AGREEMENTS. AGREEMENT with agent for intended COMPANY for sale of BUSINESS of Form 1. Consideration: Cash and Shares. Vendor not to carry on similar This is an example of the form of agreement commonly adopted in Plan 1, supra, p. 1. AN AGREEMENT made the Parties. on behalf day of, between A., of (hereinafter called the vendor) of the one part, and B., of of the company hereinafter mentioned, of the other part. WHEREAS the Recitals. vendor has for some time past carried on business as a mechanical engineer upon the leasehold hereditaments hereinafter described : AND WHEREAS a company is about to be formed under the Companies Acts 1862 to 1879, having for its objects among other things the acquisition and working of the said business: AND WHEREAS the memorandum and articles of association of the company have, with the privity of the vendor, been already prepared (a): AND WHEREAS the nominal capital of the company is to be 80,0007., divided into 10,000 shares of 87. each: AND WHEREAS by the said articles of association it is provided that the directors of the company shall, immediately after the incorporation thereof, adopt, on behalf of the company, and carry into effect an agreement therein referred to, being these presents: Now IT IS HEREBY AGREED as follows: (a) Sometimes the memorandum and articles have not been prepared when the agreement is executed, and in such case the third and fifth recitals should be omitted. Occasionally the agreement contains a stipulation as in Form, 3 infra, p. 18, that B. shall procure the formation of a company. sale. 1. The vendor shall sell, and the company shall purchase: First, the Agreement for leasehold hereditaments described in the schedule hereto, for the unexpired residue of a term of ninety-nine years therein granted by the indenture of lease specified in the same schedule, subject to the rent reserved by the said indenture of lease, and the covenants and conditions therein contained, and on the lessees' part to be observed and performed. Secondly, the steam-hammers, cranes, steam-engines, lathes, and all other the plant, machinery, tools, stock-in-trade, chattels, and effects, in or about the said premises firstly described. Thirdly, the good-will of the said business, and all book and other debts due to the vendor in connection with the said business, and the full benefit of Form 1. all securities for such debts, and of all contracts, engagements, rights, and privileges, to which the vendor is entitled in relation to the said business. Consideration, cash, and shares. Numbers. Vendor's title 2. The consideration for the said sale shall be the sum of 20,0007., which shall be paid and satisfied as follows; namely, as to the sum of 4,0007. in cash, and as to the residue by the allotment to the vendor, or his nominee (b) or nominees, of 1500 fully paid up (c) shares in the company of 81. each. (b) As to the validity of this, see infra, p. 13. (c) As to the necessity for filing this agreement with the Registrar of Joint Stock Companies, see infra, p. 12. 3. The said 15,000 shares shall be numbered (d) in the books of the company-to-inclusive. (d) As to giving the numbers, see infra, p. 13. 4. The title of the vendor to the said leasehold hereditaments shall to leaseholds. commence with the said indenture of lease, and the company shall not call for the production of, or investigate or make any objection or requisition in respect of the title of the lessors, or the right to grant the lease, and the production of a receipt for the last payment of rent which shall have accrued due under the said indenture of lease previously to the completion of the purchase shall be accepted by the company as conclusive evidence that all the covenants and conditions in the lease have been performed and observed up to the completion of the purchase (e). Completion of purchase. Allotment of shares. When vendor to execute assurances, &c. (e) Stringent conditions as to title and evidence of title are rarely inserted in agreements for sales to newly formed companies. 5. The purchase shall be completed on the day of next, at the offices of Messrs., the vendor's solicitor, when the company shall pay the said sum of 40007., cash, to the vendor, or as he shall direct (ƒ). (f) If the company is a public one, in which the capital has to be sought by the issue to the public of a prospectus, some months will be allowed for completion. But if it is the conversion of a private business into a company without appeal to the public there need be no delay. However, in any event sufficient time must be allowed to get the agreement filed pursuant to s. 25 of the Act of 1867. See infra, p. 12. 6. The company shall also, on or before the said next, allot the said 1500 shares as hereinbefore provided. day of 7. Upon such payment and allotment as aforesaid being made the vendor shall, at the expense of the company, execute and do all such assurances and things as may reasonably be required for vesting in the company the said premises agreed to be hereby sold, and giving to it the full benefit of this agreement. As to interest 8. If from any cause whatever the purchase shall not be completed Form 1. on the day of next, the company shall pay interest on the said sum of 40007. at the rate of 10 per cent. per annum, from that if completion day until the purchase shall be completed. to carry on delayed. 