Brownlie and Others (Liquidators of the Scottish Savings Investment and Building Society) v. Russell [1883] UKHL 481
Brownlie and Others (Liquidators of the Scottish Savings Investment and Building Society) v. Russell.(Ante, July 7, 1881, vol. xviii. p. 661, 8 R. 917.)
Subject_ Friendly Society — Building Society — Effect of Winding-up Order on Position of Members — Right of Member to Pay up Loan and Withdraw under Rules — Act 37 and 38 Vict. c. 42 — Building Societies Act 1874, sec. 14. Facts:The rules of a building society entitled a member who had received a loan from it to withdraw from the society on payment of the balance of the loan. The society, which had no debt to creditors other than its own members, went into voluntary liquidation, and obtained a winding-up order. Held ( alt . judgment of Second Division) that the effect of the winding-up order was to take away the option to withdraw given by the rules to a member who had obtained a loan, but ( aff . judgment of Second Division) that such a member was entitled to be free from his liability as a contributory of or debtor to the the society on paying the balance of the loan unpaid at the date of the winding-up order.This case is reported ante, July 7, 1881, vol. xviii. p. 661, and 8 R. 917.The liquidators of the Scottish Savings Investment and Building Society appealed to the House of Lords.The interlocutor of the Second Division against which this appeal was taken was as follows:—“Find that the advance or loan obtained by the respondent (pursuer) from the Scottish Savings Investment and Building Society, registered under the Building Societies Act 1874, and having its registered office at 53 West Regent Street, Glasgow, has pro tanto been extinguished by the sum of £414, 8s., being the amount in cumulo of instalments from time to time paid by the respondents to account or in respect thereof from 15th May 1868 to 20th February 1880, when the said society was by the Court appointed to be wound up, and that the appellants are bound to impute towards extinction of the said advance or loan all instalments paid to them by the respondent since 20th February 1880, or which may yet be paid to account or in respect thereof: Find that the respondent as a borrowing member of the said society on giving notice in terms of rule 12 of the said society, and upon payment to the appellants of the difference between the said sum of £700 and the amount in cumulo of the instalments paid by him to account or in respect of the said advance or loan, with interest due to him thereon, calculated or added thereto in terms of rule 9 of the said society, is entitled to withdraw therefrom, and that the appellants are bound thereupon to execute a formal discharge of the bond and disposition in security for £700, dated and recorded in the Register of Sasines for Renfrewshire and regality of Glasgow, &c., 16th May 1868, and granted by the respondent to the trustee for the said society in security of the said advance or loan: Find the respondent entitled to expenses in the Sheriff Court and in this Court, and remit,” &c.At delivering judgment—
Lord Chancellor —I am of opinion that the principal interlocutor appealed from is in substance right, although I am not disposed to rest the judgment of the House upon the same grounds. The question here really is a question of the interpretation and effect of the contract between these parties. There has been a winding-up order, and I am not inclined to hold the same opinion as to that winding-up order which has been held in the Court below. I see no reason to doubt the propriety of such a winding-up order in the circumstances of this society, and I think it must have all its proper and legitimate consequences according to the principles to be ascertained from the Act which provides for the winding-up of societies of this particular description, and which regulates them. Well, my Lords, we have nothing to do here with creditors; that is admitted on both sides, and when creditors are got rid of nothing remains to be done in the winding-up except to adjust the rights of contributories inter se . What are these rights? How are we to ascertain them? They must be ascertained from the contract by which the parties are brought together. This is not a joint-stock company—still less a common law partnership—but is a society of a special kind, formed and regulated under particular Acts of Parliament, and for special purposes. My Lords, it appears to me that a fallacy which pervaded much of the argument offered to your Lordships in support of the appeal is that because the members of this society are associated together for common purposes therefore there must, in equity and reason, and by implication from their contract, when not in terms expressed, be a right on the part of some of the members to hold all the others liable in contribution to them for any loss which in the actualPage: 482 ↓
Page: 483 ↓
Lord Watson —My Lords, the order of 20th February 1880, in terms of the 32d section of the Act of 1874, terminated or dissolved the society in question—in other words, from that date the society existed not for the purpose of carrying on business, but solely for the purpose of winding-up. According to my reading of these rules, the unadvanced member of the society was a member who had agreed to pay up the amount of his shares by instalments, subject to this condition, when they were fully paid by the amount which he contributed, or by the amount so contributed, aided by his proportional share of dividends earned by the society according to the amount of the shares, he ceased to be a member upon being paid out. He was entitled to be paid in the order of his shares maturing, but it is clear that he took his chance of the society being able at the date when his shares matured to make payment to him, and also of the possibility of their never being able to make payment to him. The effect of the liquidation, so far as regarded such a shareholder, was in my opinion to put an end to all liability on his part beyond the amount which he was bound to contribute up to that date. So far as he had paid he was not bound to pay again, but he was bound to pay so far as he had failed to contribute in terms of the rules; and having done so, he was entitled in my estimation to take a share of the free assets of the society—I mean assets after settling with outside creditors—in proportion to his interest in the society at the time of liquidation, that interest depending partly upon the time for which he had been a member, partly upon the amount of his shares, and the extent of his contribution in respect of these shares. On the other hand, the advanced member stood in a very different position. An advance under the statute and under these rules does not mean a loan by the society upon the security of the shares. It signifies this, that the society paid to the member by anticipation the amount of his share upon receiving in return certain considerations which are fixed by the rules. The considerations given by an advanced member obtaining an advance in terms of these rules were that he should pay the interest monthly, and in advance, along with each instalment, and further that he should cover and protect the society from loss by giving adequate security for the amount which he had got. Now, on the other hand, it may be right to infer that the member obtaining an advance, so long as he did not avail himself of the power of withdrawal conferred by the 12th rule, had a right to participate in profits, and was probably induced to borrow upon these conditions and give security, by the circumstance that he had a chance of diminishing the amount of instalments which he had undertaken to pay, or was obliged to pay, by having imputed towards payment of his shares a proportion of the profits effeiring to these shares if such profits were made. But then what was the effect of the liquidation upon his position? Before passing to that, perhaps I ought to say that, reading together the rules, the bond, and the memorandum whichPage: 484 ↓
