often pre namely, that the articles do not, expressly, refer to the agree- Why Plan 1 ment, but authorise the directors to purchase the property on ferred. such terms and conditions as they think fit. The chief reason why Plan 1 is often preferred is that the promoters of a company not uncommonly desire, before going to the expense of forming the company, to have the vendor bound to sell on specified terms. Moreover, in some cases promoters desire to have such an agreement executed for the purpose of showing it to persons who are to be asked to become directors, or whose support in starting the company is to be sought for. However, there are many cases in which it is not necessary to bind the vendor until after the incorporation of the company, e.g., where the vendor is one of the promotors of the company, and all parties are prepared to rely on his promise (though not embodied in a formal agreement) to sell to the company on the terms arranged; or where the company is to be formed at the vendor's expense; or where, for any reason, the promoters are in a position to dictate to the vendor. Whenever there is no particular reason for the adoption of Plan 1, it is expedient to adopt Plan 2 or 3. By the adoption of either of adopted. these plans the company becomes bound by the agreement, without any question as to whether a company can ratify an agreement made before its incorporation and without any necessity for a supplemental agreement. Plan 2 or 3 should if possible be In Plan 3 the articles of association do not refer to the As to Plan 3. agreement, but the directors are thereby given general powers to acquire the property. These general powers, if properly framed, are quite as effectual as an authority to adopt or enter into a specific agreement. Overend & Gurney Co. v. Gibb, company to L. R. 5 H. L. 480, et seq. However, in many cases the Desire of provendor and promoters desire absolutely to bind the com- moters to bind pany, which they are engaged in forming, to acquire the adopt agreeproperty upon the terms arranged by them before its incorpora ment. tion. With a view thereto the terms are embodied in an Course Although such clauses do not, as between the company and the vendor, legally bind the company to adopt or execute the Personal liability of person contracting on behalf of a company not yet formed. Agreement should be framed so that his liability should be merely nominal. Proviso limit agent valid; secus, if purporting to relieve him from all liability. agreement [see infra, Articles, miscellaneous clauses, notes to Form 1], yet, in practice, there can be no doubt that their insertion generally goes far to insure the adoption; for directors who find in the articles a direction to adopt a particular agreement, are seldom willing to assume the responsibility of declining to comply with such direction,—at any rate, unless they are convinced that to act otherwise would be to ruin the company. 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 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 day is fixed for the completion of the purchase; it is provided that upon the adoption of the agreement by the company, the liability of the agent 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. A proviso thus limiting the liability of the so-called agent is ing liability of valid; but, not uncommonly, it is provided that he shall incur no personal responsibility whatever. Such a proviso ought never to be inserted where, at the date of the agreement, the company, on behalf of which the agent purports to contract, has not yet been formed, for it is inconsistent with the contract, and therefore void, the result being that the agent is personally liable for the performance of the contract. Furnivall v. Thus, in Furnivall v. Coombes, 5 M. & Gr. 736, the plaintiff had covenanted to do certain repairs to the parish church of St. Botolph, and the defendants as churchwardens and over scers" for themselves and their successors, churchwardens and overseers of the parish," covenanted with the plaintiff to pay the sum agreed by certain instalments; and the indenture contained a proviso "that nothing in these presents should be deemed. . . . to extend to any personal covenant of or obligation upon the several persons, parties thereto, of the third part (the churchwardens, &c.), or in any way personally to affect them, or any or either of them, their or any or either of their executors, administrators, goods, effects, or estates, in their private capacity, but should be and was intended to be binding and obligatory upon the churchwardens and overseers of the poor of the said parish and their successors for the time being as such churchwardens, &c., but not further or otherwise." It was held that churchwardens and overseers, though they are by statute a corporate body for some purposes, cannot enter into such a covenant in a corporate character, and that consequently it was a personal covenant. As to the proviso it was argued on behalf of the plaintiff that it was altogether void because the covenant was a personal one, and yet by the proviso it was intended to relieve the defendants of all personal liability. On behalf of the defendants it was contended that it was not void, because it was not intended to operate in