the vendor at the time of the sale or where there is a breach of warranty or a misrepresentation as to quality, for the purpose of avoiding circuity of action, the law will allow the defendant in an action between the original parties, or between others standing in no better position, to show such partial failure of consideration in reduction of damages." Hathorn v. Wheelwright, 99 Maine 351. Motion sustained.18

IN RE LICENSED &c. TRADING ASSN.

1889. L. R. 42 Ch. Div. 1.14

AFTER a company called the Licensed Victuallers' Mutual Trading Association, Limited, had been formed, but before its shares had been fully offered to the public, George Rudall, an agent of the company, applied on its behalf to Claude Audain, a stock broker and financial agent, who traded as Holloway & Co., to "underwrite" a portion of its shares, which were of the nominal value of £1 each, and an agreement was entered into between them, which was embodied in two letters dated the 19th of March, 1888.

The first of these letters was written to Holloway & Co. by George Rudall, and was as follows:

"Gentlemen,-In consideration of your underwriting £10,000 'A' shares in the Licensed Victuallers' Mutual Trading Association, Limited, at 15 per cent. discount, I, acting on behalf of the company, undertake that all applications which have been received up to the present time, or may be received within one week of the closing of the lists, shall be allotted in full from the said 10,000 shares underwritten by you.

"Yours truly,

"GEO. RUDALL."

13 In Natal Land &c. Co. v. Pauline &c. Syndicate (1904) A. C. 120, held that a company cannot by adoption or ratification obtain the benefit of a contract purporting to have been made by promoters on its behalf before the company came into existence, and in order to do so, a new contract must be made with it after its incorporation on the terms of the old contract, approving Kelner v. Baxter (1866) L. R. 2 C. P. 174. And so, Pennell v. Lothrop (1906) 191 Mass. 357, 77 N. E. 842. Cf. Oakes v. Cattaraugus Water Co. (1894) 143 N. Y. 430, 38 N. E. 461, 26 L. R. A. 544.

"Although the acts of a corporation with reference to the contracts made by promoters in its behalf before its organization are frequently loosely termed "ratification," yet a "ratification," properly so called, implies an existing person, on whose behalf the contract might have been made at the time. There cannot, in law, be a ratification of a contract which could not have been made binding on the ratifier at the time it was made, because the ratifier was not then in existence. In re Empress Engineering Co., 16 Ch. Div. 128; Melhado v. Porto Alegre, N. H. & B. Ry. Co., L. R. 9 C. P. 505; Kelner v. Baxter, L. R. 2 C. P. 185. What is called "adoption," in such cases, is, in legal effect, the making of a contract of the date of the adoption, and not as of some former date." Per Mitchell, J. in McArthur v. Times Printing Co. (1892) 48 Minn. 319, 51 N. W. 216, 31 Am. St. 653.-Eds.

"Concurring opinion of Bowen, L. J., omitted.-Eds.

The second letter was written to George Rudall by Audain, and was as follows:

"Dear Sir,-Referring to your favor of even date, copy of which we inclose, we hereby agree to underwrite £10,000 'A' shares in the Licensed Victuallers' Mutual Trading Association, Limited, on the terms named therein.

"Yours faithfully,

"HOLLOWAY & Co.

"P. S.-We further agree to pay the application money upon any balance of shares required to make up the 10,000 within one week's date.

"HOLLOWAY & Co."

On the 14th of April, 1888, the company proceeded to allotment, and 8555 shares were in pursuance of the agreement thus constituted, and without any further application for them being made, allotted to Claude Audain under the name of Holloway & Co. Notice of such allotment was given to him on the same day.

On the 17th of April, Claude Audain returned to the company the notice of allotment which had been sent to him, and at the same time wrote to the secretary declining to take the shares.

On the 23rd of May a resolution was passed for the voluntary winding-up of the company, and on the 16th of July an order was made that the voluntary winding-up should be continued under the supervision of the court.

On the 17th of August, 1888, the liquidator settled the name of Holloway & Co. on the list of contributories in respect of these 8555 shares.

