Proceedings consequent

prospectus.

meaning that B. shall act upon it, and B. believing it to be true, does act upon it, and thereby suffers a damage, B. may maintain an action on the case against A. for the deceit. (a)

As soon as the prospectus is issued, the company is on issue of supposed to be established. A meeting of the provisional committee is held, at which a managing committee is appointed, and resolutions are passed, giving authority to the managing committee to allot shares, and to apply the deposits received on such allotment, in payment of the expenses incurred in the formation of the company in the preparation of plans or in otherwise advancing the objects of the company. (b)

Scrip certifi

cate.

The allotment of shares is usually effected by a letter of allotment informing the applicant for shares that the managing committee have allotted so many shares to him. In many companies, on receipt of the deposit, a certificate called a scrip certificate is issued, declaring that the bearer is entitled to a certain number of shares in the company. (c)

(a) Gerhard v. Bates, 2 Ell. & Bl. 476; Barnard v. Bagshaw, 1 H. & M. 69; Bale v. Cleland, 4 F. & F. 117; Collingwood v. Berkeley, 15 C. B., N. S. 145, and see cases cited in note (a), p. 63.

() As to the risk incurred by the promoters in thus applying the deposits, see page 34.

(c) A usual form of scrip certificate is as follows:

No.
One Share of £20.
Deposit, £1.

Scrip Certificate.

No. THE WEST CHARLTON BANKING COMPANY. The holder of this Certificate having paid the deposit of £1 is entitled to one share of £20 in the above-mentioned company.

At this stage of the proceedings speculation usually bes; the scrip is treated as a marketable security; it is often sold at a price considerably larger than the

ount of the deposit paid by the original allottee, and passes from hand to hand, carrying with it the nght of claiming the specified amount of shares in the proposed company.

Successful

tion of

First, let us suppose the company to become incorprated with undiminished popularity. Little difficulty com ; the holders of scrip certificates greedily ex- pany. change them for shares; the company becomes in. Vested with the rights and subject to the liabilities of a corporation; and the expenses incurred by the proLasters are paid out of the first moneys received by the

company.

obtain incor

Next, take the reverse of the picture. Circumstances Failure of are adverse; the company fails in arriving at incor- company to petation; considerable debts have been incurred in poration. Laking surveys, printing prospectuses, and otherwise Ang up the company; and the question arises, by whom such expenses are to be borne.

debts incur

At first it was supposed, that all the persons Liabilty for Interested in the proposed company, original allottees, red." provisional committee, and managing committee, were Thompson. thers, and therefore, according to the usual law

of partnership, were liable for the debts contracted by the managing committee.

The question of the liability of original allottees was set at rest by the cases of Hutton v. Thompson, and Norris v. Cooper (a), in the House of Lords. In the (a) 3 H L. C. 161.

Hutton v.

Bright v.
Ilutton.

first of these cases, Mr. Thompson applied for twenty shares in a projected undertaking, and paid the deposit thereon. The undertaking was abandoned after considerable expense had been incurred, and an endeavour was made to make Mr. Thompson a contributory under the winding-up acts. The House of Lords, however, decided, that as the respondent was not liable to an action at law at the suit of any creditor of the company, so he was not liable to any portion of the expenses of an undertaking which had failed.

It having thus become settled law, that acceptance of shares in an inchoate company did not render the acceptor liable to pay the preliminary expenses; the next effort made was to fix all the members of the provisional committee, whether they acted or not, with a partnership liability. Here, however, the House of Lords again interposed, and decided in favour of the opinion of the judges, that no partnership existed between persons associated together in an unsuccessful attempt to form a company. In the leading case (a) on this question, Baron Parke, in delivering the opinion of the judges, explained the relation, or rather the want of any relation between the members of incomplete undertakings, as follows:

"In the case of provisional committees, or the projectors of a company, it is now perfectly well settled law, and acted upon in every court of law in Westminster Hall, that there is no partnership between

(a) Bright v. Hutton, Hutton v. Bright, 3 H. L. C. 341, in effect overruling Hutton v. Upfill, 2 H. L. C. 674. See the cases in the next note.

them, no common power of binding each other merely by such a relation; each binds himself by his own acts only. There are therefore very few creditors of such a body collectively, though many of one, two, three or more acting individuals, who compose the committee or are projectors; and so there may be a series of contracts, to which there are different contributories, according as they have been authorised by different persons, very few binding all, and those only upon the rare accident of each individual authorising that particular contract." (a)

cases.

The result, therefore, was that the creditor found Result of he was deceived in thinking that the law would invest the members of inchoate companies with the liability of partners. The only persons against whom he had a remedy were the managing committee, and not even against them as a body, but only in their individual characters, in respect of the particular engagements which each had contracted. (b)

(a) Bright v. Hutton, at p. 368. See Reynell v. Lewis. Wyld v. Hopkins, 15 M. & W. 517; Besley, ex parte, 3 M. & G. 287. Promoters of an abortive company are not partners, even though they have bought property for the purposes of the company. Hamil. ton v. Smith, 5 Jur. N. S. 32. Promoters held liable, Maddick v. Marshall, 10 Jur. N. S. 1201. Riley v. Packington, L. R., 2 C. P. 536. No authority under circumstances to secretary to pledge credit of promoter, Burbidge v. Morris, 34 L. J. Exch. 131. Contribution between promoters, Boulter v. Peplow, 9 C. B. 493. Batard v. Hawes, 2 E. & B. 287.

(b) As to what is called a scrip company, in which the scrip is in effect shares, see Barclay's case, 26 Beav. 177. Ex parte Finlay, 26 Beav. 182; Lund's case, 27 Beav. 465.

Return of deposit.

The law, however, was not contented with simply Walstab v. relieving subscribers to inchoate undertakings from Spottiswoode. liability; it went on to decide that, in the absence of a contract, the managing committee have no right to expend, in payment of the preliminary expenses, any portion of the deposits they receive; but must return to each subscriber the amount of his deposit without any deduction.

Mrs. Walstab accepted an allotment of thirty shares in a company proposed to be formed for making a railway, and paid by way of deposit, 781. 158. The scheme afterwards failed, without any fault of the provisional directors, and Mrs. Walstab recovered the whole of her deposit, without any deduction for the expenses necessarily incurred in getting up the company, (a)

The above difficulty as to payment of expenses suggests the importance, in every case, of compelling subscribers before receiving their scrip to sign an agreement (b) expressly authorising the provisional directors to pay the preliminary expenses out of de

(a) Walstab v. Spottiswoode, 15 M. & W. 501; Nockels v. Crosby, 3 B. & Cr. 814; Pitchford v. Davis, 5 M. & W. 2; Tredwen v. Bourne, 6 M. & W. 461; Chaplin v. Clark, 4 Exch. 403; Wontner v. Shairp, 4 C. B. 404; 4 Rail. Ca. 542; Watts v. Salter, 10 C. B. 477; Jarrett v. Kennedy, 6 C. B. 319; Ashpitel v. Sercombe, 5 Exch. 147. So in case of cost-book company, Johnson v. Goslett. 3 C. B., N. S. 569.

(b) As to subscriber's agreement, Garwood v. Ede, 1 Ex. 264; 5 Rail. Ca. 134; Aldham v. Brown, 7 Ell. & Bl. 164; Carew's case, 7 De G. M. & G. 43. See cases cited page 37, note (c).