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1918 Supreme(SC) 3
Privy Council
Bart, Sir Walter Phillimore, Lord Sumner, Justice Lord Parker of Waddington, JJ.
Canada National Fire Insurance Company -Appellant
Versus
Hutchings and others -Resopndent
On appeal from the Court of Appeal from Manitoba
Decided On : 31-01-1918
Clark, Peter Thomas , Lawrence Jones and Co. , Manning, Upjohn , W.A.T. Sweatman
A statutory power to "regulate" the transfer of shares does not authorize by-laws that grant directors an arbitrary veto over the transfer of fully paid-up shares, as such restrictions are ultra vires and contravene the nature of shares as transferable personal property.
Headnote:(A) Companies Act - Sections 132 and 138 - Power of directors to refuse registration of transfer of fully paid-up shares - By-laws regulating transfer of stock - A power to "regulate" the transfer of stock does not extend to the power to restrict or prohibit such transfer through an arbitrary veto - By-laws purporting to grant directors an absolute power to refuse registration of fully paid-up shares, regular in form and regularly presented, are ultra vires and interfere with the transferability of stock as an incident of personal property.
(B) Construction of By-laws - Requirement for "approval" of directors for transfer of shares - To be valid, such a requirement must be construed as ensuring the directors are satisfied regarding matters of title, conveyance, and statutory compliance (e.g., unpaid calls or legality of the transferee) rather than granting a discretionary power of veto.
Facts of the case:
Transferors and transferees of fully paid-up shares brought actions against two companies for the registration of share transfers. The companies refused registration based on by-laws requiring the approval of the board of directors. Subsequent amendments to the by-laws, which explicitly allowed directors to refuse registration without assigning reasons, were not confirmed by the shareholders.
Findings of Court:
The refusal to register the transfers was not supported by the by-laws. Furthermore, any by-law that purports to give directors a power of veto over the transfer of fully paid-up shares is invalid as it exceeds the statutory power to regulate transfers.
Issues: Whether the by-laws of the companies warranted the directors in refusing to register the transfers of fully paid-up shares, and whether such by-laws would be valid if they granted an absolute power of veto.
Ratio Decidendi: The statutory authority to pass by-laws "regulating the transfer" of stock pertains to the manner and formalities of the transfer. It does not empower a company to prohibit transfers or subject them to an arbitrary veto, as this would prevent shareholders from realizing the value of their fully paid-up stock. A requirement for "approval" is valid only if it relates to the directors' duty to verify title and conveyance.
Result: Appeals dismissed.
Legal Category Hierarchy
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company law
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share capital
- transfer of shares
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corporate governance
- by-laws
- ultra vires
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share capital
Sir Walter Phillimore:-
The first mentioned action is brought by the transferor and transferee of a parcel of fully paid-up shares in the Canada National Fire Insurance Company against that Company; the second action is also a joint action by two transferors and the transferee of two parcels of fully paid-up shares in the Great West Permanent Loan Company against that company. It is the same transferee in both cases, and the same point, that is, whether the directors of either company have an absolute power of refusing to approve and register transfers of fully paid-up shares regular in form and regularly presented to them.
It appears that in the first instance application was made upon motion for prerogative writs of mandamus; but that upon some question arising as to the propriety of this form of remedy the applications for these writs were by consent converted into actions, statements of claim being delivered setting forth the facts, and claiming as relief a mandamus or an order in the nature of a mandamus commanding either defendant company to register the transferee as the owner of the shares in question.
Some formal evidence was given; but, again by consent, the actions were heard upon motion for judgment without further pleadings, it being agreed that the matter was one entirely of law.
Both companies were constituted by special Acts incorporating Part II of the Companies Act (R. S. Can., 1906. c. 79). Except as incorporating the general Act, the special Acts are of no importance in this case.
The material sections of the general Act are as follows : (Their Lordships' judgment set out the sections appearing in the footnote at p. 459.)
At the time of the presentation of the transfers for registration the by-law of the insurance company relating to the transfer of shares was in the following terms :-
"Article VII. (a) Shares in the capital stock of the company shall be transferable only on the books of the company by the owner in person, or by attorney, on surrender of the certificates of stock properly endorsed. (b) Transfers and allotments of shares shall not be valid unless approved by the board of directors."
And the by-law of the loan company was in the following terms :-
"Article III This stock shall be issued subject to the following conditions - (a) That the holder of this stock will be paid the semi-annual dividends that may be declared from time to time by the board of directors. (b) Said dividends shall be payable on the 1st day of January and July of each year. (c) That said stock shall be non-withdrawable, but may be sold, and such transfers must be recorded in the books of the company.
"Assignment of stock shall not be valid unless approved and endorsed by the board of directors and accompanied by a transfer fee of one dollar. The assignment shall be accompanied by the stock certificate."
These by-laws had been confirmed by the shareholders in their respective companies, and were in force when the transfers were presented for registration.
After the receipt of the transfers a meeting of the directors of each of the companies was held, and the by-laws were then amended by the addition in each case of the following words :
"For greater certainty, but not so as to restrict anything herein contained, or and in addition thereto, the directors may refuse to register any transfer of stock heretofore or hereafter made upon which the company has a lien; and the directors, without assigning any reason, may refuse to register any transfer of stock heretofore or hereafter made, whether fully paid-up stock or not, to a person of whom they do not approve."
These amendments, however, were never brought before or confirmed by the shareholders of either of the companies; and counsel for the appellants admitted that he could not place reliance upon them.
Upon the actions coming on for hearing the Judge of first instance (Galt, J.) decided in favour of the plaintiffs, and ordered the defendant companies to register the transfers, make the n
