OPTION ON SHARES

Dominion, Volume 11, Issue 262, 24 July 1918, Page 8

OPTION ON SHARES

liluiil iU MMIUJL

A PECULIAR TRANSACTION

In tho Supremo Court yesterday His Honour Mr. Justice Hosking delivered reserved judgment in the case of Henry Norman itell, of Auckland, against Ellis and .Wanton, inerchants, of Wellington, in respect to certain, company shares. The plaintiff was tlie founder* of and a shareholder in a. public company called Murray's Limited. Ho later on became, the promoter and director of and a shareholder in a private company called Hie New Zealum! Packing Company, 'Limited. 'J'ho defendants also held shares in this company. It was a. company formed in I!H3 to manufacture some food products according to some special patented method, and in 1015 the plaintiff stated that I lie company had a fairly prosperous future, jt was then expected that certain Government contracts would be procured, and ior this purpose further capital to tho extent of .£6OOO was required. It. was sought to raise this by olfering preference shares to the existing members ot the company. Some, including tho defendnnts, did not lake up their quota. Later on ,-t Clirislcliiuvli firm agreed to take a large nuiiilxT, provided they wen , able subsequently to ne.H par-L-eU. As the company \vu.s a private company, the number of its niembtM was by Jan- restricted to twenly-five, so that mi unlimited parcelling out of the shares was impossible. The Christchurch firm therefore required a margin within which they uiijjiit sell and transfer. To do this plaintiff formed the plan of concentrating in his own name shares held by existing members, so as lo reduce the number of members on the register, and allow mom for the Christchuicli firm to operate. He arranged with tho dtfendiiins, amongst others, to exchange for a period nf three year;) tho shares they held. Tho defendants accordingly transferred their shares to the plaintiff on May l<, 1915, and at the 6anu> time (lie plaintiff Iraiisferied to the defendants Hiiw hundred of his shares in Murray's Limited. The shares in both companies were ,CI shares, those in llio Murray Company being paid up to IKs., anil those in the Packing Company to 17s. (id. The transfer to the defendants amounted to a security to them tor the return of their shares in Hie Packing Company. On July 8 tho plaintiff wrote to the d'efomlauls the letter embodying the terms of tlie transition—in older' words, thu contract sued upon, in this idler plaintiff said:—

That I nm agreeable to giving you' the option on expiry of the financial period above referred 10-Sepleinber .'HI, 19IS—of taking (he three hundred .Murray's shares referred to in full consideration for tho threo hundred Xe«- Zealand Packing Company's shares wher all diviiliOuU paid will tlieu he payable to the registered holders of such shares. Tbo Packing Company lost all its money, and went into liqtiidaliun iji August, WIG, and was fully wound up and dissolved by operation of law on April 3(1, 11)17. Tho balance unpaid on its elinres was called up iu the liquidation, and a demand made on the defendants as registered holders for tho amount called, i' 37 Ills., which the defendants ultimately paid, and sent Hie plaintill' a letter, iii which, referring to the contract, they said that there was no stipulation in tli'u agreement regarding the payment of calls in tho re:-pi'i-cive companies, and said: "We nre i|iiiin willing to pay the amoiinl lo Hid Xew Zealand IVlung Company, and at ||»y samu time lo »ivi! ynii nolici' that we elect to retain 'the tlirep liniidivd shares (Murray's) transferred by you in radiiuigo for Hie three hundred racking Company shares which you took iivi-r from us."

Tin , plaintiff claimed that the three, hundred shares in Murray's Limited were his properly, and nsked the Court to w der Hull they bo transferred lo him. The contention of tho plaintill' ivss that the shares in the Packing Company had Kono out of existence, and would not bo in existence on September.3ll next, and therefore tho option had ceased lo l>9 oxcrcisnble.

His Honour, al'lr-r dealing with recent decisions applicable- to llio case, and Hie law biMrinj; tin the matter, paid: "The imrtii's must have runlised from Hie riui.-icl, if fluy thought about it lit all, Hint the worse tho condition of I lie Packing Company xliares became the more likely it nould bo Hint tho option would be, exercised. Jt would be an unreasonable vii'w to (iiko (.hat onlv if the shares remained of the same 'relative value at iho end of Iliren years was the. option to be exercised." Confiiniiiijf, ilk Honour said that plaintiffs' claim really amounted lo this: "True, you, tho defendants, did all you bad to do to ensure llu' .benefit I promised you by the contract, but the shares 1 was to become Hie owner of have (although without lault of yours) become worthless, because they no longer exist. I therefore claim to be exonerated from my promise." It wns argued that tie option was without consideration, and merely gratuitous. His Honour held that the of Hie option wus special in this case. The contract was a simple one, nnd might be put colloquinlly as amounting lo this: "Jf you (Hie defendants) lend me (the plaintiff) the Packing Company sliiircs for three years, I will put the Murray sharos iii your names in the meantime, and at tho end of that time you can keep them if you like, or have the Packing shares back." Nothing more was In be done, if ut: (lie proper lime llio defendants said: "Wu wish to keep the Hurray shares." His Honour bold that lie was unable to const rue Hie. contract us remitting (ho actual existence of Hie shares a condition dependent on (he existence of the shares. Tin? action was dismissed with costs on the lowest; sciilo. At lirj hearing Mr. M. Myers appeared for.the plainliir. unt | Mr. T. Shnilcr Mestoti for the defendants.