IMAGE EVALUATION TEST TARGET (MT-3) // (./ >% /. «, '^ /^.% 4l 2l 1.0 I.I 2.5 III 1.8 6" 1.25 111111.4 IIIIII.6 <^ /: ^ '/ /A Photographic Sciences Corporation 23 WEST MAIN STREET WEBSTER, N.Y. 14580 (716) 872-4503 ^ v: .1 , >,v// -r^ Pf-t-i-'t-'t .*■'', r^e- f^ti? ^ /i- V77 AN ADDRESS Td THE COMMITTEE v^> O ;^ ,^^ vO ,?> OF THE STOCK EXCHANGE, UPON THE QUESTION OF CANADA SHARES. ■J!« i-ni:,-. ii^ ■" 4' 5f » 1 J. LONDON: PUITTES BT THOMAS DAVISOK, WHITXrKTAXI. ^n^ . CANADA COMPANY. The principle on which the operations are carried on by the members of the Stock Exchange, with each other, for the public, or on their own account, seems deeply in- volved in the question of the " Canada Shares." This principle is undoubtedly a reliance on the honour of the members : — the niceties of the law are not permitted to embarrass transactions which are founded on mutual confidence; and if it were not for this high feeling of honour, their B 2 -^ ''^¥?^ ■C' agency for the public would, in time, be confined to bargains for money, and transactions from one account to another would be limited to the members them- selves. Stock transactions have, of late years, become so various that, if a scru- pulous adherence to all bargains were not enforced, the committee would have endless discussions before them in the settlement of accounts : the doctrine of " expediency" once admitted, — and there is an end of principle ; each precedent, however slight, would form a ground for after changes, and every modification give rise to new and more difficult ques- tions. The very case under discussion, of the Canada shares, is sufficient evi- dence that there will always be parties interested enough to raise doubts and ) .ta...t^' I difficulties if* they see a chance of suc- cess. I£ the importance of this leading prin- ciple be not overstated ; — if it be con- ceded that the first duty of the com- mittee is to maintain unimpaired the confidence of the public in the validity of all " stock transactions/' they will naturally be very cautious, in any regu- lations which may be made for the mu- tual interests of the members of the Stock Exchange, to observe a consistent undeviating course towards the public for whom the members act. Cases may cer- tainly arise to call for the interposition of the committee; when, for instance, an extensive fraud or some improper collusion has been detected, which it is necessary to mark with reprobation, — or 6 where some general regulation for the future guidance and protection of the public is called for; but in all other cases it will be found highly injurious to the credit of the Stock Exchange to ca^^el, as it were by an ex pout facto law, engagements already made. The Canada question might perhaps be safely left on the basis of this leading principle ; but, as the decision of the committee will affect the interests of many individuals, and as the arguments adduced by the purchasers of shares appear untenable and fallacious, it may be well to examine them somewhat in detail. These arguments are : 1st. That the prospectus having no- ticed the intended purchase of the " clergy reserves" of land in Canada as I i one of the objects of the company, and as this purchase has not been completed, the buyers of shares have not the value which was originally contemplated. 2nd. That the proposed company had no legal existence ; and most of the bar- gains having been made previous to the act of parliament, which passed the 27 June, they were legally defective and liable to the provisions of the "Bubble « Act." Sd. That the prospectus and act of parliament having reference to a sub- scribed capital of 1,000,0001. in 10,000 shares of lOOl. each, and the directors having, by a circular letter of the 1st June i S26, given an option to the share- holders to withdraw, which had been accepted to the extent of 1,095 shares. ■«>, 8 and confirmed at a general meeting of the 12th July, 1826, this diminution of the capital has worked a dissolution of part- nership between the subscribers. 4th. That the sellers of the shares, who had signed the deed of agreement with each other, knew the contents of it, whereas the buyers could not have access to it, as it was not made public. Answer to the 1st argument, — namely, that, as the clergy reserves have not been obtained, the company is at an end. Undoubtedly one of the clauses of the prospectus states that Lord Bathurst has " agreed to dispose" of the lands reserved for the crown, and the half of the clergy 9 reserves ; and this purchase is stated to be one of the objects of the company ; other equally important objects being also set forth. But r.nother clause of the prospectus provides, that " the court of " directors shall have power to make all " necessary regulations for the manage- " ment of the company, and to adopt such " measures as they may find expedient for " obtaining the charter." It wa after- wards found that Lord Bathurst was un- able to fulfil that part of his agreement which had reference to the " clergy re- serves ;" but is it reasonable to say that this virtually broke up the company ? Have any of the joint stock associations been able to adhere so strictly to the letter of their prospectus, that they have obtained exactly all they expected, and 10 no more? If the prospectus of each company were to be the exact measure of the shareholders' responsibility, and the bargains on the Stock Exchange were to be all void, in cases