WHAT IS A BONUS?

Te Aroha News, Volume XLI, Issue 6439, 17 January 1924, Page 5

WHAT IS A BONUS?

AN IMPORTANT JUDGMENT

AFFECTING SHAREMILKING AGREEMENTS

VERDICT IN FAVOUR OF. SHAREMILKER’S CLAIM '

A judgment which will have a far-

reaching influence and will affect many » sharemilking agreements has been given by Mr J. H. Salmon. S.M., in connection with the case heard in Te Aroha some weeks ago in which John B Gemmell claimed from Hugh Magill a share of a bonus to share'holders which the defendant, who was a shareholder of the N.Z. Co-op. Dairy Co., had had deducted from his cheque by the Company for payment of installment of shares. The defendant had only paid plaintiff his share of the bonus, paid to all suppliers, that he had received. Mr E. McGregor appeared for the plaintiff, and Mr G. Gilchrist for the defendant. The judgment was as follows: — “This is a dispute arising out of a sharemilking contract, and a claim and counter-claim are before the court. The terms of the agreement between the parties were hot put into writing, and there is a coriflict of evidence as to those terms. Gn this point there is only the evidence of the I plaintiff and the .defendant. The K plaintiff swears: T was engaged on terms one-third share of milk cheques one-third share of bonus, and onethird 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 that if you stay a year.’ The plaintiff was not shaken on the point. The defendant in his evidence .in chief stated: 'ln May or June, 1922, I put in an advertisement for a sharemilker with a. strong family. Plaintiff applied. I made the arrangement with plaintiff to pay hijn one-third of all I got from the company. I ran two sheds. The sharemilker was to get one-third calves and one-third of the litters. I was to supply the sows.’ In crossexamination he stated: ‘Gemmel’s term was to be from July 1 to June 30. He was to receive one-third of all money received by me from the company by way of butter fat.’ In giving his reply the defendant, possibly unintentionally or accidentally, included the word ‘bonus’ but corrected himself immediately. On two subsequent occasions I 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 a third of all the cheques that I receive, from the dairy company. I don’t think bonuses were mentioned.’ On the second occasion, at the adjourned hearing of the case, the defendant, in reply to the samp question from the bench said: ‘I said you receive a third of all cash received by me from the company.’ That is the evidence. The plaintiff is an elderly or middleaged man of considerable sharemilking experience. In" view of the importance which would naturally be attached to the division of the bonus, I think the probabilities are strongly in favour of the view that the bom s 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 to the fact that the arrangement deposed to by him was the same arrangement that he had made with all his sharemilkers from '' ime time, and that his arrangement \ ,-ith them was a verbal arrangement. I 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, whd 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. The witness admitted that he did not understand the bonus system, and in cross-examinations stated that he did not know what payments he had received, nor what he was entitled to. TLAs 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, because it is clear upon the authority of Lawrence v. Handley that an arrangement to pay ‘one-third of all milk cheques,’ which is, I 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, moreover, 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 to'pay to the plaintiff onethird of the amount 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 Id per lb on all butterfat supplied during the season, credited only to suppliers who are shareholders in the company. This special credit of Id per lb is made by the company to shareholders to cover calls of the same amount in respect of their liability on the shares issued to them. A shareholder in the butter branch, under the Rules or By-laws of the company, must take up one share for every 701 bof butter-fat supplied by him during the season. Under the rules referred to the company may not allot shares to a supplier without his consent, unless he is already a shareholder. If,j however he is already a shareholder, the company is entitled under its rules to allot him one share in respect of every 701 bof butter-fat supplied. When a dairy farmer commences supplying the company he has the option of saying whether he desires to take up shares. If he does not take up any shares then the allotment above-men-tioned follows automatically, and since the total amount of butter-fat supplied by any particular shareholder cannot be ascertained until the end of the season, it follows that the allotment may be increased from time to time. A shareholder is not called upon to pay for his shares in cash, though apparently the company retains the right to call up the amount due by him at any time.- This appears to be a precautionary measure for disclipinary purposes, which might, as explained by the actingmanager of the company, be exercised in the event, of a shareholder leaving this company to supply another. The shareholders are 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 shareholders’ shares become paid up after a period of six years, the company in the meantime working on overdraft. The shareholders’ bonus, according to the evidence of the act-ing-manager, Mr J. A. Sinclair, is now Id per lb, and the call against this is Id, made up of £d in respect of the shareholders’ liability on his butter shares, and 2d 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 probably 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.

“The shareholder, as already explained, is not caled upon to pay cash for his shares, but they are paid for over a period of time by means of this system of crediting a special bonus to shareholders. The question then arises what in the nature of the asset acquired by the shareholders, and in this connection I refer to the evidence of Mr J. A. Sinclair, whose evidence generally .furnished a very lucid explanation of the system.

“It is obvious that the shareholder, apart from the probable benefits of being a shareholder in the company, acquires an asset in these shares. This view is expressed by the company itself on the cover of a pamphlet written by Mr Sinclair, and published under the authority of the company, which was put in evidence, whereon it is stated: ‘There is no compulsion upon any supplier to become a shareholder, but it pays you to do so.’ ‘Shareholders receive a special payment over and above that paid to the non-shareholders. No initial payment is required in taking up shares, but this special payment accumulates year by year until the allotted shares are fully paid up, after which this special extra payment is made in cash. Shares thus cheaply gained are negotiable assets, and are redeemable.’ In 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: ‘The full prices received by us less management and trading expenses are credited -to the shareholders. There is no fictitious credits made" against liability in respect of shares. We would actually have the money in hand before we would credit our shareholders with this shareholders’ bonus in respect of their liability on shares. Assuming that all our shareholders were foolish enough to pay up the full amount of their liability on their shares, we would have to distribute the cash.’

