CH. IX. s. 3. Particulars to Retrospective operation of sect. 10 of Act of 1900. Contracts between promoters and company. The more important particulars which "every prospectus issued by or on behalf of any person who is or has been engaged or interested in the formation of the company must state," include, besides those as to contracts above referred to, the contents of the memorandum of association, the names, &c., of the directors, the number of shares, if any, fixed by the articles of association as to the qualification of a director, "the minimum subscription on which the directors may proceed to allotment," the names and addresses of vendors or lessors of property acquired or leased to the company or so to be, “the amount (if any) paid or payable as commission for subscribing or agreeing to subscribe, or procuring or agreeing to procure subscriptions, for any shares in the company, or the rate of any such commission," and the amount of preliminary expenses and promotion money. The 10th section of the Companies Act is mainly retrospective, its retrospective operation being described and limited as follows, by sub-sect. (4) :— This section shall not apply to a circular or notice inviting existing members or debenture-holders of a company to subscribe for further shares or debentures, but, subject as aforesaid, this section shall apply to any prospectus, whether issued on or with reference to the formation of a company or subsequently: Provided that— (a) the requirements as to the memorandum of association, and the qualifica- But apart from any statutory provisions, the promoter stands in a fiduciary relation, and therefore he must not sell his own property to the company, or take a secret commission, or, unless he has disclosed it, the company may at their own option rescind the contract of sale, or retain the property at the price he gave for it, or recover the commission (i). Similarly, a director of a company is a trustee, and as such cannot contract with the company (k), and (i) Erlanger v. New Sombrero Phosphate Co. (1878), 3 App. Cas. 1218; In re Cape Breton Co. (1887), 12 App. Cas. 652; Lydney and Wigpool Iron Co. v. Bird (1886), 33 Ch. D. 85, C. A.; Ladywell Mining Co. v. Brookes (1887), 35 Ch. D. 400, C. A.; Buckley on Com panies, p. 542 et seq.; and see Farrar v. Farrars (1888), 40 Ch. D. 395, C. A. (k) Aberdeen Rail. Co. V. Blakie (1854), 1 Macq. 461; though a Scotch case, it was admitted that here English and Irish laws are alike. if he does, he cannot obtain a decree for specific performance of CH. IX. s. 3. his contract (1), or damages for breach. Contracts with Joint Stock Companies, Contracts A company has as an incident to its existence the same power of compromising claims by or against it as an individual, and such compromise, if bonâ fide and intra vires, will be good and valid as with direc between the company and the other party (m). tors. Compromise. tracts with With regard to the form of the contract of a company registered under the "Companies Acts," it is provided by sect. 37 of the Companies Act, 1867, 30 & 31 Vict. c. 131 (which is very similar to, and is clearly modelled upon sect. 97 of the Companies under ComClauses Act, 1845, 8 & 9 Vict. c. 16, infra, p. 266), that (n)— "Contracts on behalf of any company under the principal Act may be made as follows (that is to say,) "(1) Any contract which, if made between private persons, would be by law required to be in writing, and if made according to English law to be under seal, may be made on behalf of the company in writing under the common seal of the company, and such contract may be in the same manner varied or discharged: panies Acts. [See p. 2.] Act of 1867, s. 37. "(2) Any contract which, if made between private persons, would be by [See p. 76.] law required to be in writing, and signed by the parties to be charged therewith, may be made on behalf of the company in writing signed by any person acting under the express or implied authority of the company, and such contract may in the same manner be varied or discharged (o). "(3) Any contract which, if made between private persons, would by law be valid, although made by parol only and not reduced into writing, may be made by parol on behalf of the company by any person acting under the express or implied authority of the company, and such contract may in the same way be varied or discharged: “And all contracts made according to the provisions herein contained shall be effectual in law, and shall be binding upon the company and their successors and all other parties thereto, their heirs, executors, or administrators, as the case may be." The effect of this section seems to be, to render valid any -contract made on behalf of a joint stock company, provided it be made in the manner which, if it were the contract of a private person, would render the same kind of contract valid against him. But, before the passing of that Act, the power of such a company to enter