Failure of consideration.

Form 1. paid-up shares are issued under a contract daily filed, the failure of the consideration for which they were issued does not entitle the company to treat the shares as unpaid. Thus, in Mege and Augier's case, W. N. 1875, 208, the vendors agreed to assign certain patents to the company in consideration of the issue to them of paid-up shares. The contract was filed and the shares were issued, but the vendors failed to assign the patents. It was held, nevertheless, by Jessel, M. R., that the vendors could not be put on the list of contributors. See also Carling's case, 1 C. Div. 115. So too where paid-up shares are issued under a contract, fraudulent and ultra vires of the directors, but duly filed, such shares cannot be treated by the company or its liquidator as unpaid. De Ruvigne's case, 5 C. Div. 306. The company must either approbate or reprobate the contract. And it would seem that where paid-up shares are issued under a contract duly filed but ultra vires of the company, they cannot be treated as unpaid. See Anderson's case, per Jessel, M. R., 7 C. Div. 75, but this seems inconsistent with the word contract being used in its technical sense.

Ultra vires contract.

Whether sufficient to file a sub

contract.

Articles not a contract within Section 25.

Meaning of

word "cash"

in Section 25.

(6.) As to filing sub-contract.-Where an agreement in writing is made for the issue of paid-up shares it sometimes happens that the parties desire to avoid filing it, either on account of its being very long or because it contains matter which it is inexpedient to expose to public inspection. In such case it is not uncommon for the parties to execute and file a separate contract, briefly referring to the principal agreement and providing for the issue of the paid-up shares. See example, infra, Form 19. To this plan there would seem to be no objection, at any rate if the contract filed shows the consideration for which the shares are issued.

(7.) Articles not a contract in writing.-As a general rule the articles of association cannot be deemed a contract in writing within the meaning of s. 25 of the Act of 1867. Firmstone's case, 20 Eq. 524; Crickmer's case, 10 Ch. 614; Pritchard's case, 8 Ch. 960. Accordingly, where the articles provide for the issue to a vendor, promoter, or other person of paid-up shares, a separate contract in writing must be executed and filed before the issue of the shares. It may be that the articles can be so framed as to operate as a contract within s. 25, and in the Appletreewick Lead Mining Co., 18 Eq. 95, it was held by Malins, V.-C., that a contract contained in the articles in that case was sufficient; but as it is not desirable to run risk in such matters it is expedient to file a separate agreement.

(8.) As to the meaning of the word cash in s. 25.-Shares are to "be deemed to have been issued and to be held subject to the payment of the whole amount thereof in cash," unless a contract is filed. The word cash here does not mean current coin or bank notes merely. Any transaction which in an action at law for calls on the shares would have supported a plea of payment will be deemed to be payment in cash. Thus if a company is indebted to A. in a sum presently payable, and A. is the holder of shares unpaid or only in part paid up, an agreement between A. and the company that the amount shall be credited as paid up on the share is equivalent to payment in cash, and the contract need not be in writing or filed. Spargo's case, 8 Ch. 407. But “in order to prove a plea of payment when there has been no payment in money, you must bring the transaction within these two propositions. There must be money due from the one to the other on both sides, and the parties must agree to set one demand of money against the other demand of money." Per Brett, L. J., White's case, 12 C. Div. 517.

In considering whether there is a debt due to the company it appears that the amount due on a share, even though not actually called up, may be treated as a debt presently due. Spargo's case, 8 Ch. 407; White's case, ubi supra; Bentley's case, 12 C. D. 851.

Moreover, the shares need not have been allotted prior to the agreement to set off, for where a company is indebted to A. in cash, and A. agrees to accept payment in fully paid-up shares, that amounts to payment for the shares in cash. In re Barrow-in-Furness, 14 C. Div. 400. But see Rowland's case, 42 L. T. 785.

And where a person has a bona fide claim (even though unliquidated) against a company, and by way of compromise it is arranged that in catisfaction, or part satisfaction, the company shall credit a sum as paid up on the share of the claimant, or of some other person, that is equivalent to cash. Ferrao's case, 9 Ch. 355; Adamson's case, 18 Eq. 670; Bentley's case, 12 C. D. 851.

But where a company agrees to issue paid-up shares in consideration of pro perty sold, or services rendered, it is impossible to treat the transaction as a cash payment, because the company never owed and never intended to owe any cash. Andress' case, 8 C. Div. 126; see also Pagin and Gill's case, 6 C. Div. 681; and Barrow, ubi supra. And the fact that the transaction is treated in the books of the company as a cash payment does not affect the matter. Andress' case, ubi supra; White's case, 12 C. D. 511; Newport Co., 42 L. T. 785; W. N. 1880, 80. And where the sale is for cash, with merely an option to satisfy in shares, if the option is exercised, the shares cannot be regarded as paid in cash. Barrow's case, 14 C. Div. 432. So too a surrender of a debenture not due cannot be treated as a payment in cash. Appleyard's case, 18 C. D. 587; 49 L. J. Ch. 290.

