set-off, indorses the bill to a third party who knows the facts, such third party will not in any country be considered a holder in due course. (c) Acceptor's Liability in the event of Drawer's Signature being forged or unauthorised. According to British law the fact that the drawer's signature is forged or unauthorised does not, if the bill is drawn to the order of a third party,' entitle the acceptor to refuse payment of his acceptance; but if a bill is drawn to the drawer's own order, and the signature under the drawer's indorsement is forged or unauthorised, the acceptor is not bound to pay (B.E.A. 54 (2)). According to non-British law the acceptor is bound to pay in either case (Grünhut, vol. II, p. 13). COMPANY'S LIEN VERSUS PLEDGES OF SHARES. THIS paper deals with the question, What is the position of a pledgee of shares in a company governed by the English Companies Acts, as regards the claim of the company to a lien on the shares for liabilities of the pledgor? Articles of association almost invariably, though in varying language, give the company a lien on the shares of members indebted to the company. As now usually drawn the clause runs to the effect that "the Company shall have a first and permanent lien on " "all the shares registered in the name of each shareholder (whether " "alone or jointly with others) for all debts or liabilities owing or "incurred by him (whether alone or jointly with others) to the com-" "pany on any account whatsoever, and whether such debts or liabilities" "are presently due or payable or not." The lien, however, is commonly confined to shares not fully paid up, because an official quotation will otherwise be refused on the London Stock Exchange. The clause has the same efficacy as, but no greater than, if it were contained in an express deed of covenant executed by each shareholder with the company that is to say, it operates as a contract between the shareholder and the company that the company shall have a lien in the events and to the effect stated in the clause. As between the shareholder himself and the company, this is undoubtedly a valid contract to which full effect must be given. In the absence of such a contract it is the better opinion that a company governed by the Companies Acts has no right of lien on the members' shares for members' debts, even in the shape of calls, owing to the company. Companies who rely on "Table A" for their articles do not possess such a lien, though they have a power (which in effect may be equally effectual in securing payments of the company's claim) of refusing to register a transfer executed by a member indebted to the company until the debt is discharged. The lien generally given by articles of association is more than a mere power to refuse registration of a transfer it is an equitable charge on the shares, which may be enforced by a sale of the shares by the company, if, as is generally the case, the articles give the company such a power, or, if not, then by bringing an action to obtain an order of court for a sale and payment of the company's claim out of the proceeds. The lien it must be noticed usually purports (1) to bind all shares standing in the name of a member, whether solely or jointly with any other person; and (2) to take effect in respect of all debts and liabilities owing or incurred to the company by the registered shareholders, whether alone or jointly with any other person (member or not) upon any account. To illustrate the far-reaching grasp of these provisions, suppose A and B are registered as joint holders of 1,000 shares in the X Company of £1 each nominal value, 10s. paid. B is also a member of a firm of traders who in the course of their business become liable as acceptors of bills of exchange for £2,000, of which bills the X Company in the course of their business become holders. The bills are dishonoured at maturity. The effect of such an article, as I have supposed, is that the company has a charge on the shares for the £2,000, though A had no interest in or knowledge of B's firm, or its transactions with the company. Here no difficulty arises in giving effect to the contract contained in the articles by which both A and B became bound when they took the shares. In the next place, let us suppose that A and B "pledge" their shares with a bank as security for a present advance of £1,000; the security being given in the customary way by a deposit of the share certificates accompanied by a memorandum of equitable charge. Suppose also that the bank does not at first give notice of its security to the company; but in course of time, wishing to realise or to get the legal title of registration, the bank procures A and B to execute a transfer to them of the shares, and lodges the same with the company for registration, whereupon the bank is informed for the first time that the company have, by their articles, a lien on the shares, on account of a debt owing to them by B for goods sold. What is the result? If B's debt to the company was incurred before the date when the company had notice of the bank's charge, the latter is postponed to the company's lien, even though the bank never knew of B's indebtedness or of the company's lien. This follows from two principles of our law which are too well settled to be capable of being now questioned, even were it desirable to do so, viz. (1), that every person dealing for an interest in shares in companies governed by the Companies' Acts, is deemed to have notice of all that is contained in the articles; and (2) that a person who acquires an equitable interest only (as distinct from the complete legal ownership) in such shares acquires only such an interest as the person from whom he acquires it had, in fact, a right to give him; in other words, he takes subject to all equitable interests existing in third persons in the subject matter at the date of his acquisition, whether or not he had notice of such other interests, unless, indeed, special circumstances exist which make his equity a "better equity" than the one earlier in time. In the particular circumstances I have supposed, by virtue of the first of these two principles, the bank at the time when it took its equitable security was "deemed to know" (that is, was in no better position than if it did know) that the company's articles gave them a right of lien on the shares, and therefore the bank was deemed to know that if, in fact, there then existed any liability from A or B to the company, the company possessed a lien or charge on the shares. By virtue of the second principle the bank could get no advantage by mere ignorance (not actively caused or maintained by the company) of the fact of B's indebtedness to the company; for the interest the bank acquired in the shares, being equitable only, was subject to any charge the company then had, whether its existence. was known by the bank or not. Possession of the certificates, it may be remarked, does not make make the "equity" of the bank better than the equity of the company under its lien, for two reasons: (1) because certificates are merely evidence of ownership of the shares, subject to the conditions of the articles, including the company's right to lien, if given by the articles, and therefore no