WHAT IS A BONUS?

Putaruru Press, Volume II, Issue 14, 17 January 1924, Page 2

WHAT IS A BONUS?

. IMPORTANT JUDGMENT. Affecting Sharemilkiiig Agreements. tSharcmilker Entitled fco Share of Total ilonus. An important judgment which wili affect many slmrondiking agreements through the- Waikato has been given by Mr. J. K. Salmon, S.M., in the case in which John Boagh Gemmed claimed from Hugh Magill, in the Magistrate’s Court at Te Aroha, a portion of a bonus to shareholders which the defendant, who was a shareholder in the New Zealand. Coop. Dairy Co., had had deducted from his cheque by the company for payment of instalments of shares. The defendant had only paid plaintiff his -have of the bonus paid to all suppliers that he had received. Mr. E. McGregor appeared for the plaintiff, anil Mr. G. Gilchrist for :1k- defendant. The judgment was a- follow - “ This is a dispute arising out of a -haremi'h'mg contract, and a claim. >nd counter-claim are before the* ;ouvt. The terms of the agreement between the parlies were not put rd.o v. riling, and there is a conflict of evidence as to those terms. On h-- point inure is only the evidence >f the plaintiff and the defendant. Vim plaintiff swears: ‘ 1 was engaged on terms one-third share of milk cheques, one-third share of bonus, and one-third share of calves and pigs.* in cross-examination he said: ; The terms of agreement between myself and the defendant were thirds of everything—third share of deferred bonus.’ Mr. Magill said: •'You’ll get thatv if you stay a year.’ The plaintiff was not shaken on the point. On the other hand 1 can only describe the defendant’s evidence on the point as extraordinarily unsatisfactory. The defendant in his evidence in chief stated: ‘ in May or •June, .1922, 1 put in an advertisement for a sharemilkev with a strong family. Plaintiff applied. 1 made the arrangement with plaintiff to pay him one-third of all I got from the company. T ran two . heds. The sharemilkev was to get one-third calves and one-third of the litters. 1 was to supply the sows.’ In crossexamination he stated: ‘ Gem ell’s term was to be from July 1 to June 30. Ho was to receive one-third of all money received by me from live company by way of butter fat.’ Tn giving his reply the defendant, possibly unintentionally or accidentally, included the word ‘ bonus ’ but corrected himself immediately. On two subsequent occasions 1 therefore put the question to the defendant: ‘What were the exact words used by you in making this arrangement with the plaintiff?* On the first occasion defendant replied ‘ I said you receive x third of all the cheques that I receive from the dairy company. T jrlon’t think bon uses were mentioned?* On the second occasion, at the adjourned hearing of the case, the defendant, in reply to the same question from the bench said: ‘1 said you receive a third of all cash received by me from the company.’ That is the evidence. The. plaintiff is an elderly >.r middle-aged man of considerable sharemilking exepvience. In view of the importance which would naturally be attached to the division of the bonus, f think the probabilities are strongly in favour of the view that the bonus, was mentioned, and I have no hesitation in accepting plaintiff’s version that the bonus was mentioned, though I think it probable that the bonus was first mentioned by the plaintiff himself in the course of the discussion. The defendant made the statement, and seemed to attach considerable importance io the fact that the arrangement deposed to by him was the same arrangement that he had made with all his sharemilkers from time to time, and that his arrangement with them was a verbal arrangement. T can only say that such a hazy arrangement must prove unsatisfactory in the extreme, particularly to sharemilkers, who are very often men of not particularly

good education. The defendant’s'present sharemilker, who was called as a witness' for the defence, stated that defendant employed him on one-third of what he could produce, third of calves, third of pigs, and a guarantee of £6OO. _ This witness admitted that he did not understand the bonus system, and in cross-examination stated that he did not know what payments he had received, nor what he was entitled to. This was his fourth season with the. defendant. “ The difference in the two versions as to the exact arrangement arrived at between the parties is, however, not of a very great importance, liecause it is clear upon the authority of Lawrence v. Handley that an arrangement to pay ‘ one third of all I’.iilk cheques,’ which is, f think, probably not so wide an arrangement as ‘ one third of all. I receive from the company,’ must be deemed to include one-third of all bonuses paid by the company in respect of the butter-fat supplied. The defendant, jnoreover, admittedly recognises a liability to pay to the plaintiff a proportion of the bonus. The real point in dispute, however, is whether the defendant is also liable te pay to the plaintiff one-third of the am aunt credited to him by the dairy company in respect of what is known as the ‘shareholders’ bonus,’ being a special bonus or credit at the rate of sd per lb on all butter-fat supplied during the : eason. credited only to suppliers who are shareholders in the company. 3 his special credit of sd per lb is made by the company to shareholders to cover calls of the same amount in respect of their liability- on the =hares issued to them. A shareholder in the butter branch, under the Rules or By-laws of the

