Blyth's Case.

Must contract

state consideration?

Generally

assumed that consideration ought to be stated.

treated as having been issued, although no certificate has been issued.

Thus in Blyth's Case, decided by Hall, V.-C., May, 1876, it was held that the transferee of shares, which had been issued in pursuance of an unfiled contract, was liable to be placed on the list of contributories as the holder of unpaid shares, although no certificates respecting these shares had ever been issued. There was an appeal in this case, which was dismissed with costs, W. N., 1876, 294 (a). In practice the contract is almost always filed before the allotment of the shares. (a) Now reported in 4 Ch. Div. 140.

:

The question often arises whether the contract must state the consideration for which the shares are to be issued-e.g., where a company has entered into an agreement in writing. for the purchase of property, say, in consideration of 10,000 fully paid-up shares, to be issued to A., the vendor is it necessary to file this agreement? or will it be sufficient to file an agreement between the company and A., reciting that the company is under an obligation to issue 10,000 fully paid-up shares to A., and declaring that it is thereby agreed that 10,000 shares shall accordingly be issued to him, and shall be deemed to be fully paid up.

So, too, if the agreement be by parol, must it be put in writing and filed? or will it be sufficient to file an agreement as above?

This is a matter of considerable importance, for it very commonly happens that a company desires if possible to avoid filing in a public office an agreement which, besides providing for the issue of paid-up shares, contains clauses and stipulations which it is deemed undesirable to make public. For example, suppose an agreement to issue a number of paid-up shares to a financial agent, in consideration of his undertaking to place other shares of the company. To file this might seriously damage the interests of the company; but there might be no objection to filing an agreement merely declaring that the company was under an obligation to issue the shares, and providing that they should be issued accordingly, and deemed fully paid up. There is no doubt that it has generally been assumed that the real agreement, by virtue of which shares are to be issued, ought to be filed, and not merely such a supplemental one as above.

sometimes

Nevertheless the writer is aware of a good many cases in Contrary view which it has been assumed that the filing of an agreement acted on. not stating the consideration is sufficient.

To take one example-There is a well known and important company which issues its shares, as paid up, in exchange for shares or stock of certain other companies. The mode of complying with Section 25, adopted by this company, has been as follows: An agreement is made between the company and one of its officers whereby it is agreed that the company shall issue the shares specified in the schedule to such persons as may become entitled thereto by resolution of the directors, that such shares shall be deemed fully paid up, and it is thereby declared that the officer enters into the contract as trustee for the allottees. The schedule specifies a number of shares, e.g., " 100,000 ordinary shares of the company, numbered to inclusive." The agreement is duly filed. Shares have been issued by this company to the extent of many hundred thousand pounds of nominal value, on the faith that such an agreement effectually protects the allottees from all liability.

It is true that the section does not expressly require the consideration for the issue of the shares to be stated, but it does say that every share shall be deemed to be issued subject to the payment of the full amount in cash, unless otherwise determined, by a contract duly made in writing and filed, &c., and the question is, whether the word "contract" does not mply the existence of a consideration. The word contract is synonymous with agreement, and the following passage from Lord Eldon's judgment in Wain v. Wallers, 5 East, 10, as to the meaning of the word "agreement," in Section 4 of the Statute of Frauds, seems in point.

"In all cases where, by long habitual construction, the words of a statute have not received a peculiar interpretation, such as they will allow of, I am always inclined to give them their natural ordinary signification. The clause in question, in the Statute of Frauds, has the word agreement (unless the agreement upon which the action is brought, or some memorandum or note thereof, shall be in writing,' &c.). And the question is, whether that word is to be understood in the loose, incorrect sense in which it may sometimes be used, as synonymous to promise or undertaking, or in its more proper and correct

The section does not expressly require consideration to be stated.

Meaning of word "agreement."

Contract if filed sufficient though made before company formed.

Contract need not specify numbers of shares.

sense, as signifying a mutual contract on consideration between two or more parties? The latter appears to me to be the legal construction of the word, to which we are bound to give its proper effect :" &c.

If the word" contract" is used in Section 25 in its proper sense as meaning a contract on consideration, there is no doubt the contract to be filed ought to state the consideration, for when Section 25 requires the contract to be in writing it must mean the whole contract. And, as already mentioned, this is the view which in practice is taken in almost all cases. It is moreover to be observed that in Crickmer's Case, 10 Ch. 617, Lord Justice James expressly said that the contract "must be a contract which shows what shares are to be issued fully paid up, and for what consideration they are to be issued."

An agreement providing for the issue of paid-up shares upon which a company acts is, if duly filed, sufficient under Section 25, although the company is not a party to it,-e.g., an agreement made before the incorporation of a company, between a vendor and some person purporting to act as agent for the intended company. Hartley's Case, 10 Ch. 157; Carling's Case, 1 Ch. Div. 115; Mege and Augier's Case, W.N. 1875, 208.

It seems that the contract need not specify the denoting numbers of the shares to be issued.