Lord Bramwell —I am entirely of the same opinion—that this judgment should be affirmed with the trifling modification mentioned by the Lord Chancellor. My Lord, it seems to me that this winding-up order, which is really a matter between the members of the society, can make no difference in their substantial rights inter se . It may make, and doubtless will make—and if anything, that in my judgment helps to solve the question—this difference, that that which would have been paid at a distant time will be paid presently, and that which would have been received at a distant time shall be presently received if there are assets, and that being so the question is, what is the substantial contract between the associates in this society? Now, to my mind, rule 12 is clear. It says—“It shall also be lawful at all times for a member who has obtained an advance to withdraw from the society upon giving the manager one month's notice in writing, and paying up the whole of his debt, interest, and penalties, after deducting the amount of the monthly instalments paid upon his shares, with interest thereon at the rates referred to in rule 9.” That was the substance of the bargain they entered into with each other. I think that word withdraw is immaterial to the matter which we have got to consider here. The object of the stipulation that notice of withdrawal should be given was that the society might have notice of the intention of the shareholder to pay up his money so that they might dispose of it if they had an opportunity of doing so, and also that they mightPage: 485 ↓
Lord Fitzgerald —The advance made on the security of these shares was to be reimbursed to the society by instalments until they amounted to £700, and meantime they were to get interest on the advance at the rate of five per cent. per annum. The bond and disposition, with the memorandum upon it, was a security that the society should in the end be reimbursed to the full amount of the advance in the manner prescribed. When one had arrived at the conclusion that that was the character of the contract—the agreement between the parties—and further, that the monthly instalment although paid in respect of the shares was immediately to be attributed as a payment on account of the £700—when one had arrived at that conclusion, the whole appeared to be straight and clear and free from any difficulty; and all that remained to be done in order that this gentleman should be relieved from his position as a member of the society was merely a matter of computation and nothing else, to ascertain what was due upon this security. Now, this liquidation can make no difference. It may have deprived him of some advantages which he previously had, but it certainly did not increase his liability. In point of liability he remained exactly in the same position as before. And what was that liability supposing liquidation had not intervened? What were his rights, and what were his liabilities? His liability could not go beyond £700—that is, beyond the balance of it, after giving him credit for the monthly instalments which he had paid. It may have the effect of depriving him of the right to withdraw under rule 12, but that becomes very unimportant. Liquidation has taken place. The society as a trading society has ceased to exist, and can no longer make profit. It comes to an end, and I come to the liquidators and say, “I am owing you so much; I am willing to pay everything that is due upon my security, and now offer to pay it.” The liquidators, however, insist that they shall get the entire sum of £700 as if nothing had been paid. He, on the contrary, says, “According to the contract, common sense, and common justice, the sums that I have paid from time to time are to go in liquidation of the principal of this advance, and I am willing to pay the entire balance due.” That is really the contract between the parties. As I have said, it is merely a matter of computation. If I have actually paid £414, and although all claim for interest on these payments be disallowed, still no more can remain payable than £286, and that whether the society was in liquidation or otherwise, because in liquidation, and under the winding-up Act, no contributory, if the liability is limited, is bound to pay more than the full amount of his shares. This gentleman, paying the full amount of his shares, had done all which, as contributory or otherwise, he could possibly be required to do. That was determined in a similar case—the case of the Doncaster Society —by Vice-Chancellor Wood, where he held that the advanced member was entitled to redeem by paying up the full amount due from him, and that when the full amount was paid up he ought not to be called upon to pay more for the benefit of those other contributors. They must get what they can out of the assets, including therein the contribution to them which this particular advanced shareholder makes when he pays up the full amount which is due from him.Now, my Lords, the next question is, What is the contract here? He has £700 advanced to him. He gives to secure that a bond in ordinary form for £700, and interest, with a provision that the principal is to become due at a fixed period, and he is to pay penalties, which are of course purely nominal; and then he is to pay interest on the principal sum at the rate of 5 per cent. per annum from the date of the bond to the time of payment (that is a purely nominal time, not the time contracted by the parties), and that half-yearly, termly, and proportionally thereafter during the not-payment of the same. And then, by the back-letter, which explains the real intention of the parties, it is provided that that bond is in reality to stand as security only for performance of the obligations laid on the advanced member by these rules—“It is nevertheless understood that the same shall not be enforcedPage: 486 ↓
Interlocutor affirmed with a variation (being that moved by the Lord Chancellor), and appeal dismissed with costs.Counsel for Appellants—Solicitor-General Herschell, Q.C.—Solicitor-General Asher, Q.C.— M'Clymont. Agents— Grahames, Currey, & Spens— J. Smith Clark, S.S.C.Counsel for Respondents— Davey, Q.C.— Hedderwick. Agents— Lewin, Gregory, & Anderson— Miller & Murray, S.S.C.