HIGH COURT. LYNDE v. ANGLO-ITALIAN HEMP SPINNING CO. has also been delay in repudiating, sufficient to destroy the right: In re Russian (&c.) Ironworks Co., Taite's case, 15 W. R. 891, 3 Eq. 795; In re Scottish Petroleum Co., 31 W. R. 846, 23 Ch. D. 413. HIGH COURT. in coming to the conclusion that the promoters are to be regarded as really constituting the company, or that the directors left everything in their hands, or were what may be called dummies, or left it to the promoters to do whatever they pleased in the ROMER, J.-The first question I desire to deal with affairs of the company. Nor was Mr. Waithman, is this: Assuming that Mr. Waithman made material when he made the representations he did make to the misrepresentations to the plaintiff which induced him plaintiff, authorized to act on behalf of the company to apply for the shares, could the plaintiff, on that in procuring shares, or authorized to make any repreground, hold the company liable and have the con- sentations on behalf of the company to the plaintiff tract set aside? It appears to me that, speaking or others to induce him or them to apply for shares. generally, to make a company liable for misrepre- The fact that Mr. Waithman was a promoter of the sentations inducing a contract to take shares from it, company did not in itself authorize him to procure the shareholder must bring his case within one or shares for the company, or to make representations to other of the following heads :-(1) Where the misre- the plaintiff on the company's behalf. A contract to presentations are made by the directors or other the take shares may be induced by misrepresentations general agents of the company entitled to act and made by an officer of a company, or by a promoter of acting on its behalf, as, for example, by a pro- a company, or by a person assisting in procuring spectus issued by the authority or sanction of the shares of a company; but that fact alone will not be directors of a company, inviting subscriptions for sufficient to enable the contract to be rescinded. The shares; (2) where the misrepresentations are made cases cited by Mr. Hopkinson are sufficient to show by a special agent of the company while acting this. And although the company knew that Waithwithin the scope of his authority, as, for example, by man was applying to his friends to get them to an agent specially authorized to obtain, on behalf of subscribe for shares, that did not in my opinion make the company, subscriptions for shares. This head, him the company's agent, or put the company to of course, includes the case of a person constituted inquire as to whether he had made any, and, if any, agent by subsequent adoption of his acts. (3) Where what representations to those friends to induce them the company can be held affected before the contract to subscribe. In most cases directors must be aware is complete with the knowledge that it is induced by that subscriptions for shares are obtained through the misrepresentations, as, for example, when the direc-intermediary of persons interested in the company, tors, on allotting shares, know, in fact, that the and it would lead to the most astonishing results if application for them has been induced by misrepre- that was held sufficient to affect the directors with sentations, even though made without any authority; knowledge of, or to put them upon inquiry as to, the (4) where the contract is made on the basis of representations (if any) made by those persons to the certain representations, whether those representations people applying for the shares. The fact that in the were known to the company or not, and it turns out case of this company some applications, including that that some of those representations were material and of the plaintiff, were made on printed forms prepared untrue, as, for example, if the directors of a com- by the company's solicitor, does not in my opinion pany know, when allotting, that an application for make any real difference. Mr. Waithman got his shares is based on the statements contained in a forms by applying to the company's solicitor, because prospectus, even though that prospectus was issued he wanted his friends to make proper applications for without authority, or even before the company was shares. No authority was given by the directors to formed, and even if its contents are not known to the solicitor to supply Mr. Waithman with forms, the directors. nor can the directors by seeing these forms used be held thereby to have adopted Mr. Waithman as as their agent in obtaining applications for shares. The directors did not issue any prospectus themselves, or try to get applications for shares, no doubt because they thought Waithman and Thomson would get a sufficient number of their friends to take up the necessary number of shares. But this did not in my opinion make Waithman and Thomson the special agents of the company to procure subscriptions on its behalf, or authorize them to make any representations on behalf of the company with a view of inducing their friends to subscribe. I think Karberg's case