where either more or less was done than originally proposed by the prospectus, perhaps it is not too much to advance, that the buyers of shares in almost all the companies might apply to the committee to be re- leased on this ground ; and therefore it would be a very dangerous precedent to admit the invalidity of bargains on such a plea. But surely it must be admitted that, under the clause of the prospectus, en- abling the directors " to adopt any mea- *' sures they might find expedient for ob- " taining the charter,'' they were fully ^ 11 justified in taking an advantageous equi- valent, offered by Lord Bathurst, for the purpose of accomplishing this first great object, " The Charter," which they could not have done without acceding to the modified agreement. This equivalent, the directors say in their circular let- ter of 1st June 1826, " is advantageous " to th^r interests of the subscribers, being « a compact territory -of one million of " acres, in the best portion of the pro- " vince with regard to soil and climate, " at a rate considerahly lower than the " price determined by the commissioners, " and a return of one-third of the pur- " chase money, to be expended in public " works and improvements." And even if it could be admitted for a moment, that these " powers'' under the prospectus and act of parliament were u ■■$«■ insufficient to authorize the acceptance of any equivalent, however favourable to the interests of the shareholders, it may be confidently said, that when the " bargains" now under discussion were made, the pro- gress already effected in the constitution of the company precluded all further ap- peal to the prospectus ; because the pro- prietors had signed the deed of agree- ment of the 11th January 1825, by which that prospectus was superseded. The prospectus was published for the pur- pose of inviting original subscribers to the undertaking; and having effected this object, and the original members, or those holding their shares, having entered into aT^ " agreement" together, they were now bound by this subsequent and more so- lemn act. Then, in fact, for the first time, the nnpanij had existence — then the sales by " scrip receipts" ceased, and a cer- tificate of so many shares was given to each partner signing the deed, the pe- nalty for non-execution of which is de- clared in the prospectus to be the for- feiture of the deposit. It is important to observe the nature of this agree- ment : — it declares that the parties " have subscribed to the capital of the Canada Company, to be established by a royal charter, for the purpose of " purchasing and settling certain lands belonging to the crown in Upper Canada, and for other purposes to he avpressed in the said char- ter.'' Not a word is here said of the clergy reserves, the grant of which had already become doubtful ; but the par- ties agree to the establishment of the 14 company, as therein expressed, " for the " purchase and settlement of certain waste " lands belonging to the crown and for " other purposes ;" and in confirmation of their full acquiescence in this deed, as the essence of the future company, and for the purpose of binding all parties effectually, a further payment of ^5 per share was made at the moment of sign- ing it. It is therefore contended, in answer to the first argument, 1st. That in all cases of recently esta- blished companies, some deviations have been made from the prospectus ; and if the bargains in Canada shares are invalid on this ground, the bargains in other shares are equally so. 2d. That this prospectus sanctions the 'nffMiii ■ ■ 15 deviation made from that part of the plan which relates to the clergy reserves, because it empowers the directors " to adopt all such measures as they may find expedient for obtaining the charter," and Lord Bathurst having refused the char- ter unless they accepted the equivalent offered for the clergy reserves, their ac- ceptance of his lordship's terms was a measure " expedient for obtaining the charter." 3d. That this exchange was advan- tageous to the company, and therefore the deviation, if so it may be called, can- not justify the refusal to complete the bargains, on the ground of the shares being less valuable than wa« originally contemplated. 4th. That even if the directors had not been empowered by the prospectus. i 16 t I as they clearly were, to make the change, the subsequent deed of agreement of January 1825, signed by all the share- holders, many of whom were not original subscribers, would have superseded the necessity of adhering strictly to the letter of the prospectus in regard to the *' clergy reserves ;" because this agreement makes no mention of such " reserves," but ex- pressly declares that they subscribe " for the purchase and settlement of the crown lands, and for other purposes to be ex- pressed in the said charter/' ft * a- & Answer to the 2d argument, — namely, that the proposed company had no legal existence. It will not require much reasoning to prove the insufficiency of this argument I 17 for the non-performance of contracts of honour. If the bargains are not strictly of a legal character, which it is maintained they are, and only give parties an honour- able claim, it is the strongest argument in favour of their confirmation in a court of honour. If the Canada Company was not legal, even with its act of parliament, and the pledge of the government to grant a charter, are the numerous