total destruction of the covenant, but to leave the defendants liable so long as they remained in office. It was held, however, that the proviso could not be so construed, that it was intended to relieve the defendants from all personal liability, and that it was therefore void. Coltman, J., said: "When we look at the covenant by itself, it is clearly a personal covenant. It has been said that although the proviso is, in terms, a proviso, it is to be construed as merely limiting the general words of the covenant. That might be so, if it could be shown that there would still remain a personal liability in a given event contemplated by the parties. But this argument proceeds on a misapprehension of the proviso, which declares, that the covenant is not to be taken as a personal covenant, or to affect the defendants in their private capacity.' Stopping there, the proviso would clearly be repugnant. It proceeds to say, however, but shall be and is intended to be binding and obligatory upon the churchwardens and overseers of the poor of the said parish, and their successors, for the time being, as such churchwardens and overseers of the poor, but not further Power to rescind. As to Forms given below. As to section 25 of the Act of 1867. Section 25. or otherwise.' This latter part is supposed to explain the covenant by limiting its personal effect to the time that the defendants remained in office. But that, I think, was not the real meaning of the parties. The intention obviously is, that no one shall be personally liable; which imports in truth that there shall be no liability at all." Erskine, J., said: "It is said that the proviso qualifies the extent of the covenant, and gives it a limited construction. If that had really been so, I should have thought the argument a sound one: but when the proviso is examined, it is utterly inconsistent with any personal liability whatever." . . . . Cresswell, J., said: "I am of the same opinion. Defendants first enter into a clear personal covenant, and then they endeavour, by a proviso, to relieve themselves from all personal liability." . When a company is started to acquire a specific property, and the 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 for partly in shares. A considerable number of the Forms of Agreements which will be found in the following pages belong to the class of agreements usually entered into shortly before or after the incorporation of a company [sce supra, p. 2]. The rest are given because they are Precedents of Agreements which, with more or less variation, are in common use. Precedents of Agreements are seldom of much use to the draftsman, but it is hoped that those given in this work may at any rate afford suggestions. As to what agreements require to be filed with the Registrar of Joint Stock Companies pursuant to Section 25 of the Act of 1867 : The section is as follows: "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." Hence whenever a company undertakes to issue paid-up, or partly paid-up, shares for any consideration except cash-e.g., in consideration of property sold to the company, or of services rendered-an agreement in writing must be filed before the issue takes place. It is of course very material to know what is the meaning of the word "issue" in Section 25. In Bush's Case, 9 Ch. 554, paid-up shares were allotted by a company to one Tucker, in consideration of property agreed to be sold by him. Two months afterwards an agreement stating the terms of the purchase was duly filed. Tucker subsequently transferred some of his shares to Bush. The company was ordered to be wound up, and it was sought to make Bush liable to pay for the shares in cash, on the ground that the allotment was the "issue" of the shares, and that as the agreement was not filed until afterwards Section 25 had not been complied with. No certificate had been issued in respect of the shares transferred to Bush until after the filing of the agreement. The Court affirming the decision of Bacon, V.-C., held that Bush could not be made liable. James, L. J., said: "There is in this case a contract in writing made between the company on the one side and the vendors on the other, which is connected with these shares, and in that contract it is said that certain shares are to be fully paid-up shares as part of the consideration. There is no evidence that the shares ever left the control of the company, or ever became the property of Mr. Tucker, or of any one else, until the certificate was issued in accordance with the resolution previously passed, and on that his title is complete. Apparently Mr. Bush bought under that title, which is a perfect and complete title, upon documents which the company itself is bound by. I am of opinion that it would be an act of the grossest injustice to Mr. Bush if we were to endeavour to make him liable on these shares. This decision goes to show that the issue of the certificates is the issue of the shares within the meaning of Section 25, provided that the shares have till then remained under the control of the company. It would seem, however, that if shares are allowed to be transferred or otherwise dealt with by the allottee, they may be What is the the shares. "issue" of Bush's Case. Shares may be issued though no certificate issued. |