BONUS PAYMENTS

Waikato Times, Volume 127, Issue 21199, 23 August 1940, Page 6

BONUS PAYMENTS

FALSIFIED ACCOUNTS DAIRY COMPANY’S POSITION RECLAMATION FROM SUPPLIER A reserved judgment in the case in which the Oparau Co-operative Daipr Company, Limited, proceeded against Richmond Thomas Davies, farmer, of Oparau, for £l2O 16s 6d, as reclamation of money paid out on ,an incorrect balance-sheet, was delivered by Mr S. L. Paterson, S.M., in the Magistrate’s Court, Hamilton, to-day. The case, which was an echo of the company’s 1936-37 season, when thefts and falsifications oi the balance-sheet resulted in the secretary being sent to prison, was heard in the Magistrate’s Court on July 12 last. The case for the company was conducted by Mr F. A. Swarbrick, and defendant was represented by Mr A. L. Tompkins, instructed by Mr R. D. McFarland. Relying on its balance-sheet for the year ended May 31, 1937, the company paid out £1646 to its suppliers by way of bonus, of which defendant received £125 10s sd. When the falsifications were discovered a loss of £469 10s 6d on the year’s working was disclosed. This sum was included in the amount paid out to the suppliers, including defendant, by way of monthly payments. His share was £33 9s lid. In September, 1938, the directors resolved that the over-payments should be recovered, suppliers who had severed their connections being called upon to pay their shares forthwith, and a deduction, being made from the monthly cheques of remaining suppliers. In May, 1937, defendant had ceased to be a supplier. He had received a credit of £32 3s 10d, leaving a claim of £126 16s 6d by the company.

Distribution of Profits In delivering judgment the magistrate said he did not agree with the defence that the settlement of the Supreme Court action against the auditors and directors, including the defendant, amounted to an accord and satisfaction of the claim against the defendant. That was an action for damages for negligence and breach of duty. Davies also claimed that the bonus payment was in the nature of a dividend or distribution oi profits, and could not be recovered if received without knowledge that it was paid out of capital. However, this argument overlooked the essential nature of the business of a cooperative dairy company, and the relation between it and its suppliers. ‘‘Defendant states that any mistake of fact was a mistake between the company and its servants, and not between the party paying and the party receiving, and therefore the plaintiff cannot recover,” said the magistrate. “In my opinion there was a mistake of fact on the part ot the party paying and between it and the party receiving. This is also involved in the relations between the company and its suppliers. The position is that the suppliers supply their cream to the company on the condition that the company will market and produce and distribute the proceeds among the suppliers. A mistake as to the amount received and available for distribution after deduction of contemplated expenses is a mistake of fact between the company and its suppliers. Facts Not Known “Defendant also says that part ot the loss for the year was a loss of capital, which should be spread out and not allocated to that year, but I have some difficulty in appreciating this argument. He also states that by virtue of the company’s articles of association, which provide that every account of the directors, when audited and approved by a general meeting, shall be conclusive except as regards any error discovered within three months after the approval, the company is stopped from going behind the balance-sheet. The important point, however, is thai ‘approval’ means approval with a knowledge of all the facts. Had the true facts been before the meeting it would not have approved the balance-sheet. The defendant cannot take advantage of this article honestly to retain a benefit to which he is neither in law nor equity entitled.” A further defence, stated the mag istrate, related to a protection order in favour of defendant, made under the Mortgagees and Lessees Rehabilitation Act, 1936, but this affected only the form of the judgment which might be given. The rights and liabilities of co-operative dairy companies and their suppliers had fre quently been considered by the courts, and although the articles of association might vary slightly in detail, the principles on which such companies operated were similar, and the relations between the companies and their suppliers were not to be determined by nice questions as to the meaning of the articles of association. The almost invariable practice ot such companies and the practice followed by the plaintiff company was not to distribute the profits as dividends, but to pay them out to the suppliers as payments for milk, i Where greater payments were made than the company’s operations warranted, such payments could be recovered by the company, whether the company’s articles so provided or not. On these principles plaintiff was entitled to succeed, and judgment was entered for the company for £126 16s 6d and costs.