directly with the Company. Whichever course is adopted, the deed of incorporation of the Company contains power enabling the directors to adopt the agreement, and so make it binding upon the Company. But a Company is not bound by a contract made for or on its behalf before incorporation, unless after incorporation the Company acquires the rights or submits itself to the obligations of the contract. Of the two courses the first is the better, and for this reason-if the contract is in draft and is not executed before the Company is incorporated, the vendor not being legally bound may decline to proceed therewith unless upon better terms; whereas when the agreement is duly signed, he cannot resile from the bargain unless power to do so is contained in the agreement, if the Company when incorporated is prepared to carry out its terms.

Adoption of Agreement.-When the agreement is merely in draft no question of adoption can arise, for there is no existing contract to adopt. But when a contract has been made between the vendor and a trustee for the Company the question of adoption is of importance, for until then the Company cannot enforce its terms. Between the laws of England and Scotland, upon this point, there is a material distinction. In England a Company cannot ratify a contract entered into on its behalf before incorporation, because ratification in the strict sense of the term refers to an act previously done for the person ratifying, and cannot apply to an act done before that person came into existence.1 The practice in England is to have a new contract entered into on the same terms as the original contract. In Scotland the law is not so stringent, and ratification of such a contract is competent, but the person seeking to enforce it must prove that the Company has voluntarily adopted the contract. It is sufficient if the actings of parties necessarily lead to the inference that they intended to be, and held themselves out as being, bound by its terms. There is nothing incompetent in Scotland in the Company after incorporation adopting by a formal deed the original 1 The Bagot Pneumatic Tyre Co. Ltd., 1900, 17 T. L. R. 117.

contract. This should be done, or a minute by the directors should be passed and communicated to the other party to the contract formally adopting the same.

Stamp Duty. By the Stamp Act of 18911 it is provided that agreements for the sale of property to a Company are to be charged with ad valorem duty as conveyances on sale, i.e. 10s. per cent. From such property the following exemptions are made, viz. heritable property, the duty being paid on the disposition thereof to the new Company; property locally situate out of the United Kingdom, on which no duty is chargeable here; goods, wares, and merchandise, including moveable plant, all which pass by delivery without a conveyance; stock or marketable securities, the duty on which is payable on the transfer thereof; or any ship or vessel, or part interest, share, or property of or in any ship or vessel, no duty being payable on a bill of sale thereof.

In regard to goodwill, if it be specified in the agreement as included in the sale, ad valorem duty is payable on the value thereof.

In one case where a private partnership conveyed its whole assets to a Joint Stock Company limited by shares consisting exclusively of the same partners, in consideration of each partner getting shares in the new Company equal in value to his holding in the old partnership, it was decided that the conveyance was a conveyance on sale within the meaning of the Stamp Act, and that the disposition was chargeable with ad valorem stamp duty on the value of the stock transferred.2 PROSPECTUS. The object of a prospectus is, generally speaking, to make known the new Company, and to induce persons to contribute their money for its purposes. It is obvious, therefore, that such a document should be expressed with perfect veracity and issued in good faith. To sanction or to permit any violation or neglect of these essential condi

1 Sec. 59.

2 John Wilson & Son Ltd. v. Inland Revenue, 1895, 23 R. 18. See also John Foster & Sons v. Inland Revenue, 1894, 1 Q. B. 516.

tions would be to encourage proceedings which might soon prove intolerable, and would expose that numerous class of persons who are but too willing to invest their money in undertakings which seem to hold out a fair prospect of reasonable and honest profit, to the arts of projectors desirous of taking advantage of their credulity. The Courts of law have without hesitation denounced the practice of issuing prospectuses which are untrue, and have declared the contract into which shareholders have entered in reliance upon the truth of such representations to be null and void in cases where they turned out to be untrue or delusive, or deficient in any of the conditions essential to the formation of a binding engagement.

