Fraud and

tation.

circumstances to entitle him to be discharged from his liabilities as a shareholder. Re Home Counties and General Life Assurance Company, Wollaston's Case, 4 De G. & J. 437. Persons were held to be liable as contributories who were induced to become shareholders in a company under the representation, not fraudulent, that two persons of credit would join the undertaking, which they never did, and who, trusting to such representation without inquiry, executed the deed. Re Hull and London Life and Fire Insurance Company, Ex parte Gibson, 2 De G. & J. 275; 4 Jur. N. S. 1005. A person also who purchased shares in a company from a shareholder, upon the faith of a report issued by the directors, which to their knowledge was false, was nevertheless held liable to be placed on the list of contributories. Re Liverpool Borough Bank, 4 Jur. N. S. 1068.

Where by false representations of the directors of a company a stranger is induced to take shares directly from the company, the transaction is not binding in equity, and he is not a contributory. But if by such representations of the directors he takes them from a third party, he is a contributory. Duranty's Case, Re the Liverpool Borough Bank, 26 Beav. 268.

A person is not liable as a contributory who takes shares in consequence of the reports of the directors of a company, which grossly misrepresented the state of the company, and which got into circulation, upon faith in which the shares were taken. Brockwell's Case, 4 Drew. 205; 3 Jur. N. S. 879; 26 L. J., Ch. 855.

A vendor had been induced to take the shares by false and fraudulent representations as to the position of the company. These representations were partly made by one of the directors, and were partly contained in a report which was made by the directors to the company and approved at an annual meeting, and afterwards embodied in a circular issued by the directors inviting subscriptions for new shares: it was held, that the company could not be considered to have authorized such a use of the report, nor to be answerable for the misrepresentations contained in it; and that, whether they could or not, the vendor having had the means of discovering the fraud, and having taken no steps to repudiate the contract before the winding-up of the company, but having received dividends on and made a transfer of the shares, was not entitled to be relieved from the contract, but must be held to have been a shareholder down to the time of the transfer. Nichol's Case, 3 De G. & J. 387.

A. having been informed by the secretary of a life insurance misrepresen- company that no more than two medical referees of the company would be appointed, agreed, in consideration of his being appointed one of such referees, to take 200 shares therein, and he signed the deed of settlement in respect of those shares and

paid a deposit thereon. It afterwards appeared that four medical referees were appointed, of whom A. was one. A. there. upon resigned his office of medical referee, and demanded back his deposit: it was held, affirming the decision of Kindersley, V. C., 5 Jur. N. S. 617, that there had been no such misrepresentation as to exonerate A. from being a contributory in respect of the 200 shares. Re Home Counties and General Life Insurance Company, Ex parte Wollaston, 5 Jur. N. S. 853, L. J. A transferee of shares in a banking company, the directors of which had made fraudulent representations, is not therefore to be removed from the list of contributories when he had not been induced to accept the transfer by the fraudulent representations. Ex parte Bigge, 5 Jur. N. S. 617; 28 L. J., Ch. 50; 7 W. R. 30, V. C. K. Receipts of dividends upon his shares held to render the shareholder liable as a contributory to a company registered under the 7 & 8 Vict. c. 110, notwithstanding the company's deed, when executed, contained a false skin (fraudulently inserted by one of the directors) purporting to limit the liability of shareholders to the amount of their shares, upon the ground that it is the duty of every shareholder in such company to acquaint himself with the provisions of the deed as registered. Ex parte Sheffield, Re Athenæum Life Assurance Society, 1 Johns. 451; 5 Jur. N. S. 216; 28 L. J., Ch. 325; 7 W. R. 214. Where, by false representations of the directors of a company, a stranger is induced to take shares directly from the company, the transaction is not binding in equity, and he is not a contributory; but if, on such representations of the directors, he takes them from a third party, he is a contributory. Ex parte Duranty, Re Liverpool Borough Bank, 26 Beav. 268. Directors, with the approbation of a general meeting of the company, reissued certain shares, purporting to be shares entitled to preference interest, some of which shares were taken by A., and by him sold to B. as preference shares. The directors, however, had no power to issue such preference shares: it was held, nevertheless, that B. was a contributory. Ex parte Worth, 4 Drew. 259; 5 Jur. N. S. 504; 28 L. J., Ch. 589; 7 W. R. 281. Where directors, in the discharge of their duty, make a report to a general meeting of the shareholders containing misrepresentations, and a third person, relying on those misrepresentations, deals with the company by taking shares direct from the company, those representations vitiate the whole transaction; but where a third person, relying on such misrepresentations, takes shares not from the company, but from a shareholder in the company, the transaction is not vitiated, and the third person is liable as a contributory in respect of the shares he has so taken. Ib. Where a person takes shares in a company through false representations, he will not be placed on the list of contributories if the misrepresentations