was one falling within and decided under this head. Lindley, L.J., said that one question he had to answer was this [1892] 3 Ch. 11: "Was the prospectus "-in that case being a prospectus issued before the company was formed the basis of the contract formed by the application and allotment of shares?" And he answers that question when he says, "The offer to take shares is an offer to take them on the terms of the prospectus and on no other terms, and the acceptance of the application by the allotment of the shares is the acceptance of the offer on those terms and not on other terms." And I gather that that was the ground of the decision in Karberg's case. There may possibly be other cases not coming within the above heads, though none occur to me at the present time, but certainly the present case, if it does not come within any of the above heads, has no special features about it that would entitle the plaintiff to the relief he asks. Now, it appears to me that the plaintiff does not bring his case within any of these heads. Such misrepresentations, if any, as were made to the plaintiff were made by Mr. Waithman, one of the two promoters of the company. But the company at the time had two directors entitled to act for it, and Mr. Waithman was not a director or general agent of the company. No doubt the promoters had a great deal to do with the company at the time and their wishes and views may have been highly regarded by the directors. But I see nothing to justify me And lastly this is not a case like Karberg's case, or coming at all within the fourth head. The application for shares made by the plaintiff was not one made conditional upon, or to the knowledge of the directors based upon, any special or other representations made by Waithman. The application was not even to the knowledge of the direc tors induced by representations by Waithman, though even if it had been whether that would in itself have been sufficient to bring the case within the fourth head or have entitled the plaintiff to rescind I need not now inquire. On this ground therefore I hold that the action must fail, for in my judgment the plaintiff has not shown any ground upon which I can rescind this contract by reason of misrepresentations, if any, made to him which induced him to apply for these shares. I should have been glad if I could have left the case HIGH COURT. IN RE COMMON PETROLEUM ENGINE CO. there, because the point of law I have decided is in itsel fatal to the plaintiff's case. But the case may go elsewhere, and if it does I think the judges of the courts above are entitled to know what view the judge who tried the case took of the facts of it. HIGH COURT. Held, that the contract and indorsed deed when registered was a sufficient contract in writing as required by section 25 of the Companies Act, 1867, even though E. and M. were not named in it or parties to it, and that the shares issued to them must be treated as fully paid Carling's case, 24 W. R. 165, 1 Ch. D. 115, and Hartley's case, 23 W. R. 203, L. R. 10 Ch. App. 157, followed. Were misrepresentations in fact made to the plain-up. tiff by Waithman which he relied on, which were material and which led to this contract? The onus of proving that is upon the plaintiff, and he has not discharged that onus to my satisfaction. I am not convinced that any material misrepresentation was made, certainly I am not satisfied that any misrepresentation, if made, was relied upon by the plaintiff, and induced him to apply for these shares. Having decided the question of law, and expressed my opinion on the evidence on the questions of fact, I need not further deal with the point as to delay in bringing the action or the other points which have been discussed. It follows that the action fails and must be dismissed with costs, and on the counter-claim there will be judgment for the defendant company with costs. Solicitors for the plaintiff, Bower, Cotton, & Bower. Chan. Div. July 1, 8; Aug. 5, 1895. Summons by liquidator of a company. The liquidator of the Common Petroleum Engine Co., Limited, took out this summons against the respondents, J. Elsner and W. McArthur, asking (inter alia) a declaration that certain shares issued to and held by the respondents were subject to liability of the payment of 19s. per share, beyond the amount already paid by them of 1s. per share. Representations undoubtedly were made by Waith man to the plaintiff, but they were all verbal. There is a direct conflict of testimony between the plaintiff and Waithman on all the really material alleged misrepresentations, and there is no evidence before me By a contract, dated the 15th of February, 1892, except that of these two witnesses. [His lordship and made between Spiel's Patent Petroleum Engine commented on the evidence, and proceeded as Co., Limited (in this report referred to as Spiel's Comfollows:- I need not go through the alleged mis- pany), of the one part and J. Elsner of the other part, representations in detail or further discuss the sub- as trustee for a new company to be formed to purject. I have stated the