A doubt was expressed by Mellish, L. J., in Pritchard's Case, 8 Ch. 956, whether the agreement ought not to identify the shares by number, so that persons looking at the register might be able to connect the paid-up shares in the holders' hands with those mentioned in the contract, by virtue of which they were originally issued. Accordingly, in the case of the Buenos Ayres Co., W. N. 1875, 59, paid-up shares having been issued in pursuance of a contract which did not identify the shares, application was made to the Court to remove the names of the applicants from the register in order that a proper contract might be filed within Section 25. However, Jessel, M.R., is reported to have said that "He could see no foundation for the doubt [expressed in Pritchard's Case]. The holders of shares which were not paid up in cash had thrown on them the burden of proving that their shares had been issued in pursuance of a contract duly made in writing, and filed with the Registrar of Joint Stock Companies at or before

the issue of such shares ;' and for the purpose of discharging themselves from this burden it might be convenient that the contract should specify the shares and the names of the allottees as suggested; but there was nothing in the Act of Parliament to render such specification absolutely necessary." While, however, it would seem not to be necessary, it is expedient to preserve evidence in the Registrar's Office as to the numbers of the shares issued as fully paid up. If any question subsequently arises as to whether a given share has been paid for or not, it is convenient at once to be able to point to a duly filed agreement referring to the share by its number.

Hence it is always better to give the numbers of the shares in the agreement when possible, or at any rate before they are actually issued, to file a supplementary agreement giving the numbers.

Nevertheless expedient to give numbers.

Company may allot to nominees of person from whom

Where by a contract duly filed, a company is bound to issue paid-up shares to A., he may authorise the company to issue the shares, or any of them, to his nominees, and the allottees of such shares will be protected by the duly filed agreement consideration of the company with A.

It was at one time thought that this would not be so, and that the shares ought to be issued to A. and transferred by him. to his nominees (Pritchard's Case, 8 Ch. 961). But the contrary is now settled. Carling's Case, 1 Ch. Div. 124; Brown's Case, 9 Ch. 109; Bush's Case, 9 Ch. 554; S. C. before Bacon, V.-C., 22 W. R. 685; Dent's Case, 8 Ch. 774. And it is usual now expressly to provide that the shares shall be issued to the vendor or to his nominees.

It may here be observed that, as a general rule, the articles of association cannot be deemed a contract in writing within the meaning of Section 25 of the Act of 1867. Thus in Firmstone's Case, 20 Eq. 524, the articles provided that the directors should offer for subscription certain debenture bonds, and that with each bond they should allot, by way of bonus, to the lenders, fully paid shares of equal value to the amount of such bond. F., who was already a member of the company, subscribed for some of the bonds, and bonus shares were allotted to him and registered in his name as paid-up shares. The company was ordered to be wound up, and it was held that F. was liable on the shares, on the ground that the

moves.

Articles not a contract with

in Section 25.

What is payment in cash within Section 25.

Result of de

articles did not constitute an agreement in writing without Section 25 above mentioned. See also Crickmer's Case, 10 Ch. 614; and Pritchard's Case, 8 Ch. 960.

It was held, however, by Malins, V.-C., in the Appletreewich Lead Mining Co., 18 Eq. 95; 43 L. J. Ch. 793; 22 W. R. 678; 30 L. T., N. S. 287; that the articles may be so framed as to constitute such a contract in writing within Section 25.

Under Section 25 shares are to "be deemed to have been issued and to be held subject to the payment of the whole amount thereof in cash," unless a contract be filed. The word cash here used does not mean current coin or bank-notes merely. Any transaction which in an action at law for calls on the shares would have supported a plea of payment will be deemed to be payment in cash. Thus, if a company is indebted to A. in a sum presently payable, and A. is indebted to the company in respect of calls or other monies presently payable on his shares, an agreement between A. and the company that the amount shall be credited as paid up on the shares is equivalent to payment in cash, and no contract need be filed. Spargo's Case, 8 Ch. 407. So, too, if the agreement is that the amount shall be credited as paid up on the shares of B., who is indebted to the company in like manner. Ferrao's Case, 9 Ch. 357.

Similarly, if a company be indebted to A., a shareholder, in any sum presently payable, and it is agreed between A. and the company, which has power to receive uncalled capital on shares in advance, that the debt shall be cancelled and the amount treated as having been paid up on A.'s shares, this is payment in cash. Adamson's Case, 18 Eq. 670. And the same consideration would apply if in the last case the amount had by A.'s direction been credited as paid up on the shares of some other member of the company. Ferrao's Case, 9 Ch. 357. But in all the above cases there must be bona fides. If the transaction is designed with a view to evade the Act, it will fail. Spargo's Case, 8 Ch. 407.

Although, however, it is not necessary to file a contract in the above cases, it is not uncommon to do so for the purpose of preserving an independent record of the nature of the transaction.

If default is made in the filing of a contract in writing as to fault in filing the issue of paid-up shares for a consideration other than cash,

contract.