Appendix CASE ONE - Collection Point® | The Total Digital Asset ...

176 Legal History in the Making
required each shareholder actually to execute an indenture with a trustee of
the company, and that indenture had to incorporate or refer to the company's
constitution. A shareholder was defined as a person who was on the register
of shareholders and who had executed such a deed.
That provision created a new problem. In the nineteenth century it was the
common practice for shares not to be fully paid up. A company traded on its
share capital and, where more was needed, further calls were made. When
a company went into liquidation the liquidator was in the happy position
of being able to call in all unpaid amounts on the shares. Shareholders
receiving such calls soon discovered that, if they were on the register of
shareholders but had not executed the requisite deed, they were not in
fact shareholders and therefore not liable on the liquidator's calls. That, of
course, was unsatisfactory and the Companies Act 1856 attempted to resolve
the position by abandoning the need for an indenture actually to be signed and
providing that such a deed should be implied to have been signed. That started
the problem because the draftsman did not state in terms that the shareholder
impliedly covenanted with the company. (He may have been justified in doing
so, assuming that since the company had executed the registered deed and it
was that registered deed that the shareholders were deemed to have executed,
such a statement would have been otiose).
Since then all the successive Companies Acts have contained this subsection.
It is one of the most fundamental of all the provisions of company
legislation because it binds the company to the members and the members
to the company's constitution, ties that constitution to the Act and gives
the whole thing life and force through the law as to deeds. It is odd that
such a fundamentally important sub-section should be controversial. The
problem for the judges stems from the fact that the sub-section says that the
company and members are bound as though the shareholders had executed
the deed but it does not expressly say that the company is deemed to have
executed the deed. It was not too long before the significance of the apparent
omission impressed itself upon the judges. One need look no further than the
judgements of Kindersley, V.-C. in Binney v. Ince Hall Coal and Canal Co. 5
(under the 1844 Act) and in Hutton v. Scarborough Cliff Hotel 6 (under the
1856 Act) to see what happened. In the former case the whole judgement
proceeds on the footing that the company and members are bound by the
deed, whereas in the latter case no mention is made of this and the contract
is described as being between the members inter se. Even the greatest of
judges were perplexed. Lord Lindley confessed his uncertainty on more
than one occasion. Farwell, J. decided in one case that the articles were
'a series of mutual covenants entered into by all the shareholders inter se'
but, eight years later, when he was Farwell, L.J., he recanted. Stirling, J.
expressly held in Baring-Gould v. Sharpington Combined Pick and Shovel
5 35 L.J. Ch. 363
6 34 L.J. Ch. 643