9. The vendor (g) shall not at any time hereafter, either solely or Vendor not jointly, with, or as manager or agent for other any person or persons, or similar company, directly or indirectly, carry on, or be engaged, or concerned, business. or interested in the business of a mechanical engineer, nor permit or suffer his name to be used or employed in carrying on or in connection with the said business, within 100 miles of the said leasehold premises, save so far as the vendor shall as a member of the company be interested, cr as an officer or servant or agent of the company be employed, in the said business agreed to be hereby sold: [And in case Liquidated the vendor shall commit any breach of the foregoing stipulation, he damages. shall pay to the company [immediately on every such breach] the sum of ——l., as liquidated damages in respect thereof.] (g) “The rule established by the modern decisions is in effect as follows :— An agreement not to carry on a particular trade or business is a valid contract if it satisfies the following conditions: "1. It must be founded on a valuable consideration. "2. It must not be unlimited as to space. "3. And the restriction must not go beyond what in the judgment of the court is reasonably necessary for the protection of the other party, regard being had to the nature of the trade or business." Pollock on Contracts, p. 313. completion. 10. The possession of the said premises shall be retained by the Possession vendor up to the said day of next, and in the meantime he prior to shall, at his own expense and for his own benefit, carry on the said Profits. business in the same manner as heretofore. All outgoings in respect of Outgoings. the said leasehold premises shall be discharged by the vendor up to the said day of next, and as from that day the outgoings in respect thereof shall be discharged and the possession taken by the company. Such outgoings shall if necessary be apportioned between the vendor and the company. ing contracts. 11. The company shall (h) undertake and perform the several con- Company to tracts and engagements the benefit whereof is hereby agreed to be sold, perform pendand shall indemnify the vendor, his heirs, executors, and administrators, and his and their estates and effects, from and against all actions, proceedings, costs, and expenses, claims, and demands, in respect thereof. () As to novation of contract, see Lindley, 435, et seq. 12. All books of account and other documents relating to the said As to books business shall be handed over to the company on the completion of the of account. purchase. 13. Upon () the adoption of this agreement by the company, the Discharge of said B. shall be discharged from all liability in respect thereof. (i) As to this clause, see supra, p. 3, et seq. B. from liability. Form 1. Power to rescind. 14. If this agreement shall not be adopted by the company before the - day of next, it shall be lawful for either of the parties hereto, by notice in writing to the other, to rescind (k) the same, and in case this agreement shall be so rescinded neither of the said parties hereto shall have any claim against the other for compensation, or expenses, or otherwise in relation hereto. (k) The period to be allowed by this clause depends on circumstances. If the company is to be immediately incorporated, a few weeks will be sufficient. If before the time fixed, the agreement is not adopted, B. will rescind, in order to escape personal liability. So, too, this clause enables the vendor under similar circumstances to rescind. See further supra, p. 3. AS WITNESS the hands of the parties hereto, the day and year first above written. THE SCHEDULE ABOVE REFERRED TO. [This will contain a description of the leasehold premises.] Issue of paidup shares. Parties. As to stating number of shares. As to the Issue of Paid-up Shares. Companies frequently agree to issue paid-up or partly paid-up shares, in consideration of property or rights sold, or services rendered to the company. In such cases s. 25 of the Act of 1867 must be borne in mind. It is in these terms: "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." Accordingly, whenever it is arranged that a company is to issue fully paid-up or partly paid-up shares for a consideration other than cash, e.g., in consideration of property or rights sold or services rendered to the company, the contract (a) must be put in writing, and (b) must be filed before the shares are issued. The following points may be noticed in reference to this section : (1.) As to the parties to the contract.