“In going so far into the financial methods of the company I have no intention of criticising the system. It is probable that the system confers very substantial benefits on shareholders. 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 is clear that these shares are not a gift from the company, and it is clear also that the money which pays for these shares is part of the proceeds from the sale of butter-fat—money which, if not applied in diminuition of the shareholders’ 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 1918 in the case of Burgess v. Brady. Ido not know what information the court had before in in that case, but I cannot agree with the conclusion arrived at in that judgment. It was argued for the defence that the case of Lawrence v. Handley was distinguishable, because in that case the company paid no shareholders’ bonus, but only a dividend on capital and a bonus on all butter-fat supplied. It is true that that case presents some different features, but it also, I think lays down certain principles which are peculiarly applicable to the present case. I refer to the following passages in the judgment of His Honour Mr Justice Hosking: ‘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 shares, one might at once 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 factory.’ And in another passage on the same page His Honour states: ‘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 supplies.’ ‘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 he was to pay plaintiff one-third of all he 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 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 this 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 been paid to him in cash, as admitted by the acting-manager of the company. For these reasons I hold that plaintiff is entitled by the terms of the verbal agreement to onethird of these bonuses or deferred payments or shareholders’ bonus or 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 of £1 Is on account of bonuses. He would, therefore, in the ordinary course be entitled to one-third of £l5B 10s 2d, viz., £52 16s Bd, but the plaintiff on June 18, 1923, signed and gave an order to one Russell for 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 coun-ter-claim.

“The second paragraph of the statement of claim relates to a claim for £4, being the balance of the proportion of the 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 later was anxious to go

to defendant’s place about June 18 or 19, because his then employer had another sharemilker coming in. The plaintiff found out from an outside source that defendant had engaged another sharemilker 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 clear 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 for the purpose of removing his effects, and I accept the evidence that defendant’s two sons assisted plaintiff to load his effects on to the waggons. It is equally clear that the plaintiff, at that time, desired to terminate the agreement at once. In these circumstances I 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 after that date.

“Paragraph 4 of the statement of claim represents a claim for a balance alleged to be due on pigs. It is clear on the evidence, however, that plaintiff agreed to sell his share in the pigs to Morrison, the incoming sharemilker, 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 iior 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 runing 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 condict of evidence as to the condition of the engine and plant when plaintiff took over. To deal first with the 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 as to the condition of the plant, particularly the cups and claws, is stronger still. There is no doubt chat the cups supplied were unsatisfactory. Accepting the principle to be applied in these cases, I 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, I think the plaintiff is entitled to recover £8 4s 3d.

“Coming to a consideration of the counter-claim. The first item of the claim is disallowed. The 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 which was heavy, were directly responsible for the death of the sow, in circumstances displaying ill-terat-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. I have already discussed the circumstances in which the plaintiff left. There is no doubt that defendant desired him to leave on that date to make room for Morrison, and I am satisfied that the waggons were lent on that occasion.

“The defendant will be entitled to judgment on the counter-claim for £5 with costs on that amount and solicitors’ fee and witnesses’ expenses on the point on which the counterclaim succeeds, viz., the death of the sow. The only witness called for the defence on this point was the defendant himself. The defendant will therefore be entitled to one day’s expenses. The costs and expenses will be fixed by the clerk of the court.

“There is one matter which remains to be discussed, which was the subject of considerable legal argument. On June 18, 1923, the day before the agreement between the parties was terminated by mutual arrangement, the plaintiff gave to one Russell, a storekeeper, an order for £3l 0s 4d on defendant. This appears to have been presented to the defendant in due course, but he has declined to pay the sum, and the defendant gave

as his reason for declining to pay the same the fact that he received a letter from plaintiff’s solicitors demanding payment of all moneys due to the plaintiff in full. That letter was written on July 26, 1923, some few weeks after the order was given. It was argued on behalf of the defendant that the order amounted to an assignment within the terms of section 46 of the Property 1 Law Act, 1908, that it was an assignment because it indicated a special fund, and that it was an assignment of part of that fund. It is I think clear that if this document is to be construed as an assignment, it can only be as an equitable assignment.

“Upon the whole, I think that the v/eight of authority is in favor of the view that this order given by Gemmell to Russell, addressed to Magill, and presented to Magill, specifying a certain sum and designating a certain fund, must be constrused 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 to the debtor, and the plaintiff Gemmoi would not, therefore, be entitled to include this sum in his present claim; though it is probable in equity that the assignee might have to join the 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, I think, avoid further litigation, and would probably be conclusive as against the plaintiff. “The result is, therefore, that the plaintiff will be 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 be entitled to judgment; The plaintiff is also entitled to judgment for £8 4s 3d on paragraph 4 of the claim. Judgment will, therefore, be entered for the plaintiff on the claim for £29 6s lid, with costs and solicitors’ fees on that amount, and witness’ expenses to be fixed by the clerk/of the court. The plaintiff will be entitled to his expenses for two days.”