insur- ance and other companies legal whose shares are daily bought and sold in the market ? Into what an inextricable laby- rinth would this argument of illegality lead the Stock Exchange, if once ad- mitted ? Answer to the 3d argument, viz. " that by a diminution of the shares, a disso- lution of the first partnership has taken 18 i i place, and a new company formed/' is full of inconsistency. ^ In the first place : Several facts are assumed which are not correct ; as, that the modified agreement with Govern- ment made it necessary for the directors to give an option to shareholders to withdraw — whereas no such necessity existed ; for their standing counsel de- clared, that they were authorised to make the modified agreement ; and the directors themselves admit, that it was more advantageous than the original. Again, it is assumed that the partner- ship was dissolved by mutual consent at the meeting of the 12th July ; whereas no such resolution was ever proposed * ; and a large proportion of the share- * See the resolutions sent to each shareholder in a circular letter. 19 a holders present protested against any measure which might, directly or indi- rectly, alter the constitution of the com- pany ; and several persons addressed the meeting against any act calculated to have this effect. — Again, it is incorrectly assumed, that the remaining proprietors formed a new company, which is plainly contradicted by the words of the reso- lutions at that meeting ; for the directors are authorised to pay off the dissentients only " zs:hen the charter shall have been ohtainecir and this charter, which pro- vides for a capital Dot ecVccedinn' one million, empowers the directors to make any alterations which may be agreed to by the majority of proprietors at a gene- ral meeting — fully carrying on the prin- ciple and existence of the same com- 20 pany. The charter was given to the ori- ginal company, in pursuance of the act of parliament — the act of parliament was for the original company; — and there- fore, if it be a new company at all, it is a company without an act of parliament or a charter. So much for the facts of the case. The inconsistency of the reasoning on these facts, is equally palpable with the incorrect manner in which they are stated; for it is first argued, that the company never had any existence at all ; next, that the non-existent company was dissolved at a general meeting ; and then that an act of parliament and a charter from the crown, incorporating one com- pany, may, on its dissolution, be trans- ferred to a new company, like a bill of 21 ex(;hange, or any otlier disposable i)ro- perty. And in order to maintain this reason- ing, a reference is made to the law of the case ; but it has been already observed, that the committee of the Stock Ex- change have to decide these contracts as debts of honour, not as claims to be set- tled by the nice technicalities of the law; and therefore it is only necessary again to observe, that the standing coun- sel of the company declared, that the directors had full power to accept the modified agreement with Government, and that no dissolution could take place without the consent of all parties. 2U Answer to the 4th argument, namely, " That the sellers of the shares, who had signed the agreement of January 18^5, knew the contents of it ; where- as the buyers could not have access to it, as it was not made public/' Let the fact be admitted to its full extent, in regard to persons not being already proprietors, and having bought shares, — what would it avail ? it equally applies to the purchase and sale of shares in every company : the proprietor who signs a deed of agreement, or a deed of settlement, is supposed to know, or entitled to examine, at any time, the in- strument under which he is a partner ; the purchaser of his shares may r t ^'ave the same advantage, — and whor^ ^mIx is it but his own if he buys in ignorance ? ss It is his duty, before he makes the pur- chase, to ac(|Uiiint himself with the nv sponsibilities he assumes, and the value of the j)roi)crty for which he j)ays his money. If he cannot obtain access to the deed of settlement, he will, if he be a prudent man, abstain from any purchase of shares; but in the present case the deed was open to the inspection of the proprietors at all times, and any one might have had free access to it, or have been informed of its contents, if he had taken the trouble to inquire. But how does this plea of ignorance apply to the case of proprietors, — per- haps directors, who have already signed the deed, and who have bought shares from other proprietors ? and this is the case w ith the greater number of bargains 24 under discussion. How can they plead ignorance of the deed they have them- selves signed? Here may, perhaps, be parties having access to all the documents of the company, — the correspondence with Government, the report of the com- missioners, and, consequently, to every source of information as to the value of the intended grant, and the probabilities of immediate or ultimate success. Can such plead ignorance of the deed under which they bought? — a deed framed, perhaps, and settled under their autho- rity, and which they had declared it ne- cessary for every one to sign on pain of his shares being forfeited. And — to put an hypothetical case, — suppose any di- rectors of the company were also mem- bers of the Stock Exchange ; — suppose '-»*| -H ilil| l |* i