company, must take up one share tor j every 701 b of butter-fat supplied by ; him during the season. Under the rules referred to the company may not allot shares 1( ' a supplier without his consent, unless lie be already a shareholder. If. however, he he al- S re tidy a shareholder, the company is j entitled under its rule- to allot him : nno -miii* in respect o*’ every 701l> oi . butt*-' fat implied. When' a da it a ; farmer commences supplying the compaiiv he has the option of saying j V fipilu Iv -si;-, -• if. lake up -Autre , | 1C q , a,,/-..; fake uo anv shares then ine e'lotmeiu nbo'e-niontion-.cl fol-j low- automatically, and since tin* to- 1 J.jj amount of butter-fat supplied by p;-,i'!ierilai- shareholder cannot be esm-riaiiv’d until i he. end of the scasom it follows that the allotment may be increas'd from time to time. A ,sc hold w not called upon to pay bj s m,;ivos in cash, though apparently tlv company retains the right to call up the amount due by him at any time. This appears to be a precautionary measure for disciplinary purposes, winch might, as explained by the acting-manager of the company, be exercised in the event of a shareholder leaving this company to supply another. The shareholders arc not, however, called upon to pay any cash upon allotment. The system of payment for shares is so arranged that, by making calls in respect of such share liability, and by crediting the shareholder with a special shareholder’s bonus against such calls —and it is agreed or understood that the amount of the call will never exceed the amount of the bonus—a shareholder’s) shares became paid up after a period of six years, the company in the meantime working on overdraft. The shareholder’s bonus, according to the evidence of the acting-manager, Mr. A. J. Sinclair. is now Ad per lb, and the call against that is sd, made up of 4d in respect of the shareholder’s liability on his butter shares, and -VI per lb in respect of his coal and timber shares. It is unnecessary to go at length into the matter of coal and timber shares, suffice to say that the company, in the ramifications of its business, and piobably for the benefit and security of its main operations, and therefore for the benefit of its shareholders and suppliers, has acquired a coal mine and a butter box factory, and the .shareholders therefore become also shareholders in these ventures. £ - Tim r-ha-ehobici, as already explained. is no! r-ade.l upon to pay cash for his shaves. b*u Pioc are paid for o r a. period of time by means of this svsteni of crediting a special bomo* o shareholders. The question then ;.ri - what in in* nature of the assert acqui r d by the shn« oholdors. and in ifiD con met. Vn 1 refer tt* the co of Mr. . I. Sinclair, v h ••• evidence generally furnished a very lucid explanation of the system. “ It is obvious thaUthe shareholder, apart from the probable benefits of being a shareholder in the company, acquires an asset in these shares, i This view is expressed by the com- ! pany itself on the cover of a pamph- ' lot. written by Mr. Sinclair, and published under the authority of the company, which was pul in evidence, whereon it is stated: * There is no compulsion upon any supplier to become a shareholder, (but e£ pays you to do so.’ * ShareholdeiV receive a special payment- over andyabove that paid to the non-shareholders. No initial payment is required in taking up shares, but ibis special payment accumulates year by year until the allotted shares an fully paid up, after which this special extra payment is made in cash. Shares thus cheaply gained are negotiable assets and are redeemable.’ Ir. the course of his evidence Mr. Sinclair stated: ‘ We are not a profit making concern. We endeavour to get the best prices for our produce, and after paying management and trading expenses and overhead charges we give suppliers the full benefit of. the prices realised. We do not build up a reserve fund.’ And in answer to further questions the witness stated: 4 The full prices received by us less management and trading expenses are credited to the shareholders. There are no fictitious credits made* against liability in respect of shares. We would actually have the money in hand before we would credit out shareholders with this shareholder’s bonus in respect of their liability on hares. Assuming that all. our shareholders were foolish enough to pay up the full amount of iherr liability on their shares, we would have lo distribute the cash.’

