COMMERCIAL GRAIN PRODUCERS ASSOCIATION v TOBACCO SALES LTD 1982 (2) ZLR 154 (S)

Flynote

Contract — option to purchase — not essential to pay monetary consideration for option itself — if paid can form part of whole of subsequent purchase price — company law — articles of association — clause resting right of shareholder to transfer shares — such restrictions must be made in clear language — companies Act [Chapter 190] — section 186 (c) transfer of shares void after winding — up commences unless court orders otherwise — grounds on which court's discretion to be exercised.

Headnote

It is not essential, for an option agreement to be valid, for a monetary consideration to be agreed upon. Where such monetary consideration is agreed upon, there is no reason why the parties should not agree that, in the event of the option being exercised, the sum agreed upon as consideration for the option should form part or the whole of the subsequent purchase price, provided that that price was a genuine one.

A clause in the articles of association of a company which purports to restrict the right of a shareholder to transfer his shares to whomever he chooses should be strictly construed. A share, being personal property, is prima facie transferable, although the conditions of the transfer are to be found in the articles. If the right of transfer inherent in such property is to be restricted, this should be done by language of sufficient clarity to make it apparent that that was the intention.

In terms of section 186 (c) of the Companies Act [Chapter 190], where there is a winding up by the court, every transfer of shares (among other transactions) made after the commencement of the winding up is void unless the court otherwise orders. The principles on which the court exercises its discretion in such cases are the broad areas of what is just and fair in the circumstances of each case, having special regard to the question of the good faith and honest intention of the persons concerned. Considerations of fairness include considerations of adverse effects on the company's creditors; but there is no need for a further requirement that the desired relief must also positively operate to the benefit of the company. Where parties have agreed to the sale of shares and there was no reason why the company should not be authorized by the court to recognize and give effect to the contract, and since the contract is not, as between the parties, void because of the section, it would be illogical and wrong to deprive the agreed transfer of completeness by refusing to authorize registration of it by the company in fulfilment of what the parties contemplated and intended.

Decision of Squires, J, in Tobacco Sales Ltd v Agricultural Investments (Pvt.) Ltd., 1982 (1) ZLR 180 upheld.