directors.

were made by the company, but he will if they were made by a third person. Ex parte Ayres, 25 Beav. 513. A public company in such a case is not bound by the misrepresentation made by its manager or secretary without its sanction, who cannot be considered its agents to commit a fraud; but the company will be answerable for misrepresentations made in a report of the directors sanctioned by a general meeting. Ib. In an action for calls by a company against a shareholder, he pleaded fraud, but the company obtained a verdict. The company having afterwards been ordered to be wound-up: it was held, that the verdict did not prevent the shareholder insisting that he was not a contributory, he having been induced to take the shares through the fraudulent misrepresentations of the company. Having proved his case, the court, notwithstanding the verdict, refused to place him on the list of contributories. Ib. A person was induced to take shares in a company (insolvent at the time) by the false statements contained in the report of the directors, and the erroneous accounts submitted by them to the general meeting. Having discovered the company to be insolvent, he repudiated the shares: it was held, that he was a contributory. Ib.

D. took shares in a joint stock company upon the faith as was alleged of M. being a director, and M. admitted that he consented to become a director conditionally, if all the shares were taken up. It appeared that M. had attended the board meeting as and was regarded by the other directors as a director: it was held, that there was no misrepresentation on the part of the directors in publishing M.'s name as a director, notwithstanding his subsequent disclaimer when applied to by D., and that D. was rightly placed upon the list of contributories. Re the London and Birmingham Iron and Hardware Company (Limited), 32 L. T. 180, Bank.

The holder of a large number of shares in a joint stock company, for which he had executed the deed, transferred them in consideration of a small sum of money to his bailiff, a man without property, and who earned wages of a guinea a week. The consideration money was not paid. The company was ordered to be wound-up, and the name of the transferee was placed upon the list of contributories; but upon appeal the name was ordered to be removed, and the original holder of the shares to be placed thereon, upon the ground that the transaction was merely colorable. Ex parte Budd, Re the Electric Telegraph Company of Ireland, 31 L. J., Chanc. 4; 30 Beav. 148; 10 W. R. 51.

Misrepresen- A. B. became a shareholder and director of a company, on tations by the representation of one of the directors that it was in a flourishing condition, whereas it was on the verge of insolvency it was held, that the misrepresentation did not relieve A. B. from being a contributory. Holt's Case, 22 Beav.

Where after the objects of a company have totally failed, and it is insolvent and practically at an end, other persons are induced to join the concern, and even sign the deed, by misrepresentation made by the directors as to the flourishing state of the concern, they are not liable to be made contributories. The result would be different where the misrepresentations are made by the proprietors on the original constitution of the company, and the question of.contribution arises between a number of innocent shareholders. Bell's Case,

22 Beav. 35; 26 L. J., Ch. 137.

shares in order to avoid liability.

The mere circumstance of difficulties existing in a company Transfer of where the shares are transferable by delivery does not prevent the holder of such shares from making a bona fide and effectual sale of them. Where the contract between the parties is that each may transfer his shares, any one partner can have no right to complain of another partner for making a transfer at a time when the company may happen to be involved in difficulties. De Pass, 1 De G., F. & J. 75; Ex parte Hyam, 4 De G. & J. 544.