It must be borne in mind that in order that a transaction may be treated as payment in cash there must be bona fides. If the transaction is designed with a view to evade the Act it will fail. Spargo's case, ubi supra. Accordingly it is not uncommon in testimony of bona fides to file contract, even when a transaction would clearly amount to payment in cash.

Form 1.

(9.) As to meaning of issue.-As the contract must be filed before the "issue" Meaning of of the shares, it is of course important to ascertain the meaning of the word the word issue in s. 25. It is now settled that the issue is something different from the "issue" in allotment of the share or the issue of the certificates of title thereto. A share Section 25. is issued when the holder has acquired an absolute right thereto. It cannot be considered issued before allotment, but it may be considered issued although the certificate of title has not been issued. See Bush's case, 9 Ch. 554; Blyth's case, 4 C. Div. 140; and Clarke's case, 8 C. Div. 642. In order to avoid danger it is best not to allot till the contract has been filed, and contracts should be framed accordingly.

of association.

(10.) As to subscribing memorandum.-In framing a preliminary agreement As to vendor providing for the issue of paid-up or partly paid-up shares it must be con- subscribing sidered whether it is desired that the person to whom the shares are to be memorandum issued should or should not subscribe the memorandum of association for the same, since the terms of the agreement will vary accordingly. See clause 2 of the Form at p. 32. It is now settled that where a person subscribes the memorandum for shares he is prima facie bound to pay in cash, but before the issue of the shares he can, by contract with the company duly filed, arrange that the shares shall be credited as paid-up, for a consideration other than cash. Fothergill's case, 8 Ch. 282; Anderson's case, 7 C. Div. 75. It is essential to identify the shares, e. g. the contract should recite the subscription and provide that as the consideration for [the sale] the shares so subscribed for shall be deemed fully paid up or as the case may be.

(11.) Result of not filing contract.-If default is made in the filing of a contract Result of not in writing as to the issue of paid-up shares for a consideration other than cash, filing contract. the persons to whom shares are issued under it will be liable to pay up the shares in cash. It was at one time thought that the company could not make calls in respect of shares so issued. Spargo's case, 8 Ch. 407. But in the recent case of Burkinshaw v. Nicholls, 3 App. Case, 1016, Earl Cairns, L.C., was of opinion that the shareholder would have no answer to an action for such calls. The liability attaches not only to the original holder but to transferees who have notice actual or constructive that no contract has been filed. Blyth's case, 4 C. D. 140: In re Newport, &c., Co., Rowland's case, W. N. 1880, 80; 42 L. T. 785. Where, however, shares subject to such a liability are transferred to a bona fide purchaser, without notice of the liability, who accepts the shares on the footing of a certificate of title thereto, describing the shares as fully paid up, such purchaser is not under liability. He holds the shares as paid-up. Burkinshaw

Form 1.

Who is bound to see to filing.

Remedy where default in

filing.

v. Nicholls, ubi supra. And if the shares are subsequently transferred to a person who has notice that a contract was not filed, they will even in his hands be free from liability. Barrow's case, 14 C. Div. 433; 28 W. R. 270.

(12.) As to party bound to file.-Unless otherwise arranged between the parties, the obligation of seeing that the contract is filed rests with the company, and if the company issues the shares before the contract is filed it is liable in damages. In re Government Security Co., Mudford's claim, 14 C. D. 634; 28 W. R. 670; Appleyard's case, 18 C. D. 587. But query whether these cases can be relied on, regard being had to Houldsworth v. Glasgow Bank, 5 App. Cas. 317.

(13.) Remedy where default in filing.-If shares agreed to be issued as fully paid up for a consideration other than cash have been issued without the filing of a proper contract, the Court will, upon the application of the company or of the party aggrieved, make an order to rectify the register by striking out the names of the allottees, to the intent that the contract or a contract may be filed and the shares re-issued. New Zealand Kapanga, &c., Co., 18 Eq. 17; Denton Colliery Co., 18 Eq. 16; and see " Orders," infra. But it must be shown that the allottees were ignorant of the omission to file the contract. See the cases last mentioned and the Droitwich Salt Co., W. N. 1874, 133. Instead of applying to the Court, the allottees may in such case apply to the company, and the directors will be justified in cancelling the allotment and removing the allottees' names from the register, and after the contract has been filed, reissuing the shares to the parties entitled thereto. Hartley's case, 10 Ch. 157. As to issuing shares at a discount and bonus shares, see infra, p. 39.

Form 2. CONTRACT to FILE where PAID-UP SHARES issued without compliance with Section 25 of the Act of 1867.

Parties.

