Part II. Transferor entitled to indemnity. Form of transfer. Transferee should sign. Membership by Transfer and Transmission. Corporation, 14 Q.B.D. 882; Ward and Henry's case, 2 Ch. 431 at p. 438. The transferee is impliedly bound to indemnify the transferor in respect of future liability on the shares transferred: Kellock v. Enthoven, L.R. 9 Q.B. 241; Loring v. Davis, 32 C.D. 625; Levi v. Ayers, 3 A.C. 842. But by Art. 14 of Table A the holder for the time being of any share is liable for interest on the amount of any call unpaid. The transferee's application to be entered upon the register and his subsequent entry on the register constitute him a member as defined by Sec. 21 of 1903, and the best evidence of his consent is his execution of the transfer: Marino's case, 2 Ch. 596, per Lord Cairns at p. 601. Sec. 30 provides that shares may be transferred in manner provided by the regulations of the company. The form of transfer almost invariably adopted is that set out in Art. 30 of Table A. Art. 29 provides that the instrument of transfer shall be executed both by the transferor and the transferee. No formalities of execution are contemplated by the statute, though it is within the power of any company to stipulate by its regulations for such formalities of execution as may to it appear desirable. Whatever form is adopted it ought to be such as to ensure evidence of the transferee's agreement to become a member of the company (Sec. 21 of 1903) as well as of the transferor's intention to transfer the shares, and a company which has not adopted Table A, and has no regulation providing that transferees shall execute transfers of shares, is justified in the interests of the shareholders in refusing to register a transfer not signed by a transferee: Marino's case ut sup. Not until all necessary conditions imposed by the regulations are complied with can the transferee be said to have an equitable title to his shares as against the company. When all such conditions have been complied with the Court will, if need be, compel the company to register the transfer and thus convert the equitable title of the transferee into a legal title. Where, however, directors dispense with the formalities required by the Articles and act upon the transfer, treating the transferee as a shareholder, it may be that objection to the want of formality cannot afterwards be made, as where a transfer was not signed by a transferee as required by the Articles: Murray v. Bush, L.R. 6 H.L. 37; Taurine Co., 25 C.D. 118. As to other irregularities, see Straffon's Executors' case, 1 D. M. & G. 576; Bargate v. Shortridge, 5 H.L.C. 297; Hughes' case, 15 W.R. Membership by Transfer and Transmission. 476; Weikersheim's case, 8 Ch. 831. transferee. But a company cannot Part II. waive an irregularity where such waiver would be ultra vires. Chap. 1. There is no implied undertaking by the vendor that the company will accept the transferee as a member, where by the No warranty by transferor Articles of Association the company reserves a discretion to that company accept a transferee as a member, and money paid for shares will accept cannot be recovered on the company refusing to accept the transferee: London Founders' Association Ltd. v. Clarke, 20 Q.B.D. 576. But where, by the Articles, the consent of the directors is a condition precedent to the validity of the transfer it is the duty of the vendor to obtain such consent, as in the case of a lease assignable only with the consent of the lessor : Wilkinson v. Lloyd, 7 Q.B. 27. See observations of Brett, M.R., in London Founders, &c. v. Clarke, ut sup. In N.Z. it has been held that the cases of Wilkinson v. Lloyd, ut sup, and Bermingham v. Sheridan, 33 Beav. 660, do not apply to transfers of shares. and that the contract of sale is, in the absence of express agreement, not on terms that the transferor will procure the registration of the transferee by the company: Forsyth v. Parker, 15 N.Z. 282. Even if the transfer is in order, and is accompanied by the Company certificate, and the company has no discretion to accept the entitled to delay transferee, they are not bound to register at once. They are registration 'entitled to delay for a reasonable time and to make reasonable reasonably. enquiries before registering, and it is the general practice in England to delay the registration, at least, till there has been an opportunity given to the registered holder to answer a letter of advice from the company telling him that a transfer of his shares has been lodged: Societe Generale v. Walker, 11 A.C. 20, at p. 41. But if unnecessary delay takes place in the registration of a transfer, either the transferor or the transferee may apply to the Court to rectify the register by inserting the name of the transferee (Sec. 106 of 1903). share certificates. It is nowhere enacted that the production of transferor's Production of certificate shall be a condition precedent to the registration of the transfer, but a company would certainly be entitled to refuse registration of a transfer unless the certificates were produced Since the passing of The Bank of New Zealand Share Guarantee Act, 1894, the authorisation in writing of the president of the bank is a condition precedent to the validity of the transfers of ordinary shares in the bank and cannot be waived, nor can a party be estopped from denying that the provision has been complied with: Bank of N.Z. v. Logan, 18 N.Z. 641. Part II. "Certifica tion" of transfers. Priorities between competing transferees how decided. Membership by Transfer and Transmission. (Art. 32 of Table A), and ought, according to the best practice, to stipulate for such production by its Articles and by note on its share certificates; see Societe Generale v. Walker, ut sup. No prudent purchaser will pay his purchase-money unless, with the transfer, the share certificates are handed over, or (in case the vendor is only selling a part of his holding) the certificates are produced at the company's office. In England, when the transferor lodges his certificate with the secretary of the company to enable the registration of a transfer or transfers of part of the shares covered by his certificate, or transfers to different purchasers of all the shares included in one certificate, the practice is for the secretary, on receiving