there was in fact a valid contract under which they were issued as fully paid. It need not be a contract in writing, but it must be in all respects a valid contract, binding the company to allot for legal and valuable consideration. The consideration must be such as in law is sufficient to support the bargain. It will not be lawful in future, any more than heretofore, for a company to allot shares fully paid, for a consideration less in amount or value than the full nominal amount of the shares; and though where the consideration given and taken for the allotment was not a pecuniary one, or one susceptible of a ready and certain pecuniary measure, the Court will not (apart from fraud), in a proceeding instituted to make the holder liable as a holder of unpaid shares, enquire into the adequacy of the consideration, still the principle holds good that the consideration must be such that it may be adequate in value to the nominal amount of the shares, and it must purport to be accepted as adequate by the company, that is by the directors, who will be liable to answer to the company for any breach of duty or want of due care in so accepting it.

These remarks, however, need not alarm persons who in good faith purchase fully paid shares from the registered holder thereof, on the faith of a certificate issued by the company, stating the amount to which they are paid up or deemed to be so, for neither the company nor its liquidator can impugn the statement contained in the certificate.* And it has been held that even a certification" endorsed by the secretary of the company upon a transfer of shares described in the transfer as fully or partly paid, will have the same effect in favour of a bonâ fide transferee who relied upon such certification.†

Observe that not only is sec. 25 of the Act of 1867 repealed as from 31st December, 1900, but no proceedings under it shall "be taken after" that date. This makes the repeal retrospective except as to proceedings taken before or pending at that date. In the case, therefore, of all companies which have issued shares for consideration other than cash, before 1st January, 1901, there will be after that date no enforceable liability on any person by reason simply of failure to file any contract under which such shares were issued.

Commissions, Discounts, etc.

8. (1.) Upon any offer of shares to the public for subscription, it shall be lawful for a company to pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in the company, or procuring or agreeing to procure subscriptions whether absolute or conditional for any shares in the company, if the

"Bloomenthal c. Ford" (1897) A.C. 162.

payment of the commission and the amount or rate per cent. of the commission paid or agreed to be paid are respectively authorised by the Articles of Association and disclosed in the prospectus, and the commission paid or agreed to be paid does not exceed the amount or rate so authorised.

(2.) Save as aforesaid no company shall apply any of its shares or capital money either directly or indirectly in payment of any commission, discount, or allowance to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares of the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in the company, whether the shares or money be so applied by being added to the purchase money of any property acquired by the company, or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise.

(3.) But nothing in this section shall affect the power of any company to pay such brokerage as it has heretofore been lawful for a company to pay.

The law relating to the points dealt with in this section stood before this Act as follows:-It was settled beyond controversy that it was ultra vires on the part of any limited company to issue its shares at a discount, that is to say, upon the terms that the holder should not be liable to pay, if and when required by the company or its liquidator, the full nominal amount of the shares, but only some amount less than that. Such a transaction was wholly void, whether in terms expressed to be authorised by the company's memorandum or articles of association or not, and void not only as against creditors of the company, but also as against other shareholders in the company.*

It was also ultra vires for such a company to pay or return to any shareholder any part of the capital assets of the company, except upon the occasion of a reduction of capital in manner authorised by the Acts, and sanctioned by the Court. And what could not be done openly and explicitly was made no better by being done under a disguise, or without any object of infringing the law. Now, if a company pays a person a sum of money in consideration of his agreeing to take shares in the company, in substance and effect the thing is the same as issuing the shares to him at a discount-his payment for the shares is less than the nominal value of the shares by the amount he gets from the company. And, calling it a commission or any other name cannot affect the real nature of the transaction.

Now this is just what happens in the case of uuderwriting shares, whenever the underwriter's commission comes from the company, and is paid to him in consideration of his taking or agreeing to take shares himself. And, I think, there can be no doubt that before the passing of this Act no such commission could lawfully be paid out of the assets of a company. The common practice has therefore generally been, as before observed,

*See "Ooregum Co. v. Roper," 1892, A.C. 125.

that such contracts are made by the vendors or promoters, who make themselves responsible for the commission. To this there can be no objection if the commission is really paid by them, and not in effect (though indirectly) by the company.*

On the other hand, to pay money to persons in consideration of bonâ fide valuable services, rendered by them in procuring applitions for shares from other people, may clearly be a very different thing from paying commissions to people who themselves subscribe for such shares. Shares so "placed are not issued at a discount--the takers of them take them on the ordinary terms, and receive no consideration from the company for doing so.

True, the net result to the company from the issue of those shares is diminished by the commission or brokerage paid to the person who procured the applications, but this is, in a proper case, an expenditure for a lawful purpose, just as much as advertising the prospectus or the other items required to bring the company before the public, and to induce them to subscribe. It is a payment for services rendered in the ordinary way of business, and for the purposes of the company, and is not rendered unlawful or improper by any provision in the Companies Acts.