result upon my mind, which chase certain patent rights in petroleum motors, it result is simply that the alleged misrepresentations was by clause 2 provided as follows: "The consideraare not established to my satisfaction. tion for the said sale shall be the sum of £2,550, which shall be paid and satisfied by the issue to Spiel's Company (or their nominees) of 2,550 fully-paid shares of the new company of £1 each, such shares to be numbered in the books of the new company and in the share certificates for the same 8 to 2,557 inclusive, or at the option of the new company as to the whole or any part of the said sum of £2,550, by payment in cash in lieu of shares. The new company shall allot and issue to every shareholder in Spiel's Company who shall be willing to accept and shall apply for the same three shares of £1 each of the new company, credited with the sum of 19s. as paid upon each of the shares so to be allotted and issued in respect of every two shares of £5 each held by him in Spiel's Company, and such shares of the new company so to be allotted and issued as last aforesaid shall be numbered in the books of the new company and in the share certificates for the same 2,558 to 20,000 inclusive. Every such shareholder in Spiel's Company shall apply for such shares in the new company within the time limited by notice to be given to him of his right to apply for and accept the same, and The A. company entered into a contract with a undertake in writing to pay up the 1s. per share retrustee for the B. company, a new company to be maining unpaid on such shares either prior to or at the time of the allotment and issue of such shares to formed, that the A. company should sell to the new company certain patent rights in consideration of £2,550 him, or by such instalments and at such times as may in shares of the B. company or cash, and in conbe fixed for the payment of the issue. If any such sideration of the allotment and issue to each shareholder shareholder who may so apply for shares as aforesaid of the A. company who should apply for them, three shall hold an odd number of shares in Spiel's shares of £1 each in the B. company, with 198. Company he shall only have the right to apply for credited as paid up on them, in respect of every two odd share, one share of the new company of £1 so and have allotted and issued to him in respect of such shares held by him in the A. company. The B. company was registered, and ratified this contract by a deed credited as aforesaid. All of the said shares of the indorsed on it, and the contract with the indorsed deed new company not applied for by shareholders in were registered with the Registrar of Joint Stock Com-Spiel's Company within the time so limited as aforepanies under section 25 of the Companies Act, 1867, and the patent rights assigned. Two persons, E. and M., not shareholders in the A. company, applied, as nominees of shareholders of that company who were entitled to have shares issued to them, for shares in the B. company, and, having paid 18. per share, were registered as holders of fully paid-up shares in the B. company. On the B. company being subsequently wound up, and the liquidator applying for a declaration that these shares were held subject to a liability of 198. per share, In re COMMON PETROLEUM ENGINE CO. ELSNER AND MCARTHUR'S CASE. (a.) Company--Shares-Fully-paid shares-Contract duly made and filed-Companies Act, 1867 (30 & 31 Vict. c. 131), s. 25. (a.) Reported by J. W. GREIG, Esq., Barrister-at Law. may such terms, or may be otherwise dealt with by the said be sold when and to such persons, and on new company as the new company may think fit." Article 3." The purchase of the said premises the said purchase price shall be paid and satisfied in shall be completed on the 15th of March, 1892, when manner aforesaid, and thereupon Spiel's Company and all other necessary parties shall execute conveyances." the Article 4.-" This contract or some other proper and sufficient contract shall be filed with the Registrar of Joint Stock Companies before the issue of any of the above shares under the contract." HIGH COURT. IN RE COMMON PETROLEUM ENGINE Co. The Common Petroleum Engine Co., the company contemplated in these arrangements, was incorporated on the 17th of March, 1892, and by its memorandum of association it was provided that 2,550 shares, numbered 8 to 2,557 inclusive, might be issued as fully-paid, pursuant to the contract of the 15th of February above stated, and 17,443 shares numbered 2,558 to 20,000 inclusive, might be allotted and issued with 198. per share credited as paid thereon respectively. By the articles of association it was provided that the issue of the shares to the Spiel's Company should be in such form as to free the holders from liability beyond 1s. per share. On the 19th of March, 1892, the new company by a deed indorsed on the contract of the 15th of February, 1892, and made between Spiel's Company of the first part, Elsner of the second part, and the new company of the third part, ratified and adopted the same and declared it binding on the