Plan 3. Reasons why ferred. Best course. Personal liability of person contracting on behalf of a company not yet formed. Agreement should be time prepared and settled with the like privity. In the articles is inserted a clause [see infra, p. 115] referring to the agreement and authorising or requiring the directors forthwith to affix the scal of the company thereto, or declaring that the company shall forthwith execute the agreement. The memorandum and articles are then registered, and the registrar issues his certificate. At the first meeting of the directors the agreement is taken into consideration, and a resolution passed for its adoption. The vendor is informed of the resolution, and a day appointed for completion, when the agreement is executed and in due course carried into effect. PLAN 3. This plan only differs from Plan 2 in one respect, namely, that the articles do not expressly refer to the agreement, but authorise the directors to purchase the property on such terms and conditions as they think fit. These general powers are quite as effectual as an authority to adopt or enter into a specific agreement. Overend & Gurney Co. v. Gibb, L. R. 5 H. L. 480. But the other plans are generally adopted. Plan 1 is sometimes preferred because: (a) Before going to the expense of forming the company, the promoters may desire to have the vendor bound to sell on specified terms. This reason does not apply where the vendor is the promoter, or where the promoters are in a position to dictate to him. (b) The promoters may desire absolutely to bind the company to acquire the property upon the terms arranged by them before its incorporation. With a view thereto, the terms are embodied in a contract as in Plan 1, and in the articles a clause is inserted directing the directors to carry the contract into effect. Promoters sometimes think, and perhaps rightly, that, if the contract has already been executed and only waits for adoption, the directors will be less likely to raise questions as to the terms fixed than would otherwise be the case. But it must not be supposed that any such clause can bind the directors, or that it releases them from the obligation to consider whether or no the adoption of the contract is for the company's benefit. Whenever there is no particular reason for adopting Plan 1, it is expedient to adopt Plan 2 or 3, for by the adoption of either of those plans, the company becomes bound in due course without any appearance of the contract having been forced on it, and without the necessity for an adopting contract. See the notes to Forms 117, cl. 3, and 139, infra. Where, as in Plan 1, a person purports to contract as agent for a company not yet formed, he is, in the absence of a provision in the contract to the contrary, personally liable on the contract. Kelner v. Baxter, L. R. 2 C. P. 174. Nor is he relieved from liability by the subsequent adoption of the contract by the company. Scott v. Lord Ebury, L. R. 2 C. P. 255. It is, however, seldom or never the intention of the parties that the framed so that agent should be so liable, and accordingly, the agreement is so framed that his liability will be merely nominal. This is effected as follows: The agent agrees that the company shall purchase the property; a future so his liability nominal. day is fixed for the completion of the purchase; it is provided that upon should be the adoption of the agreement by the company, the liability of the agent merely shall cease, and that if the company does not adopt the agreement before a certain day (prior to the day fixed for completion), the agent may at any time afterwards rescind it. The effect of these provisions is, that if the company adopts the agreement, the agent is freed from liability, and if the company does not adopt it in due course, the agent, before the time fixed for completion, rescinds the agreement, and thereby terminates his liability before he has had to do anything under the agreement. rescind. A proviso thus limiting the liability of the so-called agent is valid; Proviso limiting liability of but, not uncommonly, it is provided that he shall incur no personal agent valid; responsibility whatever. Such a proviso is treated as repugnant and secus, if purvoid, the result being that the agent is personally bound to perform the relieve him contract. See Furnivall v. Coombes, 5 M. & Gr. 736, and Williams v. from all liability. Hathaway, 6 C. D. 544. When a company is started to acquire a specific property, and the Power to capital is to be raised by public subscription, it is not unusual so to frame the agreement for the purchase of the property, that if within a fixed period a certain number of shares are not taken, the company can rescind. The object of course is, that if the company should fail in raising the funds necessary to enable it to commence business, it may be able to get rid of the agreement. Sometimes a similar power is given to the vendor, for he may not be willing to sell to a company which