in the pound, or dying in insolvent circumstances, the lender of any such loan as aforesaid shall not be entitled to recover any portion of his principal, or of the profits or interest payable in respect of such loan, nor shall any such vendor of a goodwlll as aforesaid be entitled to recover any such profits as aforesaid until the claims of the other creditors of the said trader for valuable consideration in money or money's worth have been satisfied.

6.-Interpretation of "Person."

In the construction of this Act the word "person" shall include a partnership firm, a joint stock company, and a corporation.

PROMOTERS.

(See AGENTS.)

Fiduciary relation to the Company.

(i.) The promoters of a company stand in a fiduciary relation towards it, and are bound to give the company the opportunity of exercising, through fair and independent directors, an independent judgment upon all matters affecting its interest.

(ii.)—They have in their hands the creation and moulding of the company; they have the power of defining how, and when, and in what shape, and under what supervision it shall start into existence and commence to act as a trading corporation. If they are doing all this in order that the company may, as soon as it starts into life, become, through its managing directors, the purchaser of a property from themselves, the promoters, it is incumbent upon them to take care that, in forming

the company, they provide it with a board of directors, who shall both be aware that the property, which they are asked to buy, is the property of the promoters, and who shall be competent and impartial judges as to whether the purchase ought or ought not to be made. (Per Cairns, L. C.).—Erlanger v. New Sombrero Phosphate Co., 1878, H. of Lords; L. R. 3 App. Cas. 1218; 39 L. T. (N. s.) 269; 48 L. J., Ch., 73; 27 W. R. 65,

(iii.)-It is an entire mistake to suppose that, after a company is registered, its directors are the only persons who are in such a position towards it as to be under fiduciary obligations to it. A person, not a director, may be construed to be a promoter of a company, which is already incorporated, but the capital of which has not already been taken up, and which is not yet in a position to perform the obligations imposed upon it by its creators.-Twycross v. Grant, 1877, Ct. of App.; L. R. 2 C. P. Div. 469; 36 L. T. (N. s.) 812; 46 L. J., C. P., 636; 27 W. R. 701.

(iv.)-A company can recover from a person (who is found to have been covertly acting as a promoter, while his name appeared on the prospectus in another capacity), any money (or the value of shares) he has received as a gift from the vendors or ostensible promoters, although the company's contract with the latter has not been rescinded.-Emma Silver Mining Co. v. Lewis, 1879, C. P. Div. (Coleridge, C. J., Denman and Lindley, JJ.); L. R. 4 C. P. Div. 396; 40 L. T. (N. s.) 749; 48 L. J., Q. B.,

PROMOTERS' CONTRACTS.

1.-What Contracts must be disclosed in order to comply with Section 38 of the Companies Act, 1867.

(i.)-In Twycross v. Grant (see PROMOTERS) it was decided that the contracts, which must be disclosed, in order to comply with section 38 of the Companies Act, 1867, are contracts that are calculated to influence persons reading a company's prospectus in making up their minds whether or not they will apply for shares in it.

(ii.)-In the case of Sullivan v. Mitcalfe, on which judgment was given, June, 1880, by the Court of Appeal, the question again turned upon the construction of section 38.

"A company was formed for the purchase of a patent. The purchase money was to be £56,000 and the contract to this effect was duly set forth in the prospectus. But by a series of secret contracts, not set forth in the prospectus, the vendor was, in effect, to receive £2,000, the balance being paid back to the promoters, or some of them, and divided amongst them without the knowledge of the shareholders. When the plaintiff, who had subscribed £1,600 for 200 shares, discovered these facts he brought an action for the recovery of his money.

"The defendant pleaded that the contracts between the vendor and promoters were not contracts within the meaning of the Act, but their plea was overruled by Grove, J."

(iii.)—In the above case the Court of Appeal decided that the enactment includes every contract, made before the prospectus is issued, the knowledge of which might have an effect upon a reasonable man in determining

F

him to give, or withhold, faith in the concern, whether or not it would impose any liability on the company;in other words, that all contracts should be disclosed, which relate to the formation of the company, or its capital, property, or business when formed, or its position with regard to its promoters, or vendors, or directors, if any of the parties are promoters, directors, or trustees.Sullivan v. Mitcalfe, 1880, Ct. of App. (Baggallay and Thesiger, L. JJ.,—Bramwell, L. J., dissenting); W. N., 1880, p. 132. (Grove, J., affirmed.)

(iv.)-This decision disposes of the argument that it does not matter to the purchaser what the vendor does with the money received; for the Courts hold that it matters very much indeed, if he pays part back as a ‘pot de vin' to the agents through whom the purchase was effected. The point is well put by a writer on the subject:

"The principle of a reasonable commission for agency is recognized in all commercial transactions; but it is altogether distinct from an exorbitant and clandestine payment to promoters and directors, who are thus secretly converted into agents seeking only their own profit, while they remain openly purchasers, supposed to be acting in the interest of the whole body of shareholders.

"Such a transaction at once dissociates the interests of the directors from those of the shareholders. Their profit is fraudulently made at the outset, and they have no longer any material interest in the future welfare of

the company; they have pocketed the shareholders' money committed to them on trust for other uses; they have purchased a worthless article on the strength of their own credit and repute; and they are as plainly guilty of fraud, in a moral sense at least, as any thimblerigger on a racecourse."

2.-Contracts before Registration of Company— NonRatification-Condition for their adoption by Company.

(i.)-In the case of Melhado v. Porto Allegre Railway Co. (L. R. 9 C. P. 503), Coleridge, C. J., said:—

"There can be no implied contract between a company and its promoters, and a company cannot ratify any contract purporting to be entered into on its behalf before it is registered." On this principle was decided the case of Kelner v. Baxter (L. R. 2 C. P. 174), in which the defendants had signed the contract as agents for a proposed company, and the Court held that if the company had existed at the time of the contract, the persons signing it would have signed as the agents of the company; but, as it was not then existing, the contract must be binding on them personally, and that they could not be discharged from their liability under the contract by its adoption by the company without the consent of the plaintiffs, the other contracting parties. Willes, J., observed therein :

"I apprehend the company could only become liable on a new contract, Could the company become liable