And notwithstanding some severe strictures upon the practices uttered by the then Mr. Justice Kay, in the case of "The Faure "Electric Co.," who appeared to put all such payments as I am referring to in the same class as bribes, it was afterwards decided by the Court of Appealt that it is legitimate for a company to pay a reasonable remuneration for services bonâ fide and actually rendered and valuable to the company in the way of procuring subscriptions for shares. In the particular case, the rate of brokerage paid was 24 per cent., but the Court did not fix any standard of reasonableness, which must depend on the circumstances, and especially upon the difficulty and value of the services rendered. In the case of a company of the highest class whose shares are readily taken by the public, the payment of any commission at all for placing shares would generally be improper, for the services would ex hypothesi be valueless to the company. On the other hand, a company though intrinsically sound might for various reasons find it very difficult to get subscriptions by a direct appeal to the public, and yet by the employment of adroit and influential agents, knowing the likely sort of people and how to approach them, procure the required capital. It would, I appre hend, be proper in that case to pay even a high commission for such services if they were really valuable. I need, however, hardly say that in all such cases the Court would examine into the real

* See In re "Consort, &c., Mines, Limited" (1897), 1 C. 575 and 598. †40 C.D. 141.

"Metropolitan Coal, &c., Association v. Scrimgeour" (1895) 2 Q.B. 604.

nature of the payment and the services rendered, and would disallow anything in the shape of bribes, presents, or extravagant rewards. Now, what does the present section say about all this?

It legalises the payment by a company of a commission" of any amount "to any person in consideration either of his subscribing or agreeing to subscribe, whether absolutely or conditionally for shares himself, or of his procuring or agreeing to procure such subscriptions from other persons, provided always that the payment of such commission, and the rate or amount thereof, are authorised by the articles and disclosed in the prospectus.

This covers commissions or brokerages not only for placing shares, but also for underwriting. And, indeed, it in terms goes further still, for it purports to legalise the payment of commission to any person, including an ordinary member of the public, in consideration of his taking shares himself as an ordinary subscriber. This, as already observed, is tantamount to issuing shares at a discount, and though the section does not expressly legalise issuing shares at a discount, it appears to me that it does so in effect.

If I am right in this, it will be possible for a company in difficulties, and whose shares are at a heavy discount in the market, to raise fresh capital by an issue of shares at or below the existing market price; but, of course, the articles, if they do not authorise such a thing as they stand, must be amended so as to give the authority, and the prospectus (if any) must disclose the amount of commission to be paid. The shares would have still to be nominally issued at their full nominal amount, but the agreed commission could be set off against a call of equivalent amount upon the shares, thus in effect reducing the liability by the amount

of the commission.

Personally, I think this is a very proper alteration of the law. The old rule was based chiefly on technicality, and often deprived meritorious companies of a means of raising further capital, which might have saved them from ruin.

Sub-section 3 preserves the power of a company to make such payments for services rendered as were held to be lawful in Metropolitan Coal Association v. Scrimgeour," referred to above. It speaks of "brokerage," but this, I take it, does not confine its operation to payments made to brokers. It refers to the nature of the services rendered, and would apply equally to a commission paid to a banker for placing capital, or introducing the concern to customers, etc. Such payments, if in other respects proper, will continue to be lawful, even though not provided for or mentioned in the articles or prospectus.

But with the exception of such "brokerages," and of the commissions authorised by sub-section 1, the illegality of payments out of capital, directly or indirectly, in consideration of agree

ments to take, underwrite or place shares is expressly re-affirmed by sub-sec. 2.

Observe that sub-sec. 1 applies only upon an offer of shares "to the public," and therefore may not legalise commissions upon an issue of shares made to existing shareholders in the company exclusively; though I have no doubt that an offer of shares made to all and sundry, but with preferential rights of allotment given to existing shareholders would be within that sub-section.

MISCELLANEA.

THE PRICES OF COMMODITIES IN 1900. The Economist, in its issue of December 29th, gives the following statement as to its index numbers at the end of each quarter of 1900:

The

and expresses an opinion that this clearly indicates an ebb in the tide of commercial and industrial activity which had been flowing for a period of about two years prior to the end of 1899. general level is now very slightly lower than at the end of last year. The following letter has been received from Mr. Sauerbeck, and is in continuation of that appearing in our Journal for February, 1900.

SIR,

3, Moorgate Street Buildings, E.C.,

11th, January, 1901.

The following are the average index numbers of the prices of 45 commodities, the average of the 11 years 1867-77 being 100:

The index number for 1900 is 10 per cent. above 1899 and is the highest since 1884. It is still 25 per cent. below the standard period, which was equivalent to the average of the 25 years 1853-77. As compared with 1896the lowest year on record-the rise amounts to 23 per cent.