Claude Audain then applied to be removed from the list of contributories, and his motion for that purpose came on before Mr. Justice Chitty on the 20th of December, 1888.

Mr. Justice Chitty considered that the letter (Mr. Audain's letter of the 19th of March, 1888) must be treated as an application for so many of the 10,000 shares to which the underwriting agreement extended as might not be applied for by the public, i. e., for the 8555, and that whatever question might have been raised at the time, the case was merely the common case struck at by the 25th section of the Companies Act, 1867. The partics, his Lordship said, were apparently not aware of the fact that issuing shares at a discount of 15 per cent. was beyond the powers of the company; and he held that the application not having been made until after the winding-up, must be refused with costs.

From this decision Claude Audain appealed.

COTTON, L. J.—

This is an appeal from the refusal of Mr. Justice Chitty to relieve the appellant from liability in respect of a number of shares which had been allotted to him in a company now being wound up, as the balance required to make up a certain number of 10,000 shares. The substantial question is whether the appellant is or is not

under any liability at all in respect of the shares so allotted to him. That question turns upon the contract, and the contract, if any, is to be found in the underwriting agreement which was er.tered into between the appellant and an agent of the Licensed Victuallers' Mutual Trading Association. From the evidence which has been given as to the meaning of the expression "underwriting" as applied to shares, it appears that an "underwriting" agreement means an agreement entered into before the shares are brought before the public, that in the event of the public not taking up the whole of them, or the number mentioned in the agreement, the underwriter will, for an agreed commission, take an allottment of such part of the shares as the public has not applied for. That is what is meant when it is said that a person has agreed to underwrite a certain number of shares in a company, and that is in my opinion what was meant by the term "underwrite" in the present agreement. "Underwriting" is a wellknown thing in connection with the formation of companies. The appellant in agreeing to "underwrite" a certain number of shares has agreed to do this particular thing, and in my opinion he is just as much bound in equity as if the thing which he was to do had been set out at length in the contract which was entered into. [His Lordship then read the letters of 19th of March, 1888, and continued:] It appears to be the usual course that some formal application should be made for the shares, and it is said that there should have been some formal application made for allotment of the shares in the present case. But the postscript to the letter written by the appellant shews that he considered that what he had done amounted to an application, and that he himself treated the letter not only as a guarantee, but as an application for allotment, and in my opinion it must be regarded as an application to take the balance of the shares required to make up the £10,000.

A further question arises as to the meaning of the expression underwriting "at 15 per cent. discount." It appears from the evidence that the expression "discount" is an unusual term in connection with the underwriting of shares, and that it is not a term to which any meaning of art can be given; and it further appears that under an underwriting agreement a commission is paid on all the shares to which the agreement applies, whether taken by the public or by the underwriter himself. But the court must put a construction on the word. And I think that upon the fair construction of the words used, they mean not "discount" in the proper sense of the term, but merely "commission," the amount to be paid to the underwriter in respect of the shares which he underwrote. It is not really a sum to be deducted from the nominal amount of the shares when they are applied for and allotted, but a sum to be paid on all the shares underwritten. That being so, it was not an agreement to allot shares at 15 per cent. discount, but to pay 15 per cent. commission to the appellant in consideration of his having made the contract with the company. I think therefore that the decision of Mr. Justice Chitty

was right in not removing the appellant's name from the register in respect of these shares. The appeal must accordingly be dismissed. LINDLEY, L. J.—

I am of the same opinion. The case is one of very considerable importance to persons engaged in promoting companies, and the doubt the court had upon it was with reference to the expression "underwriting," of which, as applied to shares, we did not know the exact meaning. We did not know whether it had any technical meaning in the line of business to which this matter relates. We have now had the advantage of the evidence of two gentlemen who are accustomed to this kind of business, and the result of their evidence is, I think, clear enough. "Underwrite" does not mean "place," the meaning of which expression is well known. See Gorrissen's Case, Law Rep. 8 Ch. 507. It means more than that. "Underwriting," in this kind of business, means agreeing to take so many shares, more or less in number, as are specified in the underwriting letter if the public do not subscribe for them. There is no doubt now that that is the meaning of "underwriting."