new company. The contract of the 15th of February, with the indorsement, was then duly filed with the Registrar of Joint Stock Companies. On the 30th of March, Spiel's Company assigned to the new company the property in question in consideration of the £2,550 paid as to £350 in cash, and £2,200 in shares. Elsner and McArthur in March applied as nominees of shareholders in Spiel's Company for 250 and 50 shares in the new company with 19s. per share credited as paid up. Both applied on a form sent to shareholders in Spiel's Company referring only to "extra shares." The shares were allotted on the 25th of March, the 1s. per share paid, and the applicants put on the register as holders of fully-paid shares. On the 14th of November, 1894, the new company was compulsorily wound up and the respondents put on the list of contributories in respect of the above shares for 19s. per share. H. Reed, Q.C., and J. Bradford, for the liquidator. -No contract in conformity with section 25 of the Companies Act, 1867, has been filed and the onus is on the respondents to show it has: In re New Eberhardt Co. (Limited), Ex parte Menzies, 38 W. R. 97, 43 Ch. D. 118. The contract of the 15th of February gave an option to the Spiel's Company's shareholders to take shares on paying 1s. per share. spondents were not such shareholders, but only nominees of them. The re Levett, Q.C., and Butcher, for Elsner.-The contract of the 15th of February, 1892, taken in connection with the indorsed deed, was, when registered, a contract in writing within the meaning of section 25 of the Companies Act, 1867. It is not necessary that Elsner should be a party to that contract to have the benefit of it: he was the nominee of a shareholder who was entitled to the protection of the section. In any event the real contract was that the shares issued were to be issued as having 19s. per share as paid up thereon. Cooper Willis, Q.C., and Whitaker, for McArthur, adopted the foregoing argument. Bradford replied. Aug. 5.-ROMER, J.-The first question that arises on this summons so far as concerns the respondents Elsner and McArthur is one of fact. Were the shares the subject of this application allotted to them as nominees of shareholders in Spiel's Company in pursuance of the option given to those shareholders by the 2nd clause of the agreement of the 15th of February, 1892, confirmed by the deed of the 19th of March, 1892 ? I am satisfied on the evidence that the shares were so allotted, and that they were not HIGH COURT. issued as suggested on behalf of the liquidator of the new company (the Common Petroleum Engine Co., Limited) under the provisions of clause 2 of the agreement as shares not applied for by the shareholders in Spiel's Company. The circumstance relied on by the liquidator that Elsner's application was on a form labelled "extra shares" admits of easy explanation. The facts are that Spiel's Company (wholly without the authority of the new company) issued to their shareholders two forms of application for shares-one as for shares to which they were directly entitled under the agreement, and the other as for extra shares not taken up by some of the shareholders, and the applicants seem not to have noticed any distinction between the two forms, but used them indiscriminately. As a matter of fact, the new company, at the time the shares in question were allotted, had not authorized the issue of any shares, and did not, in fact, allot any shares except to shareholders of Spiel's Company or their nominees in respect of the shares to which they were entitled under the agreement. And I should add that the new company never limited a time within which the shares should be applied for though Spiel's Company did make an abortive and ineffectual attempt to limit a time. The next question that arises is one of law, whether the agreement and indorsed deed which have been duly registered, comply with the provisions of section 25 of the Act of 1867. In my opinion they do having regard to the cases I am about to refer to. In the first place the agreement as confirmed by the indorsed deed is in itself a contract in writing made before the issue of the shares, and not a mere offer by this company to allot shares like the memorandum which formed the subject of the decision in In re New Eberhardt Co. By this agreement the new company were bound to allot to each shareholder of Spiel's Company his proportion of shares if he had an option and was not bound to apply did not applied for them, and the fact that each shareholder the less render the agreement a contract and one binding on the new company. The new company had no option in the matter, and moreover, notwithstanding of the assignment made in pursuance of it dated the the curious wording of the agreement and the form 30th of March, 1892, I think the option given property, the subject of the agreement. formed part of the consideration for the sale of the I cannot hold here that the consideration paid for the shares issued was illusory, or that the agreement was a mere fraud or excuse to enable these shares to be issued at a