Question 370.— The by-laws of a joint stock company forbid the transfer of stock by shareholders without the consent of the directors. Would a transfer of paid-up stock be valid if made in the absence of such consent, or in the case of its refusal?

Would your answer also apply in the case of stock not fully paid up?

Answer.—In the case of stock on which there is a liability we think that under such a by-law the directors might refuse to permit the transfer; but they cannot act capriciously: they must accept a transferee who is in good financial standing, and can refuse only on substantial grounds.

If the stock is fully paid up, and no further liability exists, the directors would not, we think, be able to prevent the transfer, notwithstanding the by-law, unless under very special circumstances.

The law on these points is fully discussed in Smith v. Bank of Nova Scotia, in which the right of a shareholder in a bank to transfer partially paid stock to a solvent transferee without the consent of the directors is involved.