“In going so far into the financial methods of the company I have no intention of criticising the system, ft

is probable that the system confers very substantial benefits * .ipon .-hareholders. It has been necessary, however. to go into the matter to this extent for the purpose of ascertaining where the money; comes from that pays for these shares. It I> clear that these shares are not a gift from the company, and it is, clear also that the money which pay for these shares is part of the proceeds from the sale of butter-fat—money which, if not applied in diminution of the shareholder’s liability on his holding, would have to be distributed in cash. “ The defence relied to some extent upon a decision of this court delivered in 19.18 in the case of Burgess v. Brady. V do not know what information the court had before it in that case, but F cannot agree with the conclusion arrived at in that judgment. It was: argued for the defence that the case **f Lawrence v. Handley was distinguishable, because in ilmt case* the company paid no shareholder’s bonus, but only a dividend on capita! and a bonus on all butter(at supplied. It is true that that case presents some different features, but i 1 also, I think, lays down certain principles which are peculiarly applicable to the present case. 1 refer to the Following passages i n the judgment of His Honour Mr. Justice ITosking: ‘ Now from the knowledge which the courts have gained .from the litigation which have from time to time come before it in relation to contracts for milking on -hares, one might at mice safely surmise from the mention of milk cheques that the parties had in view the turning of the milk into money through the medium of the dairy fac-

tory.' And in another passage on the •same page Hi? Honour stales: • The cardinal principle of those companies is that the milk suppliers shall be shareholders, and that,, subject to the cost of manufacture and establishment charges and such other deductions as the constitution of the company allows, the shareholders shall get the full proceeds of their milk .* applies.’ 4 lt is payments, and not the mode of payment, which are aimed at by the reference to cheques.’ Reverting to the facts of the. present case, and assuming that the defendant's own version of the agreement were to be accepted, viz., that lie was to pay plaintiff one-third of all lie got from the company, then it is clear that the defendant got from the company the payments represented by credits applied by the company to the . reduction of his liability of shares purchased. Money is none the less ‘ paid ’ if it is in fact credited against an existing debt or liability, so long as it is so credited with the knowledge and consent of the person to whom it is payable. And. as we. have seen, the company actually had tivs money in hand—proceeds of the sale of defendant’s butter-fat—money due to the defendant which, if: his share liability had been extinguished, would have boon paid to him in cash, as admitted by the acting-manag’d’ of the company. For these reasons L hold that plaintiff is entitled by the terms of the verbal agreement to onethird of these bonuses or deferred payments or shareholder’s bonus oi special credits (whatever the defendant or the. company may choose to call them). The total bonuses to May 31, 1923, amounted to £159 11s 2d. The plaintiff admits the receipt <-f £ l. Is on account of bonuses. He would, therefore, in the ordinary course be entitled to one-Hliird ol £15,8 lOs 2d. viz., £52 16s Sd, but the plaintiff on June 18, 1923, signed and i gave an order to one Russell tor the sum of £3l. which order was addressed to defendant and indicated the deferred payments or bonuses as the. fund for payment. The effect of this order remains to be considered, and this will be dealt with after the* counter-claim. “ The second -paragraph of the statement of churn relates to a claim ! for £4, being the balance of the proportion of tile milk cheque for June, which the plaintiff claims is due to him. The plaintiff left defendant’s ■farm on June 19. The agreement was for the season ending June 30. The plaintiff left in the following circumstances. The defendant, without saying’ anything' to the plaintiff, engaged one Morrison for the following season. The latter was anxious to get to defendant’s place about June 18 oi IP, because his then employer had another sharemilker coming in. The plaintiff found out from an outside source that defendant had engaged another sharemilkev for the following season, and feeling slighted in the matter he immediately arranged to work for a Mr. Wilson, of Matamata. Subsequently plaintiff went and Interviewed the defendant. It is cleai from the evidence that the defendant desired the plaintiff to leave on the Tuesday, the 19th, and that he lent him his two waggons and horses fo.i the purpose of removing his effects., and T accept the evidence that defendant’s twy» sons agisted plaintiff to load his effect's on to the waggons. It is equally clear that the plaintiff, at that tune, desired to terminate the agreement at once. In these circumstances 1 must hold that the agreement was terminated on June 19 by mutual arrangement, and the plaintiff cannot recover anything in respect of payments for butter-fat supplied aft v that date.