has not the means to develop a property for which he is probably to be paid partly in shares; or his own right to sell may be contingent on a certain number of shares being taken up. As to filing agreements providing for the issue of paid-up shares, Filing consection 25 of the Act of 1867, provides that Every share in any company shall be deemed to have been issued, and to be held, subject to the payment of the whole amount thereof in cash, unless the same shall have been otherwise determined by a contract duly made in writing and filed with the registrar of joint stock companies at or before the issue of such shares. Accordingly, whenever an agreement provides for the issue of paid-up or partly paid-up shares as the consideration or part of the consideration for property or rights sold or services rendered to the company, the agreement should be duly filed pursuant to the above section before the shares are allotted, otherwise the allottee will be liable to pay the nominal amount thereof in cash. See further as to this section, infra, p. 10. As to what contracts of a company must be under seal. By s. 37 of the Companies Act 1867, it is provided as follows: Contracts on behalf of any company under the principal Act may be made as follows, that is to say, (1.) Any contract which, if made between private persons, would be by law required to be in writing, and if made according to English law to be under seal, may be made on behalf of the company in writing under tracts as to issue of paid up shares. Section 37 of Act of 1867 as to contracts. Effect. Construction Authority of agent. the common seal of the company, and such contract may be in the same manner varied or discharged: (2.) Any contract which, if made between private persons, would be by law required to be in writing and signed by the parties to be charged therewith, may be made on behalf of the company in writing, signed by any person acting under the express or implied authority of the company, and such contract may in the same manner be varied or discharged: (3.) Any contract which, if made between private persons, would by law be valid although made by parol only, and not reduced to writing, may be made by parol on behalf of the company, by any person acting under the express or implied authority of the company, and such contract may, in the same way be varied or discharged: And all contracts made according to the provisions herein contained shall be effectual in law, and shall be binding upon the company, and their successors, and all other parties thereto, their heirs, executors, or administrators, as the case may be. This statutory power, it will be observed, applies to all companies registered under the Act of 1862, and by virtue of it all such companies may, except as regards the contracts specified in Sub-section (1), contract without seal. The power may, of course, be qualified by the articles of association. As to who is a "person acting under the express or implied authority of Section 37. of the company," under Sub-sections (2) and (3) of the above Section :This will depend on the regulations of the company. Generally speaking the directors have express or implied authority to enter into all contracts necessary for carrying the objects of the company into effect, and of course, a board meeting can exercise the authority. If the board approves of a contract the directors assembled thereat can sign the contract on behalf of the company, pursuant to Sub-section (2). In most companies the directors can delegate their powers, or any of them, to committees consisting of such member or members of their body as they think fit, and, where this is the case, the power to enter into a specific contract, or into contracts generally, can be vested in the committee, and a contract signed by the committee will be binding. So, too, where there is power to appoint agents, &c., or to delegate to a manager or other person. See further as to who is a duly authorised person, Beer v. London and Paris Hotel Co., 20 Eq. 412; Browning v. Great Central Mining Co., 5 H. & N. 856; 29 L. J. Ex. 399; Royal Bank of India's Case, 4 Ch. 252; Re Land Credit Co., 4 Ch. 460. As to what contracts a trading company may make without seal apart from the above enactment, see South of Ireland Colliery Co. v. Waddle, L. R. 3 C. P. 469; Pollock on Contracts, 133. Contracts without seal. Form of con. tract to be executed on behalf of a company. may As to the form which a contract to be signed on behalf of a company should take:-Suppose it to be a contract between A. B. and the company. It be expressed to be made (a) “between A. B. of the one part, and the company of the other part," or (b) “between A. B. of the one part, and C. D. [the person or persons authorised to enter into it], on behalf of the company, on the other part." The former is generally considered the best plan, but they are equally effectual. Aggs v. Nicholson, 1 H. & N. 165; 25 L. J. Ex. 348. Where Plan (a) is adopted the testimonium