6d.; but it seems to have been necessary, or at all events it was contemplated, that that sum should be certified as due by the architect; it was not so certified till two months after this meeting had been held. It was in that state of matters, the company being in a state of considerable embarrassment, for they had failed, as we know, in the previous spring to obtain a subscription of new capital, that the respondent put a question to the chairman, which is thus expressed in the respondent's answers:—“The respondent put publicly to the chairman of the directors the question, in what position the respondent and the other contractors were to be placed as regarded their arrears of calls. The answer made by the chairman, with the authority of the directors and with the approval of the meeting, was that the two amounts would be set off the one against the other, and with this the respondent expressed himself satisfied.” It was conceded in argument, and as there is no averment on the subject we must take it for granted, that nothing followed this. There is no mention to be found in the minute-book of what is said to have passed at this meeting, and there is no entry in the books of any set-off. The register of the company bears that the respondent was in arrear of calls upon his shares. The ledger and the subsidiary books of the company represent him, on the other hand, as a creditor of the company for work done to the amount of £215, 15s. 6d., but these liabilities are nowhere set off against one another. It is said that what passed at this meeting of the company operated compensation.

Now, in the first place, I am of opinion that there is no allegation of any verbal agreement. There is a question put as to what will happen to the debts due to the various contractors. “Oh, ” says the chairman, “they will be set against the calls.” Does that extinguish the debts? To operate compensation both debts must be extinguished when an agreement is made between parties to set off one debt against another, and that is final; there is of necessity a mutual discharge of the debts. Unless the debt of the respondent is extinguished, the liquidator cannot strike him off the list of contributories. Now, while I am of opinion that the allegation here is so vague as to be irrelevant to infer any such agreement, I entertain the greatest doubt as to whether one debt or two debts can be discharged verbally. One debt cannot be so discharged; there must be a discharge in writing; and how two debts can be discharged by a verbal agreement to set the one against the other I do not understand. It is not necessary to decide that however, for there is not here any competent allegation of an agreement to set one debt against another.

Lord Deas and Lord Mure concurred in thinking there was no relevant averment of any agreement.

Lord Shand—The entry in the books of the company founded on by Mr Shaw was made in January 1877, several months after this meeting. If it had been of the nature of a crossing of the claims, that would have been sufficient to entitle him to succeed, but the sum in question enters the books in no other way than as a recognition by the company of their indebtedness, in the same way as the debts of all the other creditors do. As the books do not afford any ground for the averment of the entries having been crossed, what else have we. There must be a transaction by which the debt due on calls is set against the debt due for work done. But there is nothing of that kind here; all that the chairman's answer amounts to is, that it is the intention of the directors to transact with their creditors on the footing that their claims are to be set against what is due on calls. That becomes all the more apparent when I find that about this date there were a number of persons—nine, I think, in all—who were creditors to an amount of £11, 000, in the same position as Mr Shaw. I am clearly of opinion then that there is no averment of such a transaction as will effect a crossing of the liabilities.

I agree with your Lordships that it is not necessary to decide whether the extinction of one debt

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by a counter-claim in this way can or cannot be proved by parole. My impression—but it is only an impression—is, that as that would amount to a discharge of the debts on both sides, it is only competent to be proved scripto.

This case differs from Habershon's case in this respect, that there there was a meeting of directors at which the matter of the counter-claims that existed was taken up, and it was agreed to discharge the claim for calls by the claim due to Mr Habershon for fees as architect of the company, and that transaction was followed by an exchange of receipts, by which one debt was set against the other and both extinguished.

The Court pronounced an interlocutor repelling Mr Shaw's objections, and decerning against him to make payment of the sum certified to be due by him, with interest at ten per cent. till payment, in terms of the 121st section of the Companies Act 1862, and of article 16th of the articles of association of the company, and finding him liable in expenses.

Counsel:

Counsel for Liquidator— Balfour— Pearson. Agents— Cowan & Dalmahoy, W.S.

Counsel for Shaw— Trayner— Mackintosh. Agents— Lindsay, Paterson, & Co., W.S.
1878