“ Paragraph 4 of the statement of claim represents a claim for a balance alleged to be due on pigs. It is clear dn the evidence, however, that plaintiff agreed to sell his share in the. pigs to Morrison, the incoming shareholder, and that he has no claim against the defendant on this head. The plaintiff has not established that he is entitled to anything in respect of the two Tamworth sows purchased by the defendant. “ Paragraph 5 of the statement of claim represents a claim for moneys alleged to have been paid by the plaintiff on behalf of the defendant for repairs and renewals to the engine and milking plant in the early part of the relationship. The general principle in these cases, in the absence of special arrangement on the subject, appears to be that the owner shall supply in the first instance an engine and plant in good running order and condition, and that the sharemilker shall pay for running repairs and renewals during the currency of the agreement and shall leave the engine and plant in the condition in which he found it, reasonable wear and tear excepted. There is a conuict of evidence as to the condition of the engine and plant when plaintiff took over. To deal first with ti*e engine: there is no doubt upon the evidence of plaintiff and his sons, supported as it is by an independent expert witness (R. Malcolm) that the engine was not in good running order when plaintiff took over. The evidence ns to the condition of the plant, particularly the cup’s and claws, is stronger still. There is no doubt that the cups supplied were unsatisfactory. Accepting the principle to be applied in these cases, 1 think plaintiff has established that the engine and plant were not in good working order and condition when he took over, and that only some of the matters which required attention were put in order by the defendant. On this branch of the claim, therefore, 1 think the plaintiff is entitled to recover £8 4s 3d.

“ Coming to a consideration of the counter-claim, I may say at once that some of the items are unreasonable, and cannot be supported. The first item of the claim is disallowed. The second paragraph of the counterclaim for damaged gates was disallowed. The third paragraph of the counter-claim is established. There is no doubt that plaintiff’s sons in driving back with a stockwhip a sow winch was heavy, were directly responsible for the death of the* sow, m circumstances displaying ill-treat-ment and negligence. This claim is allowed at £5. The last paragraph of the counter-claim refers to hire of

two waggons and horses for two ‘ days. This item relates to the plaintiff’s removal to Matamata on June , 19. 1 have already discussed the cir- j cumstances in which the plaintiff left. There is no doubt that defendant de- ; sired him to leave on that date to • make room for Morrison, and 1 am j satisfied that the waggons were lent 1 m that occasion, and that this claim ! or hire R a nice afterthought. j ’• The defendant v ill bo entitled to i judgment on the counter-claim Cor £5 with costs i.n that amount and oli- \ citors’ fee and w?tno>Y exp uses on 1 he point on wlvch tlv* counter-claim ucceeds, viz., the death of the sow. The only witne.-'? called for the defence on this point was the defendant himself. The defendant will therefore be entitled to one day’.; expenses. The costs and expenses will be fixed by the clerk of the court. *’ Theve is one matter wlfich n rains to be discussed, which vr.- th subject of considerable legal ri”" <urnt. On June 1 ! 92-1. the d-y before the agreement between the parties was termir«‘fed by mutual arrangement, the plaintiff gave to one Russell, a storekeeper, an order for £3l 0s -Id on defendant. This appears to have been presented to the defendmt in due course, but he has declined to pay the sum, and the defendant gave as his reason for declining- to iay the same the fact that lie vo’.eived a Tetter from plaintiff's solicitors demanding payment of all noneys due to the plaintiff in full. That letter was written m - July 26. 1923, some fi v '* weeks after the order was given. H was argued on h haW of the defendant that this order amounted to an assignment within ‘he terms of : arth u 46 of the Property Law .Act, 190 h that it was an assignment because it indicated a special fund, and that it was an assignment of part of tha/t fund. It is T think clear that if this document is Ito be construed as an assignment, it can only be as an equitable assignment. “Upon the whole, I think that the weight of authority is in favour of the view that this order given by Geminell to Russell, addressed to Magill i and presented to Magill, specifying a certain sum and designating a certain fund, must be construed as an , equitable assignment, and if it amounts to an equitable assignment, then section 46, sub-section 1. of the Property Law Act, 1908, operates to transfer ‘ all legal or equitable or other remedies ’ for the recovery of the same to the assignee as from the date of notice !o the debtor, and the plaintiff Gemmell would not, therefore, be entitled to include this sum !m his present claim; though it is probable in equil;' that the assignee might have to join th * assignor in any action under the section. The defendant is clearly liable to pay this sum of £3l, and it is apparently contended on his behalf that he should pay this sum to Russell and not to the plaintiff. Such a payment would, 1 think, avoid further litigation, and would probably be conclusive as against the plaintiff. “ The result is, therefore, that the plaintiff will he entitled under paragraph 3 of the claim to one-third of the bonuses or deferred payment, viz.. £53 3s Bd, less £1 Is already received, 'less £3l assigned to Russell, leaving a balance of £2l 2s 3d, for which he will he entitled to judgment The plaintiff is also entitled to judgment for £8 4s 3d on paiagvaph 4 of the claim. Judgment will, thcrefoie, be entered for the plaintiff on the claim for £29 6s lid. with costs and solicitors’ fee on that amount, and witness’ expense,; to be fixed by the clerk of the court. The plaintiff will be entitled to his expenses for two days.”