discount or as nearly fully paid up: see Chapman's case, 43 W. R. 553, [1895] 1 Ch. 771. It was suggested by the liquidator that Spiel's Company had no right to distribute a valuable option which was in the nature of capital amongst its shareholders. That may be so, but that is a matter which concerns Spiel's Company, and its shareholders and creditors, and which cannot now be relied on by the liquidator for the purposes of this application. There being, then, a contract in writing filed with the Registrar of Joint Stock Companies before the issue of these shares, the next question is whether it is a sufficient contract within the meaning of section 25. Now, if the question were one arising for the first time I think a great deal might be said in favour of the contention that a contract within the meaning of the section ought to be (1) made direct with the allottee; and (2) showing on the face of it which are the shares to be allotted or issued to him. But the cases show that this is not necessary, and that the section (which is in the nature of a penal clause) must not be treated as by implication making essential, details with regard to the contract H. C. IN RE COMMON PETROLEUM ENGINE CO.-IN RE KINGSTON COTTON MILL Co. (No. 2). in reference to the above points not mentioned in the section. For example, as to (1) it has been held that if the contract be to allot shares to A., the shares may be allotted to B. as A.'s nominee, and the contract will then protect B.: see Carling's case, 1 Ch. D. 115, and the observations of James, L.J., p. 124. And apparently even the company need not be directly a party to the contract. It is sufficient if the contract be with a trustee for the company and adopted by the company, see Hartley's case, L. R. 10 Ch. App. 157, where Cairns, L.C., observes, p. 159, "It is hardly necessary to advert to the argument that the shares ought not to be taken as paid up shares, because the agreement was not with the company but with a trustee and before the company was formed. The Act of Parliament does not require the agreement to be with the company, and such agreements are very seldom made with the company directly." And with regard to point (2) it has been held that the contract need not on the face of it identify the shares, see Ex parte Forde, 33 W. R. 839, 30 Ch. D. 153, and Hartley's case; and see also on both points Kirby's case, 46 L. T. (N. S.) 682, 30 W. R. Dig. 37, decided by Fry, J., and In re Buenos Ayres and Campana Railway Co., W. N. (1875) 59. In both these last-mentioned cases the registered contract did not specify the shares or the names of the allottees, and yet the allottees were held protected by the registered contract. In the last named case Sir G. Jessel, M.R., pointed out that section 25 did not render necessary the specification of the shares or of the name of the allottee, and he said that if the contract did not give such particulars the sole effect was to make it more difficult for the holders of shares not paid for in cash, to discharge the burden of proving that their shares had in fact been issued to them in pursuance of the registered contract. And with reference to these observations of the late Master of the Rolls, I need not again point out that in the present case the respondents have discharged the burden cast upon them, and satisfied me that their shares were issued in pursuance of the registered agreement. Having regard to the above authorities, I do not see on what principle the registered agreement is to be held not sufficient. And, indeed, with reference to an agreement which cannot, I think on principle, be distinguished from that now before me, Cotton, L.J., in In re New Eberhardt Co., 43 Ch. D. 118, cited above, observed, p. 126: "If the company had registered not this document, but the agreement between the new company and the liquidator, my present opinion is that that would have been a contract registered to issue these shares as fully paid up shares," and I gather that Bowen and Fry, L.JJ., do not differ in that case from the opinion of Cotton, L.J. Under these circumstances the application must be dismissed, as against these respondents, with costs. The liquidator may take his costs cut of the assets, it being a proper case to bring before the court. Solicitor for the applicant, J. B. Roberts. Solicitors for the respondents, Foss & Ledsam; Eagleton & Sons. Chan. Div. Vaughan Williams, J. H. C. Dec. 5, 6, 9, 10, 11, 12, 13, 18. In re KINGSTON COTTON MILL Co. (No. 2). (a.) Company Winding up Misfeasance by officersDirectors Auditors Damages-Payment of dividends-Value of assets-Manager's certificate-Companies (Winding-up) Act, 1890 (53 & 54 Vict. c. 63), 8. 