Scottish Court of Session Decisions

It is now necessary to give some explanations as to the formation of the limited company. It was preceded by an agreement between (1) the firm of the Penang Foundry Company, and (2) Mr Samuel Warnock of Glasgow, as trustee for the prospective limited company. Mr Warnock is a partner in Mr MacLaverty's business in Glasgow. The agreement provided, inter alia, (1) that the nominal capital of the prospective company was to be 600,000 dollars in 6000 shares of 100 dollars each; (2) that the vendors should sell, and that the company should purchase, the business of the Penang Foundry Company and assets thereof; (3) that the price should be 200,000 dollars, at 2s. per dollar, payable as follows, viz., “The directors may satisfy any portion of the said consideration not exceeding 100,000 dollars by the allotment to the vendors of shares in the capital of the company to an equal nominal amount, the said shares being credited as fully paid up, and the balance of the said consideration shall be payable in cash”; (4) that the purchase should be completed on 30th June 1903, and the company shall then declare whatportion of the said consideration it proposes to satisfy by the allotment of shares, and shall pay the balance of the said consideration in cash to the vendors or as they shall direct. The shares which are to be allotted in lieu of cash are to be allotted to the vendors or their nominees on or before the 14th day of July next (1903), and before such allotment the company shall cause this agreement to be filed with the Registrar of Joint Stock Companies.

This last-mentioned provision was not fulfilled and the agreement has not yet been filed. The company was not incorporated until 14th December 1903. The option given to the company by the agreement to satisfy part of the price by shares could not thus operate in terms of the agreement, and no new agreement on this subject was made. The defender had nothing to do with this agreement.

On record the pursuers aver that the real vendors under this agreement were (1) the ostensible vendors, the Penang Foundry Company, and (2) the alleged syndicate of whom the defender was said by them to be a member. They further aver that as a member of the syndicate the defender had allotted to him directly his 56 shares as part of the earmarked vendors' shares under the agreement. The defender was thus on record represented as having knowingly accepted his 56 shares for a consideration other than cash under a contract which has not been filed. This ground of action, however, is now exploded, as there never was a syndicate, and the sole vendor to the company was the firm of the Penang Foundry Company.

Although the case made on averment by the pursuers has for the most part disappeared, there remains their averment that no cash was paid by the defender to the company therefor. As to the fact, the evidence in my opinion is to the effect that cash was not paid. The question then arises, what is the effect of the company having, in the circumstances of the case, issued the share certificates to the defender bearing that the shares were fully paid? On this question it is common ground that the law prevailing in Penang is the same as in this country. Accordingly if the defender had acquired the shares in question by transfer from an allottee without notice of the fact that, contrary to the company's representation on the certificates, cash had not been paid for them, it is conceded that the company would have been barred from denying the truth of their representation. The pursuers, however, contend that this principle cannot apply in the case of an allottee of shares. I confess I do not see why, if the conditions necessary to raise the bar exist. The principle of bar or estoppel is a general one of the common law, and in this connection cannot be limited to transferees of shares unless the conditions of its application are only possible in the case of transferees. But this, in my opinion, is not sound. It is true that an allottee will not often be in the position of not knowing the footing on which shares which he accepts have been allotted to him. But he may be, and in such circumstances he accepts shares in reliance on the company's representation that they are fully paid up, and without notice to the contrary he is, I think, as much entitled to hold the company to that representation as a transferee acquiring right from him without notice would be. Mr Buckley (9th ed. p. 63) says—“Nevertheless a bona fide purchaser and transferee or even allottee of shares which the company by the share certificate state to be paid, who has no notice that the shares are not what they are certified to be, is not liable although the shares have not in fact been paid.” For the application of this rule to allottees he cites Parbury's case, [1896] 1 Ch 100, and Bloomenthal v. Ford, [1897] AC 156. Parbury's case was expressly approved by L. J. Lindley in Bloomenthal ( 1896, 2 Ch. 532). I quote his statement of it. “In that case Parbury was an allottee from the company. He had paid a person the full amount of those shares in order that that person might pay the same to the company and procure for Parbury a proper certificate. The person (Wright) who received the money, and who was connected with the company, misapplied the money, but the company gave Mr Parbury a certificate that they had received his money and that his shares were paid up in full, although in truth that was not the case. The doctrine sanctioned by the House of Lords in Waterhouse v. Jamieson ( 1870, 2 H.L. Sc. 29) and in Burkinshaw v. Nicolls ( 1878, 3 A.C. 1004) was properly applied in Parbury's case although he was an allottee and not a transferee.” In the case of Bloomenthal v. Ford, from which I have quoted, the decision of the Court of Appeal was against the allottee, on the ground that, as they held, he had not

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