clause will run thus: "As witness the hands of the said A. B. and of C. D. [E. F. and G. H.], on behalf of the company," or "in witness whereof the said A. B. and two of the directors of the company on its behalf have hereunto set their hands." Of course no testimonium clause is necessary, and it will be sufficient if the contract is signed thus: A. B., C. D., for the Company. contract not liable if it If the agent is made party to the contract as in plan (b), the testimonium clause, if used, will run: "As witness the hands of the said. parties hereto the day, &c.," and the agent can, if he thinks it expedient, er abundanti cautelâ, qualify his signature by prefixing or adding words showing his agency. However, it is now settled that where an agent Agent signing enters into a contract on behalf of another, it is not essential, in order that he may avoid personal responsibility, to add any qualifying words to his appears on signature, e.g., "as agent for A. B.," or "on behalf of A. B.," or on account of A. B.," or "for A. B." Prima facie if he signs without quali- signs as agent. fication he is personally liable, but it is a question of intention, and if in the body of the agreement he purport to contract "as agent," or "on account of," or "on behalf of," or "for" another, he will escape liability. See Gadd v. Houghton, 1 Ex. Div. 357, decided by the Appeal Court. As to stamps :— 66 face of contract that he An agreement not under seal entered into by or on behalf of a company Stamps. generally comes under the following heading in the schedule to the Stamp Agreement not Act, 1870: "Agreement or any memorandum of an agreement made under seal. in England or Ireland under hand only, or made in Scotland without any clause of registration, and not otherwise specifically charged with any duty, whether the same be only evidence of a contract, or obligatory upon the parties from its being a written instrument," and accordingly requires a 6d. agreement stamp. By Section 36 of the Stamp Act, 1870, it is provided that the Adhesive duty of 6. upon an agreement may be denoted by an adhesive stamp, stamps. which is to be cancelled by the person by whom the agreement is first executed. cancelled. 'The mode of cancelling is prescribed by Section 24 of the Act, How to be namely: "An instrument, the duty upon which is required or permitted by law, to be denoted by an adhesive stamp, is not to be deemed duly stamped with an adhesive stamp unless the person required by law to cancel such adhesive stamp cancels the same by writing on or across the stamp his name or initials, or the name or initials of his firm, together with the true date of his so writing, so that the stamp may be effectually cancelled, and rendered incapable of being used for any other instrument, or unless it is otherwise proved that the stamp appearing on the instrument was affixed thereto at the proper time." Stamp for agreement under seal. How company should make simple contract. Whether agreement can be a conveyance. The same section also provides that every person who, being required by law to cancel an adhesive stamp, wilfully neglects or refuses duly and effectually to do so in manner aforesaid shall forfeit the sum of 107. As to stamping an agreement under the seal of a company :— It is generally assumed that every agreement by a company under its seal is a deed, and therefore if not otherwise specifically charged with duty by the Stamp Act, 1870, is liable as a "Deed of any kind whatsoever, not described in this schedule" (Schedule to the Act), ie. requires a 10s. deed stamp: and this appears to be the correct view. This is the view taken by the Commissioners of Inland Revenue, and accordingly every contract under a company's seal to be filed with the Registrar of Joint Stock Companies must be so stamped before it can be filed. Where a company desires to make a simple contract in writing, the proper plan appears to be to procure it to be signed on behalf of the company as above mentioned, p. 4. It will be just as binding as if under seal, and no difficulty can then arise as to the stamp. In settling an agreement for sale which has to be filed, care should be taken that it does not operate as a conveyance so as to be chargeable with the ad valorem duty upon conveyances on sale. It must be borne in mind that by S. 70 of the Stamp Act, 1870, "The term 'Conveyance on Sale' includes every instrument . . . . whereby any property upon the sale thereof is legally or equitably transferred to or vested in the purchaser or any other person on his behalf or by his direction." Where the agreement provides for payment of the consideration and completion at some future time, and contains provisions as to making out title or power to rescind, it cannot possibly be held a conveyance, but questions do sometimes arise on carelessly drawn documents. And the registrar is bound under a penalty of 107. to see that every document filed with him is duly stamped, S. 22 of the Stamp Act, 1870. |