10. Directors who pay away the funds of a company under an honest and reasonable belief in a state of facts which would justify the payment will not be held liable to replace those funds merely because it turns out that on the true facts the payments were ultra vires. The word " misfeasance in section 10 of the Companies (Winding-up) Act, 1890, covers every misconduct by an officer of a company as such for which such officer might have been sued apart from the section. Therefore charges against auditors of having, through want of the exercise of ordinary skill and diligence, sanctioned accounts containing false statements, if proved and coupled with pecuniary damage to the company, constitute a misfeasance within the section. Auditors are not entitled to rely on the certificate of the company's general manager as to the value of the company's stock-in-trade if an ordinary careful examination of the books would have led them to suspect the accuracy of the manager's figures. This was a summons taken out by the official receiver and liquidator in the winding up of the above-named company, which was being wound up by the court, that it might be declared that Samuel Lambert, Andrew Mouat, V. H. Parker, G. G. Macturk, J. W. Halden, and William Jackson, directors of the company, and Benjamin Pickering, a past auditor, were jointly and severally liable to pay to the applicant four several sums of £36 0s. 10d., £38 12s. 4d., £38 12s. 4d., and £38 17s. 4d., which, being moneys of the said company, were improperly applied in payment of dividends on certain preference shares in the said company for the years 1890, 1891, 1892, and 1893 respectively, together with proper interest on the said sums respectively from the respective dates of payment of the said dividends, and that Arthur Edgar Peasegood, a past auditor of the said company, was also liable to pay the said several sums of £38 12s. 4d. and £38 178. 4d. applied as aforesaid for the years 1892 and 1893, together with such interest thereon respectively as aforesaid, and that the respondents might be ordered jointly and severally to pay to the applicants within four days from the service of the order the amounts which they respectively should be declared liable to pay to him in respect of the transactions aforesaid; and that it might also be declared with respect to each and all of the said respondents (but as to the respondent Arthur Edgar Peasegood only as from and after the date when his firm of Pickering, Peasegood, & Judge became auditors of the said company) that they respectively were guilty of misfeasance or breach of trust in relation to the said company in that they respectively authorized, sanctioned, participated, recommended, or permitted the issue and circulation of divers reports and statements of accounts of the said company, and in particular those for the years 1884 to 1892 inclusive, containing false and misleading entries with respect to (1) the value of the said company's mill, machinery, and site; (2) the value of the said company's stock-in-trade, particularly for the year 1887 and the subsequent years; and (3) the company's reserve fund. (a.) Reported by V. DE S. FOWKE, Esq., Barristerat-Law. HIGH COURT. IN RE KINGSTON COTTON MILL Co. (No. 2). The company was formed under the Companies Act, 1862, in 1879 for the purpose of taking over the business then carried on by an unlimited company called the Kingston Cotton Mill Co. of a cotton and spinning mill at Hull. The original nominal capital of the company was £210,000, divided into 21,000 shares of £10 each, 5,000 being preference and 16,000 ordinary shares. In 1882 the capital was increased by the creation of 4,000 new shares of £5 each called "£5 Preference Shares, 1882." The mill in which the company carried on its business was mortgaged to secure £30,000 and interest. The articles of the company with regard to audit were the following: 129. Once at least in every year the accounts of the company shall be examined, and the correctness of the balance-sheet ascertained by one or more auditor or auditors. 138. Every auditor shall be supplied with a copy of the balance-sheet, and it shall be his duty to examine the same with the accounts and vouchers relating thereto. 139. Every auditor shall have a list delivered to him of all books kept by the company, and shall at all reasonable times have access to the books and accounts of the company. He may, unless he himself is an accountant, employ accountants or other persons at the expense of the company to assist him in investigating such accounts, and he may, in relation to such accounts, examine the directors or any other officer of the company. 140. The auditors shall make a report to the members upon the balance-sheet and accounts, and in every such report they shall state whether, in their opinion, the balance-sheet is a full and fair balancesheet, containing the particulars required by these articles, and properly drawn up, so as to exhibit a true and correct view of the state of the company's affairs; and, in case they have called for any explanation or information from the directors, whether such explanation or information has been given by the directors, and whether the same has been satisfactory; and such report shall be read together with the report of the directors at the ordinary meeting. The auditors did not report according to article 140. Pickering, a chartered accountant, was appointed auditor of the company shortly after its formation, and