—If the company is in existence it should be made a party thereto, or the contract should be made by some person purporting to act on behalf of the company. But it is not clear that this is essential, and it would seem that any contract in writing duly filed which is acted on by the company would be sufficient. At any rate an agreement made between a vendor and some person purporting to act as trustee or agent for an intended company is sufficient if duly filed. Hartley's case, 10 Ch. 159. (2.) As to the aggregate number of shares being stated.-It has not been settled whether the contract must state how many shares are to be issued under it as paid-up. It would seem that it need not. Before the Act of 1867 there was no need in a contract for the issue of paid-up shares to state the number, e.g., a company could, it is conceived, agree to purchase property at a valuation, to be paid in fully paid-up shares, or to purchase goods when wanted from A. in consideration of paid-up shares; and s. 25 would not appear to invalidate any such contracts, but merely to require that they shall be in writing and filed before the shares are issued. However, until the point has been settled it seems advisable that the contract filed should state the number of shares ; and accordingly, where the main contract does not state the same it is not unusual before the shares are issued to file another or supplemental contract giving the information. Form 1. shares. (3.) As to the denoting numbers of the shares.-The contract need not specify the As to denoting denoting numbers of the shares to be issued. A doubt on this point was numbers of expressed by Mellish, L. J., in Pritchard's case, 8 Ch. 956; but in the Buenos Ayres Co., W. N. 1875, p. 59, the Master of the Rolls said, "he could see no foundation for the doubt." While, however, it would not seem necessary, it is very commonly expedient to preserve evidence in the Registrar's office as to the numbers of the shares issued as paid-up. Accordingly, it is well to give the numbers of the shares in the contract when possible, or at any rate before they are actually issued to file a supplemental agreement giving the numbers. vendor. essential. (4.) As to issuing to nominees.-Where by a contract duly filed provision is Issue to made for the issue of paid-up or partly paid-up shares to A., such shares nominees of may be issued to A. or to his nominees, and the allottees will be protected by such contract. Carling's case, 1 C. Div. 124. (5.) As to consideration.-Is the word "contract" in s. 25 used in its technical Whether sense, i.e., must there be a consideration for the company's promise to issue consideration the shares? The same question arose as to the word "agreement" in s. 4 of the Statute of Frauds, and in Wain v. Walters, 4 East, 10, Lord Eldon said that, "the question is whether that word [agreement] 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 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 effect:" &c. It would not seem unreasonable to hold that the word contract was used in s. 25 in its technical sense, and this view has been taken in some cases. Thus, in Crickmer's case, James, L. J., 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." And in Anderson's case, 7 C. Div. 113, Thesiger, L. J., said in reference to s. 25: "I do not wish it to be supposed that I in any way dissent from the view which was expressed by Mr. Higgins, that under the term 'contract,' used in that s. 25, the document would not come within those terms, where there really was no consideration at all. I think it may very fairly be said—at all events I do not dissent from that view-that under the word 'contract' is intended a contract binding in law, which of course imports a consideration, although we may not be able to go into the question of what was the value of the consideration." If this be the meaning of the word "contract," it would seem that where a company agrees, without any consideration, to issue paid-up shares to A., and the agreement is put in writing and duly filed, A. will be liable to pay the whole amount of the shares in cash, because no "contract" has been filed. On the other hand, in Anderson's case, ubi supra, Jessel, M. R., appears to have thought that a document might be a contract within the meaning of s. 25, though made without any consideration. See also what was said in In Re The Gold Company, 11 C. Div. 701; but it was not necessary to decide the point in either of these cases. Where paid- Failure of up shares are issued under a contract duly filed, the failure of the considera- consideration. tion for which they were issued does not entitle the company to treat the shares as unpaid. Thus, in Mege and Augier's case, W. N. 1875, 208, the vendors agreed to assign certain patents to the company in consideration of the issue to them of paid-up shares. The contract was filed and the shares were issued, but the vendors failed to assign the patents. It was held, nevertheless, by Jessel, M. R., that the vendors could not be put on the list of contributors. See also Carling's case, 1 C. Div. 115. So too where paid-up shares are issued under a contract, fraudulent and ultra vires of the directors, but duly filed, such shares cannot be treated by the company or its liquidator as unpaid. De Ruvigne's case, 5 C. Div. 306. The company must either Ultra vires contract. |