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of principles to Joint Stock Companies.

one-half of the profits. The real actors in the business are the three sons of Mr. Smith. They make the contracts, they write to the creditors, in fact they con duct the whole business precisely in the same manner as if they alone constituted the partnership, with this exception that they continue to use the old name of Brown & Co., and pay annually one-half of the profits to Mr. Smith. Now, observe what happens: if the firm get into difficulties, and its affairs be wound up, the creditor cares nothing for the internal arrangement of the partnership. He enforces, if he please, the whole of his debt against the retired partners, Mr. Brown and Mr. Smith; leaving them, as they best may, to obtain compensation from the firm.

Assume for a moment that instead of the partnership of Brown & Co., a Joint Stock Company of 1000 persons is formed: a board of some twenty or more directors represents the three Smiths, the active partners; the general body of shareholders represents John Smith, the dormant partner; and counterparts may readily be found for John Brown, the ostensible partner, in shareholders who, having transferred their shares, have neglected to cause the transfer to be registered, and therefore appear to the world as shareholders. The same legal consequences follow in the case of this vast company as in the case of the simple partnership of Brown & Co. The directors have the same power of pledging the credit of the 980 shareholders that the three active partners had of pledging the credit of John Brown and John Smith, and the

creditor may at his option sue, for all the debts of the company, any one or more of the shareholders, ineluding the unfortunate transferors, who have parted with their whole interest, but have forgotten to have the transfer of their shares completed (a).

arising from

of law of

to Joint


The principle having been thus established that Difficulties Joint Stock Companies are mere partnerships in the application eye of the common law, it might have been sup- partnership posed that the law would have been active in devising Stock Comremedies for any inconveniences that might arise from applying to associations consisting of numerous shareholders rules of procedure framed only for the adjustment of the rights of a few partners as between themselves, or for ascertaining, in case of litigation, their claims or their liabilities in relation to third parties.

A few examples of the rules of procedure, applied to Joint Stock Companies, will show how far these expectations were from being realized, and will lead the way to the consideration of the numerous statutes that have been passed for the purpose of removing the difficulties created by the shortcomings of the courts of law.

pable of be

at law.

To begin with the means of enforcing calls. It is Calls incaa rule of law that no action can be brought by one ing enforced partner against another for money due in respect of any partnership transaction, on the ground that a court of law cannot in such case do complete justice, since the

(a) These observations apply only to a Joint Stock Company at common law, and not to a company formed under the Joint Stock Companies Acts, in which, as will be seen hereafter, the creditor is held to have notice of the regulations of the company. See p. 101.

A similar incapacity to

in equity.

forms of action will not permit it to enter on such an investigation of the entire state of the partnership accounts, as is necessary to ascertain the real and fair claims of the contracting parties (a).


Such being the rule, a call could not be enforced by action for if brought in the name of the directors it failed, as being an action brought by one partner against another, whilst if brought in the name of the firm, it was equally unsuccessful, as the law ignored altogether the existence of such a body.

Little aid in this difficulty was afforded by recourse enforce cails to a court of equity; for the taking of general account being a necessary preliminary to compel a partner to pay money at the suit of other partners, it followed that even if a court of equity would entertain a bill for an account, it would be practically impossible to expose the whole affairs of the company to a judicial investigation, in order to enforce contribution from two or three shareholders.

Difficulties as to adjustment of rights of

among them

Secondly, with respect to the adjustment of the rights of the shareholders among themselves. The shareholders settlement of partnership disputes is the peculiar selves. province of courts of equity. Those courts, however, regarded Joint Stock Companies with no less disfavour than courts of law. They required all the partners to be parties to a suit for dissolution, and at the same time were unwilling to take partnership accounts, or to interfere in partnership matters, unless a dissolution were the object of the suit (b).

(a) Smith's Mercantile Law, 6th ed. p. 35.

(b) Decks v. Stanhope, 14 Sim. 57; Harvey v. Biynold, 8

Sandau v.

1 Russ. 441.

A striking example of the injustice resulting from Case of Van these rules of equitable procedure was afforded in the Moore. case of Van Sandau v. Moore. In that case a shareholder in the British Annuity Company, complaining that the deed of settlement contained provisions inconsistent with the prospectus on the faith of which he had accepted shares, filed a bill against the directors and other shareholders, to have the company dissolved, and the proper accounts taken. Fourteen of the directors appeared, and filed fourteen separate answers, with long schedules to each, and the court held that the defendants could not be compelled to answer jointly, and that there was no reason in fact why the whole three hundred shareholders might not answer separately. The result was, that it became impossible to proceed with a suit in which the plaintiff, as a preliminary measure, might have had to pay for copies of three hundred answers, each with a long schedule.

The effect of this case obviously was to render it impossible for individual shareholders to obtain a dissolution of the partnership, or an adjustment of the claims subsisting between themselves and their copartners.

in relations

Similar difficulties occurred in the relations between Difficulties Joint Stock Companies and third parties. The law of companie held that an action by or against a company was parties.

Beav. 343; Evans v. Stokes, 1 Keen 24; Richardson v. Hastings, 7 Beav. 301; Abraham v. Hannay, 13 Sim. 581; Long v. Yonge, 2 Sim. 369; Wilson v. Chester, 1 L. J. (N. S.) 126; Walworth v. Holt, 4 Mylne & Craig, 619.

to third

Legislative remedies for foregoing difficulties.

Joint Stock
Act, 1844.

defective, unless all the partners were before the court as plaintiffs or defendants. An action, therefore, by a company consisting of numerous partners became an impossibility. In the case of an action

against a company, the difficulty was practically obviated by the rule, that the omission of the name of one or more defendants could only be taken advantage of as a means of delay by a dilatory plea, and in such plea the defendant was required to state who ought to be joined with him, and to give the addresses of the persons named.

Such being the state of the law, applications were continually made to parliament by companies for Acts enabling them to sue and be sued in the name of their public officer without absolving their members from general responsibility (a).

In 1844 the first Joint Stock Companies Act (7 & 8 Vict. c. 110) was passed, but was repealed except as respects insurance companies, by the Act of 1856, and as respects these companies by the Companies Act 1862.

The Act of 1844 did not extend to banking com

(a) Assuming any of the privileges of a corporation, e.g. having shares transferable without the consent of all the partners, was at one time held to be illegal; Duvergier v. Fellows, 5 Bingham 248; Blundell v. Winsor, 8 Sim. 601; Harvey v. Collett, 15 Sim. 332; but those cases may be considered as overruled by Harrison v. Heathorn, 6 Man. & Gr. 81; Aston's Case, 4 De G. & J. 320, ex parte Grisewood, 4 De G. & J. 544. As to suit by public officer against members of the company, see Harrison v. Brown, 5 De G. & Sm. 728.

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