Fergusson Versus Wilson, (1866) LR 2 Ch App 77

The Article deals with the analysis of the rulings established by the Scottish Court of Sessions in Fergusson versus Wilson. The article gives a brief background about the facts of the case. It also deals with the rulings established and an analysis of those rulings in the light of the established jurisprudence on the issue.
Estimated Reading Time: 4 minutes

Topics Covered in this article

Introduction

The case of Fergusson versus Wilson was one of the landmark cases in the development of the Company Laws, since the case established the fact that the company in itself cannot act independently, or on its own as an individual. Rather, it was laid down that the company needs a representative to act on behalf of it so that the company can have its acts performed by way of someone else. This is why all forms of companies, regardless of whether they are a private company or a public company, are in need to fill the positions of the directors, because the directors of the company work as the representatives of the company. Without the directors to work as the representatives of the company, the shareholders of the company cannot act. This case laid the foundation for the development of these principles.

Facts

The Board of Directors of the Washoe United Consolidated Gold and Silver Mining Company Ltd. passed a resolution after the meeting of the promoters of the company was held. The resolution which was passed was related to the advances that were to be made by the company. This resolution was also affirmed by the Directors of the Company. Later, the directors passed a resolution that the advances made in June and July should be repaid as the funds of the company would allow, and that cheques should be given on application. Accordingly, the secretary sent the Plaintiff a scrip certificate for 500 fully paid-up shares, in repayment of his first advance, and a cheque in repayment of his advance payment, with interest thereon. The Plaintiff, not having applied for the repayment of his loan, refused to accept the scrip certificate and cheque, which he returned to the secretary.a general meeting of the shareholders was held, which the Plaintiff attended, and he there proposed a resolution that the un-allotted shares in the company should not be disposed of without the consent of the shareholders; but the resolution was negatived, and in its place an amendment was carried to the effect that the un-allotted shares should be offered to the registered shareholders pro rata according to their holdings. However, later the Plaintiff, having, in the meantime ceased to be a director, filed his bill against the company and the directors, praying that he might be declared entitled to 700 shares, on which oe1 had been paid, or 500 shares, on which oe1, and 100, on which oe2, had been paid, and that the directors might be ordered to allot the same accordingly, and that the directors might be restrained from allotting the un-allotted shares in such manner as to render it impossible for them to make the allotment

Issues

After having opined that the claim of the plaintiff was a valid claim, the Justices on the bench in Fergusson versus Wilson mainly struggled with the question as to whether there was a possibility of specific performance of the contract that had been formed between the shareholders and the Directors of the company.

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Held

The Court held that the claim of the plaintiff was a valid claim and that the plaintiff was entitled to the shares he so rightfully claimed. In the eyes of the court, the directors of the company did not take a proper course when it came to the claim which was made by the plaintiff before the directors of the company. The Directors knew prior to the allotment of the shares that Plaintiff had already stressed upon a claim on a certain number of shares that were un-allotted. The Directors were also aware of the fact that the defendant had never abandoned or given up on the claim over the un-allotted shares. The Court opined that the Directors of the company should have set aside the number of shares which were in equivalent amount of what would have satisfied the claim of the plaintiff, and should have done so for a reasonable amount of time so as to take into consideration the option where the plaintiff might have abandoned the claim he had made to the un-allotted shares in the company or should have done so in anticipation of the result of the ongoing litigation arising from the claim of the plaintiff.

Analysis

The case of Fergusson versus Wilson laid down the importance of the company’s directors in laying a basis for the actions of the company since the directors are the arms and face of the company. Without the directors working as the agents of the company, the company cannot function as an individual.

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