Barnard v Liquidators of S Seligmann & Co (Pty) Ltd and Another

• Jurisdiction: South Africa
• Court: Eastern Cape Division
• Judge: O'Hagan J
• Judgment Date: 28 November 1963
• Citation: 1964 (3) SA 692 (E)

Barnard v Liquidators of S Seligmann & Co (Pty) Ltd and Another
1964 (3) SA 692 (E)

1964 (3) SA p692

Citation	1964 (3) SA 692 (E)
Court	Eastern Cape Division
Judge	O'Hagan J
Heard	October 22, 1963; October 23, 1963
Judgment	November 28, 1963

Flynote : Sleutelwoorde

Company — Voluntary winding-up — Distribution — Company in terms of its articles of association having a lien on shares in respect of indebtedness of a shareholder to it — Company aware of pledge by a certain shareholder of his shares — No waiver or D acquiescence shown — Liquidators entitled to such shareholder's share in distribution in preference to pledgee's claim.

Headnote : Kopnota

In terms of the articles of association of a company the company had 'a first and paramount lien upon all the shares registered in the name of E each member for his debts, liabilities and engagements to or with the company'. The company, though not insolvent, was in the course of voluntary winding-up and the liquidators claimed that they were entitled to set off the amount of the dividend of one of its shareholders against the sum which he owed the company. Plaintiff, on the other hand, claimed a valid pledge of these shares in respect of such shareholder's indebtedness to him, as the company had been aware of the pledge.

Held, as, under our law, mere knowledge falling short of waiver or of F acquiescence in a claim by another, did not entail forfeiture of a right, that the liquidators were entitled to apply the share of the distribution of the company's assets to which such shareholder was entitled in satisfaction of the latter's indebtedness to the liquidators before entertaining the plaintiff's claim.

Case Information

Application for a declaration of rights. The facts appear from the reasons for judgment.

D. D v Kannemeyer, S.C. (with him T. Stewart), for the plaintiff. G

D. J. Shaw, S.C. (with him M. P. Jennett), for the defendant.

Cur adv vult.

Postea (November 28th). H

Judgment

O'Hagan, J.:

The plaintiff, who is a farmer in the Barkly East district, seeks a declaration of rights against the liquidators of a company, known as S. Seligmann and Co. (Pty.) Ltd., which, since August, 1960, has been in the course of voluntary winding-up. The issues between the parties will appear from the following résumé of the facts emerging from the pleadings and the evidence led at the trial.

1964 (3) SA p693

O'Hagan J

For many years the company carried on a trading business in the town of Barkly East. In 1941 Fred Lauterbach was appointed a departmental manager in the company. In 1945 he became a shareholder and director, and rose to be managing director in 1948. His brother Karl Lauterbach A became secretary of the company in 1945. At one stage the brothers made a bid to take over all the shares in the company, but nothing came of it. They were, however, anxious to increase their shareholding, and the opportunity came with the death of one Blume who was described as the major individual shareholder in the company. Fred - I use the first B names of the Lauterbach brothers for the sake of brevity - was the executor of Blume's estate, and felt he could not buy the shares, so it was arranged that Karl should purchase 10,041 shares from the estate. The understanding between the brothers was that Fred would take over half these shares when Blume's estate was finally wound up.

To pay for these shares a sum of £7,500 was borrowed from the present C plaintiff, and Fred and Karl, on the 11th May, 1955, signed an acknowledgement of indebtedness to the plaintiff in this sum, undertaking to repay the capital with interest by the end of February, 1958. The concluding portion of his acknowledgement reads:

'For the due security of the indebtedness we hereby bind ourselves jointly and severally and we also cede to the said C. J. Barnard 10,051 shares in S. Seligmann and Co. (Pty.) Ltd., as also three insurance policies of £1,000 each.'

D Transfer of the shares from Blume's estate was registered in Karl's name and these shares were handed to the plaintiff's attorney, Oeschger, for safe-keeping on the plaintiff's behalf.

In the year 1956 Fred took over half his brother's shares and he acquired the remaining half the following year, 1957. At this time Fred E asked the plaintiff for his consent to Fred taking over the shares and becoming solely responsible for the existing indebtedness of £7,500. The plaintiff agreed provided that Fred made over his shares to the plaintiff. In May, 1956, transfer of 5,020 shares held by Karl was registered in Fred's name. In December, 1957, Fred became the holder of the balance of Karl's shares. The share certificates concerned (which F included some additional shares held by Fred on his own behalf) were deposited with the plaintiff's attorney in substitution for the certificates in the name of Karl.

Over the years of his association with the company Fred became indebted G to the company in amounts which steadily grew larger. This indebtedness arose from cash borrowings and purchases from the company on credit. By May, 1955, his indebtedness exceeded the sum of £3,000 - in evidence Fred said it was probably between £4,000 and £5,000. By August, 1960, it had risen to the sum of R18,054 (£9,027). From time to time this subject was discussed at meetings of directors and concern was expressed at the H mounting debt. For reasons explained by the witness Ginsberg, however, (which are not really material to the present issue) the company...