the certificate, to certify on the transfer or transfers that the certificate has been lodged to enable the transfer of shares to be registered, and purchasers are, as a rule, content to pay over on receiving the transfers so certificated." The Company Acts nowhere provide for or recognise this practice, but it is intra vires and recognised by the Court, though it does not import a warranty of the transferor's title, or create an estoppel against the company: Bishop v. Balkis Co., 25 Q.B.D. 512; Whitechurch Ltd. v. Cavanagh, 85 L.T.N.S. 349. As between two persons claiming title to shares in a company which are registered in the name of a third party, priority of title prevails, unless the claimant second in point of time can show that, as between himself and the company, before the company received notice of the claim of the first claimant, he, the second claimant, has acquired the full status of a shareholder; or at any rate that all formalities have been complied with, and that nothing more than some purely ministerial act remains to be done by the company, which as between the company and the second claimant the company could not have refused to do forthwith; so that as between himself and the company he may be said to have acquired a present absolute unconditional right to have the transfer registered,' before the company was informed of the existence of a better title": Moore v. The North Western Bank, 1891, 2 Ch. 599; Ireland v. Hart, 1902, 1 Ch. 522; see also Smith v. The Wellington Woollen &c. Co., 6 N.Z. 654. 66 Where a mortgagee of shares in a company, holding the share certificates and an unregistered transfer, does not complete his title by causing the transfer to be registered until after the commission by the mortgagor of an act of bankruptcy, but of which the mortgagee had no knowledge, the transaction is protected by Sec. 82 of the Bankruptcy Act, 1892, and semble the shares are not in the order and disposition of the bankrupt : Courtney's case, N.Z. 5 S.C. 189. Membership by Transfer and Transmission. Questions frequently arise, especially on the winding-up of a Part II. company, as to the validity of a transfer of shares even after Chap. 1. the transferee's name has been entered on the register. When a company gets into difficulties and the shares are not fully paid Validity of registered up, substantial shareholders are often anxious to get a trans- transfers may feree to take over their shares, and thus escape liability, and be impeached. when the liquidator finds that shares have been transferred to a man of straw, he is frequently advised to place the original member on the list of contributories and raise the question of the validity of the transfer. The decisions under this head, of which there are a great number, fall into two classes : (1) Where, according to the Articles, shares may be trans- (2) Where, by the Articles, the directors have either an un- 1- Where the Articles impose no restrictions on Alienability and give the Directors no Discretion to refuse Registration. of transfer The general rule is, that if a formal transfer is executed Where right and the transferee is legally competent to become a member unrestricted (Lumsden's case, 4 Ch. 31, 34), the directors have no power to by Articles. refuse registration of a transfer, if the transaction be an absolute transfer of the beneficial ownership without any trust or reservation in favour of the transferor, notwithstanding that such transfer be made for the purpose of escaping liability for the amount unpaid on the shares: De Pass's case, 7 W.R. 682; Weston's case, 4 Ch. 20; even if the transfer be made to a man of straw Hyam's case, 1 DeG.F. & J. 75, 78; without consideration Battie's case, 39 L.J. Ch. 391; or for a consideration expressed but not paid, or even where a consideration is paid to the transferee: Slater's case, 35 L.J. Ch. 304; or even if the transfers be made to nominees of the transferor for the purpose of enabling the transferor to secure the maximum of voting power-Stranton Iron & Steel Co., 16 Eq. 559; Moffatt v. Farquhar, 7 C.D. 591; see also Harrison's case, 6 Ch. 286; Chappell's case, 6 Ch. 902; and Masters' case, 7 Ch. 292, and cases reported in notes thereto. But if it can be shown that the transferor retains any beneficial interest in the shares (and this Membership by Transfer and Transmission. is usually a matter of inference from the circumstances of Though directors have the same power of transferring their shares as ordinary shareholders have, yet, if they abstain from making a call to enable them to transfer their shares and get rid of their liability, registration of a transfer effected under such circumstances will be void: Gilbert's case, 5 Ch. 559; see also Parker's case, 2 Ch. 685. 2.- Where a Power of Refusing their Consent to a Transfer is Reserved to Directors. In cases coming under this head, if it be shown that the directors in approving the transfer have been misled, and if the Court should be of opinion that they would not, had they been apprised of the real nature of the transaction, have approved of the transfer, the transfer will be set aside, and the name of the transferor placed on the list of contributories: Kintrea's case, 5 Ch. 95; Master's case, 7 Ch. 292. Following is a statement of the principles on which the Court will control the exercise of discretion by directors: "The right to transfer shares is a right of property and where its exercise is subject to a discretionary power on the part of the directors, the discretionary power is of a fiduciary nature and must be exercised in good faith that is, legitimately for the purpose for which it is conferred. It must not be exercised corruptly or fraudulently or arbitrarily or capriciously or wantonly. It may not be exercised for a collateral purpose. In exercising it the directors must act in good faith in the interests of the company, and with due regard to the shareholder's right to transfer his shares, and they must fairly consider the question of the transferee's fitness at a board meeting. When the Court once arrives at the conclusion that the directors have in good faith rejected a transfer on the ground that the transferee is not a fit person to become a member of the company, it will not review the director's decision. The directors are not |