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Decisions of the Superior Courts of New South Wales, 1788-1899

Irving v. Roberts (1843) NSW Sel Cas (Dowling) 82; [1843] NSWSupC 13

contracts, total failure of consideration,  company law

Supreme Court of New South Wales

Dowling C.J., Burton and Stephen JJ, 4 November 1843

Source: Dowling, Select Cases, Vol. 7, S.R.N.S.W. 2/3465, p. 242

Where money is paid under a contract to buy shares in a company when practicable, and the company stops business before the shares can be transferred; held there was no failure of consideration where the purchaser pays his money with full knowledge of the risk he was running in entering the contract.*

This was an action of assumpsit for money had and received by the defendant to the plaintiff's use. Plea that the defendant did not promise in manner and form. At the trial before Burton J. and a special jury on the 25th May last, the plaintiff was nonsuited. On moving last term to set aside the nonsuit and to obtain a new trial, the material facts appeared to be these.

The action was brought to recover from the defendant the amount of money paid to him by the insolvent as the price of certain shares in the "The Sydney Auction Company", but which had never been transferred, according to agreement. By the Auction Company's deed of settlement dated 1st January 1840 it was amongst other things provided, that no member of the company should hold more than 50 shares, except if they came to him by descent or by marriage, and it is so further provided by another clause that no shares subscribed for by original shareholders should be sold or transferred within a year from the date of the deed, provided that the directors of the company might purchase shares belonging to persons becoming insolvent within that time, and it was dictated that all shares purchased beyond the number of 50 were to fall into the company's general stock.

The insolvent was an original subscriber for 50 shares, and signed the deed of settlement on the 13th February 1840 with full knowledge of its contents at the time of the transaction in question. In June 1840 the defendant bought some shares of which Brown was the original holder and entered into a treaty with the insolvent to become the purchaser. On the 29th June 1840 , within the year from the date of the company's deed, the insolvent purchased of the defendant and ultimately paid for 55 shares, which had belonged to original shareholders. The transaction was evidenced by receipts, for the shares in question indorsed by the defendant undertaking "to transfer them when practicable by the Auction Company's deed".

After the purchase of the shares, the insolvent paid a call of £2 on them, upon a representation by the defendant that if the original holders were called upon to pay, the latter would sue him for the amount and he accordingly paid £165. The insolvent in his examination admitted that at the time he paid his money for the shares, he knew that they could not be transferred to him before the expiration of a twelve month. It was proved that no transfer of any original share had been allowed by the company or made since the latter end of November or beginning of December 1840. Before the expiration of the year commencing the lst January 1840 the company was dissolved or ceased to carry on business, and only now existed for the purpose of winding up its affairs.

It therefore never became practicable by the Auction Company's deed, to transfer the shares in question to the insolvent, and now his trustees sought to recover back the purchase money as for an entire failure of consideration. The learned Judge ruled that the action was not maintainable; first, because the insolvent had purchased shares which at the time were not transferable and might never become so with notice therefore of the facts, and secondly, that even as between two innocent parties he should decide that the holder of the shares must be the loser, but a fortiori, the insolvent must be the loser, for he being himself an original member of the company must be taken to have had full knowledge of the fact that the shares could not be transferred within a year, and consequently could have no locus standi in curia. His Honor was also of opinion, that if this form of action be resorted to instead of a count on the contract, still the same facts must be proved as would entitle plaintiff to recover or a special count if so stated, which he had not done. He therefore directed a nonsuit.

In support of the action for setting aside the nonsuit and granting a new trial it was contended, lst the evidence in the case ought not to have been withdrawn from the consideration of the jury, and 2nd that the action was maintainable on the ground that there had been a total failure of the consideration for which the insolvent had paid his money, or that his knowledge of the contents of the deed of settlement had nothing to do with the matter.

Dowling C.J. We have considered this case, and think the nonsuit right. There is no disputing the general principle that where the consideration for a contract entirely fails, the money paid under it may be recovered back, and the suffering party need not declare specially, but in this case we must not lose sight of the nature of the contract, and who the parties were, at the time it was entered into.

First as to the parties. The insolvent being himself a shareholder in the Auction Company, and knowing of the prohibitions contained in the deed of settlement signed by him, against holding more than 50 shares and against transferring shares within twelve months, enters into a contract within twelve months to buy shares of whom? Not of another member or shareholder of the company who might be said to be in pari delicto with him, but with the defendant, who for this purpose must be considered a stranger who has no control over the actings or conduct of the company. So much for the parties. Secondly what is the contract? That the shares shall be transferred when practicable - not that it shall be practicable. There is no covenant or guarantee for absolute title. All that the defendant says is I am willing to transfer when practicable, by the deed of the company's settlement! It has become impracticable without any fault of his and consequently there is no failure of consideration. He has fulfilled his contract so far as in him it lay.

The utmost that can be said is that the insolvent buys, with his eyes open, a contingency and takes the chance of its being practicable, he becomes his own insurer - he knows that the contract is void by the deed of settlement at the time he enters into it - and speculates underhandedly to become the possessor of a larger share in the venture than he can lawfully hold. It is impossible to say out of consideration, the relation which the insolvent himself bore to the company. He cannot be said to be an innocent purchaser of the shares without notice of the impracticability of transferring them upon a contingency which may happen, and over which the defendant has no control. He pays his money with full knowledge of the risk he is running. There is no deception or fraud practised upon him. But has there been an entire failure of consideration? There was some evidence that at the time of this transaction these shares were saleable, and other persons might have bought them upon the same risk which the insolvent himself had incurred.

We must look upon this as a mere speculation in a supposed profitable concern, with one who is no party to it - no holder of original shares. In another point of view, however, does it lie in the insolvent's mouth to charge the defendant with a breach of contract? The only contract was to transfer when practicable by the deed of settlement. The company stops business within the twelve month. The insolvent is one of the company, and must be legally answerable for the acts of his co-partners. He is responsible for the acts of the company, and he must be looked upon as having prevented the defendant from performing his contract by rendering it impracticable for him to transfer. Can he now therefore take advantage of his own wrong? When practicable is the condition of the defendant's contract. In the eye of the law the insolvent defeats that condition by dissolving the company.

As the defendant never guaranteed to be in a condition to assign and transfer, we must regard the money paid by the plaintiff as paid to his own use, and as there is no privity between the defendant and the company we think the action not maintainable.

Rule refused.

Published by the Division of Law, Macquarie University