Company law revision question and answer

Mwinzi, a holder of shares in Hewa Airways Company Limited deposited his share certificate with a broker, Otieno. Otieno forged Mwinzi‟s signature on the share certificate and transferred the shares to Kuria. When the share certificate and the transfer document were presented to the company for registration, the secretary wrote to Mwinzi advising him of the transfer. Mwinzi did not reply to this letter and Kuria was registered as the new shareholder. Kuria then transferred the shares to Wafula who was registered as the shareholder and a new certificate was issued.

Explain the effect of the forgery.
• A forgery has no effect. It is a legal nullity. It was so held in Ruben V. Great FingalConsolidated.
• In this case Otieno‟s forgery on Mwinzi‟s share certificate and transfer has no legaleffect of the shares. Thus Kuria acquired no title in the shares as he had none to pass to Wafula though the company issued a share certificate to Wafula.
• The legal position is that Mwinzi is still the legal and lawful owner of the shares as the purported transfer to Kuria has no legal effect.
• The fact that Mwinzi did not respond to the company secretary‟s letter on the transfer is of no legal consequence. His conduct cannot be relied upon to legalize a nullity.
• With regard to Wafula‟s case, the law is very clear, he is abonafide purchaser for value without notice. Since the company issued a share certificate to him it cannot be heard to say that he is not the holder of that number of shares or their value. The company is estopped from denying that fact. But since the transfer is void, Wafula has not title in the shares. He is entitled to sue the company in damages for the loss and the company is liable.

• Mwinzi is entitled to have the shares re-registered in his name and a new share certificate issued in his favour. This position is consistent with the decision in Balkis ConsolidatedV. Tompkinson.

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