one has a right to assume from the fact that the shareholder is in possession of the certificates that the shares are free from lien on the part of the company unless the certificates expressly say so; (2) there can, therefore, be no negligence in the company in putting the certificates in the possession of the shareholder, nor can they be said to have thereby misled the pledgee into a belief that the shares are free from lien. It appears from what has been said above that the lien given by the articles operates as an equitable charge on the shares deriving its efficacy from the contract contained in the articles, and that it binds the shares in the hands of every successive holder, whether he be full beneficial owner or only pledgee-unless at least he is a purchaser for value having the legal ownership by registered transfer without notice of any claim to lien on the part of the company. It is beside the present point to discuss the position of such a legal owner, as the question in hand is that of the position, as regards the company claiming a lien, of a mere pledgee who has only an equitable charge. Having stated the position of such a pledgee who omits to give the company notice of his pledge, and shown that his security is post poned to the company's lien in respect, not only of debts of the shareholders arising before the date of the pledge, but also to subsequent debts, the next question is: What is the effect, if any, of the pledgee giving notice of his security to the company? Section 30 of the Companies Act, 1862, enacts that "No notice of "any trust expressed, implied, or constructive, shall be entered on "the register [i.e., the company's register of shareholders] or be "receivable by the registrar [of joint stock companies] in the case of "companies under this Act, and registered in England or Ireland.” Most companies, not content with this statutory protection, supplement it by an article of which the following is, perhaps, the commonest form: "The company shall not be bound by or recognise any "contingent, future, partial or equitable interest in the nature of a "trust or otherwise, in any share, or any other right in any share "except an absolute right thereto in the registered owner thereof, and except, also, the right of a guardian, committee, executor, adminis"trator or trustee in bankruptcy, to become a member in respect "of, or to transfer any share.' 66 For the sake of clearness, however, I will suppose, in the first instance, that the company has no such article, or no article extending the protection given by section 30, and consider: What is the effect of that section alone in relation to the right of the company to disregard a notice that shares have been pledged? The question is one of very great difficulty-whether considered on principle or on authority. On the one hand, the terms of the section appear wide enough to comprise notices not only of trusts, in the common and popular sense, but of all equitable interests in shares, including the interest of a pledgee by deposit of the certificates. For in legal principle, all equitable interests in property live and have their being by virtue of "a trust expressed, implied or constructive," and not otherwise; and notice of a pledge is in substance and effect notice to the company that, to the extent of the pledge, the registered and legal owner has become a trustee of the shares for the pledgee. On the other hand, if the section is to be read as meaning that the company shall be entitled absolutely and for every purpose to disregard notice, however express and authenticated, and though equivalent to actual knowledge, of a change in the beneficial ovnerships of the shares of a member by reason of a pledge or otherwise, then this consequence must follow: that the company, though they in fact know that the member has no beneficial interest in the shares or right to charge them for his own debt, may voluntarily and of set purpose advance money or give credit to the member on the terms that they shall have a charge on the shares for their own benefit as security for the debt prevailing over the claims of the real beneficial owner. "It is competent to the legislature," said Lord Blackburn with sardonic humour in "Briggs' case," speaking of this very section, "to * "Bradford Banking Company v. Briggs," 12 A.C., 20. "enact that a company shall be entitled to disregard the plain rules "of justice and honesty, and to charge what they know to be one "man's debt upon another man's property if only that property should "consist of shares in a company." Lord Blackburn and his colleagues in "Briggs' case " refused to put such a "predatory construction on section 30 unless compelled to do so by the express words of the Act. No such compulsion, however, did they find. The section, it may be noticed, does not expressly say that the company shall not be affected by notices of trusts, but only that such notices shall not be entered on the register" of the company, 66 or receivable "by the registrar" of joint-stock companies. This peculiar wording lent colour to the argument that the object of the section was simply to keep the register of shareholders clear and unincumbered as a register of the legal owners of the shares, so that third persons could deal with such registered owners in safety: but this construction of the section was held to be too narrow and was rejected in "Walker's case, ," and it is settled that the section is concerned not merely with keeping notices of trusts off the share register, but that it has the further effect of relieving a company from all liability towards any person by reason of the company having received notice that he has an equitable charge on or interest in the shares. You cannot, by giving notice of your pledge, turn the company into a trustee for you, or put them in a fiduciary position towards you; or make them liable for damages for registering a transfer in prejudice of your pledge, of which you have given them notice. You may, indeed, in such a case, have a remedy against them if they register a transfer without production of the certificates which you hold if they contain an undertaking by the company not to register any transfer without production of those certificates; but that is by reason of that undertaking, and not of your notice, and is equally open to you though you have not given notice. Again, it follows from the effect so given to section 30 that you do not, by merely being first to give the company notice of your pledge, get any advantage over equitable interests of other persons in the shares prior in date of creation to your pledge. Such advantage could only flow from priority of notice, if the notice had the effect of binding the company with a trust in your favour to the extent of your pledge; but that effect is prevented by section 30. So the Lords decided in "Walker's case."* What operation, then, is left to notice of a pledge? This question arose in "Briggs' case,' ," which came before the House of Lords in the year following "Walker's case." The contest lay between, on the one hand, a bank who had made an advance on a pledge of shares, of which notice was given to and acknowledged by * "Société Generale de Paris v. Walker," 11 A.C. 20. |