AN AGREEMT made the

called the co), of 1st part;

day of of

between (hereinafter (hereinafter called the vendor),

Recitals.

of the 2nd part; and A. on behalf of, the several persons specified
in the second schedule hereto (hereinafter called the shareholders), of the
third part: WHEREAS on or about the
day of
the vendor and
the co entered into the agreemt (hereinafter called the preliminary con-
tract), a copy whereof is set forth in the first schedule hereto. [AND
WHEREAS shortly afterwards that agreemt was duly filed with Registrar of
Joint Stock Companies.] AND WHEREAS each of the shareholders is the
registered holder of the shares of which the parlars are set opposite his or
her name in the second column of the second schedule hereto: AND
WHEREAS the sd shares were all allotted pursuant to the preliminary
contract and by the direction of the vendor, and upon the footing that
they were to be deemed fully paid. AND WHEREAS doubts have arisen
whether the preliminary contract is a sufficient contract in writing
within the meaning of S. 25 of the Companies Act, 1867, and it is de-
sired to preclude any further question in regard thereto [or, AND WHEREAS
by mistake the preliminary contract was not filed with the Registrar of
Joint Stock Companies before the issue of the sd shares, and the parties
hereto were at the time of such issue, and until recently, wholly ignorant

of the omission to file the same, and they have required the co to Form 2. rectify such mistake]: AND WHEREAS the sd A. B. has been duly authorised to enter into this agreemt on behalf of each of the shareholders. NOW THEREFORE IT IS AGREED as follows:

1. This agreemt shall forthwith be filed with the Registrar of Joint File contract. Stock Companies.

2. The co shall forthwith cancel the respive allotments made as Cancel aforesd, and shall remove the name of each of the shareholders from allotments. the register of members in respect of such shares, and the certificate of title, if any, which has been issued to or is held by each of the shareholders shall be forthwith given up to the co to be cancelled.

3. Subsequently with all convenient speed the co shall in lieu of Re-allotment. cach of the shares now held as aforesd allot and issue to the present holder thereof a 17. share in the co's capital, and every share so allotted shall be deemed for all purposes to be fully paid up. And the shares so to be allotted shall be numbered in the manner specified in the fourth column of the same schedule.

4. The shares allotted pursuant to the last preceding clause hereof Consideration. shall be deemed to be part of the shares to the issue whereof the vendor became entitled under the preliminary contract.

Where shares have been issued credited as paid-up for a consideration other than cash, and by mistake a proper contract has not been filed, it may be possible to rectify the mistake without going to the Court, especially where no return has been made to the Registrar. See Hartley's case, 10 Ch. 157. But the question of bona fides is very material. Where the shares have been issued without the execution of any contract, as in Denton Colliery Co., 18 Eq. 17, the contract should recite the facts and provide for the issue of the shares and their acceptance in satisfaction.

Form 3.

Parties.
Recitals.

Agreement to sell.

Consideration.

Incidental provisions.

Completion.

AGREEMENT for SALE of PATENTS CONSIDERATION, CASH, and
FOUNDERS' SHARES.

AN AGREEMT, &c., parties, vendor, 1; co, 2.

WHEREAS the vendor is the owner of the several patents specified in the schedule hereto and hereinafter referred to as the scheduled patents: AND WHEREAS the capital of the co consists in part of 100 founders' shares of 11. each

NOW THESE PRESENTS WITNESS AND DECLARE as follows:

1. The vendor shall sell and the co shall purchase, first, the scheduled patents and the full and exclusive benefit thereof; and, secondly, the benefit of all improvements on the inventions referred to in the sd patents respectively, and of all further inventions in connection with the manufacture of which have been already or may hereafter be made by the vendor, and all British patents which may be obtained by or on behalf of the vendor for any such improvements or further inventions, and the full and exclusive benefit thereof.

Having regard to the Patents, Designs, and Trade Marks Act, 1883 ( 46 & 47 Vict. c. 57), there is no need to provide that the purchaser shall be entitled to apply for extensions, or to sue for infringement, or to disclaim, inasmuch as the Act and the patent together confer the requisite powers on the owner of the patent for the time being. As to the validity of a sale of future inventions, See Printing, &c., Co. v. Sampson, 19 Eq. 462; 23 W. R. 463; 32 L. T. N. S. 354.

2. As the consideration for the sale the co shall pay to the vendor the sum of 3,000l. cash, and shall issue to him or his nominees the whole of the sd founders' shares, and such shares shall be deemed for all purposes fully paid up.

3. The vendor shall from time to time, with all convenient speed, communicate to the co or its assigns all such improvements and further inventions, and shall give them full information as to the exact mode of working and using the same, and shall from time to time at the request and expense of the co execute and do all such documents and things as may be requisite for the purpose of enabling the co to obtain British patents for such improvements and further inventions, and shall from time to time and at all times during the term of years to be computed from, &c., and without making any charge therefor, give all such advice, explanation, and instruction to the directors and other officers and workmen of the company as may be necessary to enable them effectually to exercise and work such improvements and further inventions respectively, and shall for such purposes at the expense of the co prepare and furnish to the co all necessary plans, drawings, and models.

4. The purchase shall be completed on the day of ——, at, &c., when the said sum of 3,0007. cash shall be paid to the vendor, and the sd founders' shares shall be allotted as aforesd. And thereupon and from time to time, and at any time afterwards, the vendor shall at the