he continued to be sole auditor till November, 1889, when his partner, Peasegood, chartered accountant, was appointed auditor with him. The first directors were J. Gilby, J. W. Halden, T. Horncastle, H. P. Jackson, S. Lambert, G. G. Macturk, A. Mouat, V. H. Parker, W. H. Waite, W. F. West, and C. Wells. Halden, Lambert, Macturk, Mouat, and Parker continued to be directors till the date of the winding-up order-i.e., the 18th of March, 1894. The other directors named above either died, retired, or became disqualified before the liquidation. William Jackson was general manager of the company from its formation, and was appointed a director in 1882. He continued to hold the offices of director and general manager until his resignation in March, 1894. Mouat died pending the taking out of the summons. The official receiver found in his report that though the company had been trading at a loss the stock-intrade had been inflated by the general manager to an extent sufficient in each year to conceal the loss and show a fictitious profit, and that while the company's stock-in-trade, was according to summaries in the stock journal and yearly accounts, apparently increasing, the sales for the years 1889-1892, were, according to the same accounts, exhibiting, on the whole, a considerable decrease, but no member of the HIGH COURT. board of directors other than Jackson made any inquiries into the actual amount of the company's stock-in-trade for the time being and that the figures which Jackson from time to time inserted in the trading account and balance-sheet as representing the value of the stock-in-trade were accepted by the board without investigation. Further, that in their reports for 1889, 1890, 1891, and 1892, the fictitious trading profits were referred to as if they had in fact being made, and that in 1890-1893 the directors paid dividends on shares in the company though no profit was made in those years. Pickering signed the first balance-sheet with the words "examined and found correct," and he employed this form of words in certifying the result of his audit at the foot of the balance-sheet of 1880 and 1881. Afterwards at the foot of the balancesheets of the years 1882 to 1886 inclusive his form of words was audited and found correct." In 1887 the words used were "examined with the books and found correct," and this latter form of words was used in subsequent balance-sheets issued before the commencement of the winding-up. The official receiver stated that the auditors, when conducting the audits of the company's accounts, never ascertained, or attempted to ascertain by independent investigation, the amount or value of the company's stock-in-trade as at the end of the year of account, or called for any independent valuation of it. That both Pickering and Peasegood accepted with respect to the stock-in-trade the figures set down by Jackson in the summaries in the stock journal. That in the first balance-sheet of the company, and in the years 1882 to 1892, the stock-in-trade was set down as being as per manager's certificate" of a certain value, but in fact there was never even a certificate by Jackson, except that in some cases the summary of stock-in-trade in the stock journal was signed, and in another case initialled by him. The official reeeiver's report also stated that the value of the company's mill, machinery, and site had been stated in the balance-sheets at a figure much higher than that given by a firm of professional valuers in 1884. With respect to the reserve fund, the report stated that in the annual accounts of the company considerable sums were from time to time set down as standing and carried to the credit of a reserve fund, and that fund was repeatedly referred to in the director's reports, but in fact no part of the alleged reserve fund was ever set apart by separate investment, and the entries in the accounts relating to it were, from first to last, mere book entries. In answer to the charges of the official receiver, the directors' case was: In so far as the summons charged improper application of moneys of the company in the payment of dividends (1), that the payments were not an improper application, because of the two accounts of the company the revenue account in the years in question showed a sufficient profit for payment of the dividends, because there was no obligation on the company to deduct losses in respect of fixed capital before arriving at the profit balance, and that, in so far as the deduction of the sums appearing in the balance-sheet in excess of the true value of the stockin-trade was concerned, the actual figures appearing in the balance-sheet were accepted by the directors under the certificate of the manager; and that the directors were guilty of no want of reasonable skill and care in the performance of their duties by accepting such certificate of the manager without further inquiry, and that the directors accepted such figures in good faith and in the beiief that they were true. The auditors' case was that in the balancesheets and accounts which they certified the figures |