In the Companies Act of 19001 stringent regulations have been made as to what is to be stated in the prospectus. In the event of non-compliance with the provisions of the Statute, the directors and other persons responsible for the statements contained in the prospectus incur personal liability for any loss arising therefrom, unless they can show that as regards any matter not disclosed they were not cognisant thereof, or that the non-compliance arose from an honest mistake of fact on their part.

REMEDY OF PERSON WHO BUYS SHARES ON REPRESENTATIONS MADE BY COMPANY OR OTHERS ON ITS BEHALF.-It is a general rule of law, applicable alike to shares bought in public Companies as to all other things which form the subject of sale, that a person who has been deceived into purchasing by false and fraudulent representations on the part of the seller, is entitled to have the contract set aside and to be restored to his original position. But the applicability of this rule to any particular case depends on circumstances. Hence, where a person has by untrue statements or the concealment of material facts in a prospectus been induced to buy shares in a public Company, his remedy may, at his option, either be the rescinding of the contract or a claim for damages against those who made the representations following upon which he bought 1 For which see Appendix, and secs. 9-11.

the shares. If necessary, however, for full indemnity the shareholder is entitled to have recourse to both remedies. It is to be kept in view that the offer to take shares is an offer to take them on the terms of the prospectus and on no other terms, and the acceptance of the application by the allotment of the shares is the acceptance of the offer on those terms and on no other. The prospectus, therefore, is the basis of the contract between the shareholder and the Company.

RESCISSION OF THE CONTRACT.-This remedy is only competent to the person who applied for and was allotted the shares, and does not extend to a purchaser from him. The proceedings are against the Company to have the shareholder's name removed from the list of shareholders, and are only competent so long as restitution is possible, that is, as long as the party seeking it is able to put those against whom it is asked in the same position as that in which they stood when the contract was entered into; but with this qualification, that if in the knowledge of the fraud the shareholder continues to hold the shares for an unreasonable length of time, he cannot thereafter repudiate the transaction. Further, if while still ignorant of the untrue statements made, a material change takes place affecting the Company, as by its liquidation, whether voluntary or otherwise, the shareholder cannot repudiate his shares, nor can he recover from the Company the amount paid by him therefor. Further, a person may be barred by his own actings from subsequently succeeding in setting aside the contract. Thus, if for a lengthened period he draws dividends, attends meetings of the Company, and takes part in proceedings affecting it, he cannot thereafter claim restitution.

If a person discovers that he has been induced to take shares in a Company on statements which he has ascertained to be untrue, and before any material change has taken place, and while it is yet possible to restore matters to their former position, and he immediately institutes proceedings, he is

entitled to have his name removed from the list of shareholders, and to have repaid to him by the Company the amount paid for the shares. And while he would not be entitled to commence his action after the Company had gone into liquidation, still, if the action is commenced before liquidation, the shareholder is entitled to prevail, although no decision in the action has been given until after the commencement of the liquidation; with this qualification, that if the Company is declared insolvent at the time of the institution of the proceedings, the right to rescind is lost.

In order to entitle a shareholder to revoke his contract it is sufficient for him to prove that in the prospectus there was a material misrepresentation in fact, upon the faith of which he applied for and took up the shares allotted to him. But where there has only been an innocent misrepresentation, it is not a ground for a rescission of the contract, unless a complete difference in substance between the thing bargained for and that obtained can be proved.

It

There is no obligation upon a shareholder who discovers that there has been a misrepresentation to take proceedings to have his name removed from the list of shareholders. may be to his interest to hold the shares, and if he elects to do so, there the matter ends. But he cannot continue his membership in the knowledge of the misrepresentation in the hope that the Company may succeed, but if it does not do so, reserve to himself the power to have his name removed. Nor can he remain passive when another shareholder similarly situated is taking proceedings to have his name removed, as in such a case the silent shareholder is barred by delay from obtaining the like relief, unless after notice of the misrepresentation he promptly informs the Company of his intention to claim the benefit of the decision in the first action. It has been decided that a person is entitled to claim restitution even after his shares have been forfeited for non-payment of calls.

Generally stated, to make a Company liable for misrepresentations inducing a contract to take shares from it, the shareholder