Then a question arises as to what was meant by underwriting "at 15 per cent. discount." That is an ambiguous expression. It may mean that the shares to be taken by the underwriter are to be issued to him at a discount, that is to say, that he is to receive certificates to the effect that those shares are fully paid up to the extent of 15 per cent. Upon the other hand, it may mean simply "commission," or it may have no definite meaning at all. I do not think that the letters. can be construed as using the word "discount" in the first of these two senses. I do not see that there is anything whatever in them to bind the company, if it could be bound, to issue shares at a discount, and to do that which was wholly ultra vires. The true meaning is that in consideration of receiving 15 per cent. the appellant will underwrite so many shares. That makes the agreement perfectly consistent and businesslike, and in accordance with the intention of both parties. The postscript throws this light upon it-that it displaces or removes any suggestion that there was to be any fresh or formal application for shares. It is an agreement to take shares, and the appellant says: "We further agree to pay the application money upon taking the shares." There is here a clear agreement to take 10,000 shares, or so many as the public do not take. That clearly authorizes the secretary to issue an allotment to the appellant, and consequently he is rightly placed upon the list of contributories. The appeal must be dismissed with costs.15

15 See Carmichael's Case (1896) 2 Ch. Div. 643 (underwriter's power of attorney to promoter or vendor irrevocable); Ex Parte Stark, In re Consort &c. Mines (1897) 1 Ch. Div. 575 (underwriter not bound without notice of acceptance); Barrow v. Paringa Mines (1909) 2 Ch. Div. 658; Electric Welding Co. v. Prince (1907) 195 Mass. 242, 81 N. E. 306; Eastern Tube Co. v. Harrison (1905) 140 Fed. 519; Warburton v. Trust Co. (1908) 158 Fed. 969, 86 C. C. A. 173.-Eds.

CHAPTER XI.

DISSOLUTION.

Co. Lit. 13b. And it is to be well observed that our author saith, if he hath no heire, &c. the land shall escheate. In which words is implyed a diversity (as to the escheate) between fee simple absolute, which a natural body hath, and fee simple absolute, which a body politique or incorporate hath. For if land holden of I. S. be given to an abbot and his successors, in this case if the abbot and all the convent die, so that the body politique is dissolved, the donor shall have again this land, and not the lord by escheat. And so if land be given in fee simple to a deane and chapter, or to a mayor and commonalty, and to their successors, and after such body politique or incorporate is dissolved, the donor shall have again the land, and not the lord by escheate. And the reason and the cause of this diversity is, for that in the case of a body politique or incorporate the fee simple is vested in their politique or incorporate capacity created by the policy of man, and therefore the law doth annex the condition in law to every such gift and grant, that if such body politique or incorporate be dissolved, that the donor or grantor shall re-enter, for that the cause of the gift or grant faileth; but no such condition is annexed to the estate in fee simple vested in any man in his naturall capacity, but in case where the donor or feoffor reserveth to him a tenure, and then the law doth imply a condition in law by way of escheate.1

I Bl. Com. 485. A corporation may be dissolved, 1. By act of parliament, which is boundless in its operations. 2. By the natural death of all its members, in case of an aggregate corporation. 3. By surrender of its franchises into the hands of the king, which is a kind of suicide. 4. By forfeiture of its charter, through negligence or abuse of its franchises; in which case the law judges that the body politic has broken the condition upon which it was incorporated, and thereupon the incorporation is void. And the regular course is to bring an information in the nature of a writ of quo warranto, to inquire by what warrant the members now exercise their corporate power, having forfeited it by such and such proceedings.

But see Johnson v. Norway (1623) Winch. 37; s. c., Co. Lit., Harg., Book I, 13b, note 71. See article by S. Williston, 2 Harv. Law Rev. at pp. 163-5. -Eds.