P. held 250 shares in a company, for which he had paid 1,750%. A few days before the winding-up order, he, being aware that the company was in difficulties, handed over the certificates to a clerk of his, there not having been any previous negotiation for the sale of them, and the clerk gave him 11. for them. It was not disputed that P. made this transfer in order to escape liability, but the court was satisfied on the evidence that it was an absolute and bonâ fide transfer, out and out, without any trust or reservation: the court of appeal held, that P. was not a contributory. Re Mexican and South American Company, De Pass's Case, 4 De G. & J. 544.

Although a shareholder in an abortive company (the shares in which pass by delivery of scrip certificates) may transfer his shares to an individual for the purpose of getting rid of liability, there must be a substantial sale, and not a mere false or hollow pretence of a sale. Re Mexican and South American Company, Costello's Case, 2 De G., F. & J. 303; 30 L. J., Ch.

113.

An executor, for a nominal consideration, transferred shares in a banking company to one of the cestuis que trustent under the will, in order to enable him to become a director: it was held, that the transfer was good, and the transferee liable to be a contributory. Ex parte Bigge, 5 Jur. N. S. 7; 28 L. J., Ch. 50; 7 W. R. 30, V. C. S.

J. was a director and shareholder in a company which had become embarrassed, and he was desirous of having it woundup. The majority of the directors negatived a motion for having it wound-up, and entered into an arrangement with S. for the purpose of bringing its affairs into a more prosperous state. By this arrangement S. was to have a number of shares transferred to him or his nominees, and was to have

powers and privileges which it was a breach of duty to give him. J. did not, in his capacity of director, concur in or assent to this arrangement, but he transferred all his shares to a nominee of S., and agreed with S. to pay a certain sum, in addition, upon being released from all liability in respect of a certain demand against the company. The consent of the directors to transfers was not requisite. The court was satisfied that J. made the transfer, not to facilitate the arrangements between the other directors and S., but to escape from the company; and there was nothing to show that the transferee was a trustee for the company: it was held, that the transfer was valid and not liable to be impeached in equity. Re London and County Assurance Company, Ex parte Jessop, 2 De G. & J. 638; 5 Jur. N. S. 1.

Upon the winding-up of a company carried on upon the cost-book principle, it appeared by their deed that shares in the company would pass by the delivery of the certificates; but no shareholder was entitled to a dividend unless his name was entered in the share register book. A shareholder who had transferred his shares, but whose transferee had not been registered, was held to be liable as a contributory of the company. Re Wrysgan Slate Quarrying Company, Ex parte Humby, 28 L. J. 875, Ch; 5 Jur. N. S. 215.

Shares of a company were transferable by delivery. After the company was in difficulties, and a few days before an order was made to wind it up, a shareholder transferred his shares to his foreman. The court held that it was inoperative, on the ground that it was not bona fide, and that the transferor was a contributory. Re Mexican and North American Mining Company, Ex parte Lund, 27 Beav. 465; 28 L. J., Ch. 628.

A shareholder in a mining company, in which the shares passed by delivery, knowing the company to be in difficulties, sold his shares to a warehouseman in his employ a few days before an order for winding-up the company was obtained, the consideration being paid by the transferee out of the proceeds of certain shares assigned to him by the shareholder: it was held, that there was no bonâ fide transfer, and that the shareholder was liable as a contributory. Re Mexican and South American Mining Company, Ex parte Hyam, 6 Jur. N. S. 181; 29 L. J., Ch. 243; 4 De G. & J. 544.

A shareholder in a company in extremis is entitled to transfer his shares to any one absolutely; but a duly registered transfer to a trustee for the transferor, executed with the intention of getting rid of liability and reserving the benefit of the shares, does not relieve the transferor from his liability, even when the deed of settlement declares that trusts shall not be recognized, and that the person on the register shall be deemed the beneficial owner of the shares. Chinnock's Case, Re Athenæum Life Assurance Company, 1 Johns. 714.