into contracts appears to have been governed by the same rules as are applicable in the case of any ordinary trading corporation (p). (1) Flanagan v. Great Western Rail. Co. (1868), L. R., 7 Eq. 116. (m) Diron v. Evans (1872), L. R., 5 H. L. 606; Bath's case (1878), 8 Ch. D. 334, C. A. (n) For the law as to the contracts of companies registered under the Act of 1862, entered into previous to the Act of 1867, see South of Ireland Colliery Co. v. Waddle (1869), L. R., 3 C. P. 463; 4 C. P. 617, Ex. Ch. (0) See Beer v. London and Paris Hotel Co. (1875), L. R., 20 Eq. 412; Jones v. Victoria Graving Dock Co. (1877), 2 Q. B. D. 314; in the latter of these cases the signature of a chairman to a resolution of directors approving a draft agreement was held equivalent to a signature of the agreement so as to satisfy the Statute of Frauds. (p) See 25 & 26 Vict. c. 89, s. 18. CH. IX. s. 3. And where the agent of such a company entered into a parol contract for the purchase of goods on behalf of the company, and the company received and used the goods; this was held to be Companies. evidence for the jury of a binding contract by the company (q). But part performance will validate a contract with a company not complying with the requirements of sect. 37 (†). Part performance. Companies Clauses Act, 1845, s. 97. Form of contract. [See p. 2.] [See p. 76.] Contracts by companies incorporated by special Act of Parlia- "The power which may be granted to any such committee (s) to make "With respect to any contract which, if made between private persons, would be by law required to be in writing, and under seal, such committee or the directors may make such contract on behalf of the company in writing, and under the common seal (u) of the company, and in the same manner may vary or discharge the same (x): "With respect to any contract which, if made between private persons, would be by law required to be in writing, and signed by the parties to be charged therewith, then such committee or the directors may make such contract on behalf of the company in writing, signed by such committee or any two of them, or any two of the directors (y), and in the same manner may vary or discharge the same: "With respect to any contract which, if made between private persons, would by law be valid although made by parol only, and not reduced into (a) Pauling v. London and North Western Rail. Co. (1853), 8 Exch. 867; and see Totterdell v. Fareham Brick Co. (1866), L. R., 1 C. P. 674. (r) Per Kay, J., in Howard v. Patent Ivory Co. (1888), 38 Ch. D. 156, at p. 162; citing Wilson v. West Hartlepool Rail. Co. (1864), 2 De G. J. & S. 475, App.; but see Crampton v. Varna Rail. Co. (1872), L. R., 7 Ch. 562. (s) By sect. 95 the directors may appoint one or more committees, consisting of such number of directors as they think fit, within the limits, if any, prescribed by the special Act, and they may grant to such committees respectively powers, on behalf of the company, to do any acts relating to the affairs of the company which the directors could lawfully do, and which they from time to time shall think proper to intrust to them. (t) The powers of the directors are defined by sects. 90, 91 of that Act; but a contract of the directors does not bind the company, even although under seal and countersigned by the secretary, unless done by the directors as such, and so describing themselves and purporting to bind the company, Serrell v. Derbyshire, &c., Rail. Co. (1850), 9 C. B. 811. The directors, by sect. 100, are not personally liable by executing contracts (u) But the seal must be lawfully (x) See Midland Great Western Rail. Co. of Ireland v. Johnson (1858), 6 H. L. C. 798; and Homersham v. Wolverhampton Waterworks Co. (1851), 6 Ex. 137. (y) Where an agreement, though fully accepted by the company, was not signed by the two directors, it was held by Wood, V.-C., that it could not be specifically enforced, though perhaps mandamus would lie to the company and the directors to compel them to sign, Leominster Canal Co. v. Shrewsbury Rail. Co. (1857), 3 K. & J. 654. writing, such committee or the directors may make such contract on behalf CH. IX. s. 3. of the company by parol only (z), without writing, and in the same manner may vary or discharge the same. "And all contracts made according to the provisions herein contained shall be effectual in law, and shall be binding upon the company and their successors, and all other parties thereto, their heirs, executors, or administrators, as the case may be; and on any default in the execution of any such contract, either by the company or any other party thereto, such actions or suits may be brought, either by or against the company, as might be brought had the same contracts been made between private persons only." And by sect. 98, agreements and contracts entered into by the directors or their committee are to be entered in a book and signed as therein provided; and by sects. 85, 86, no one interested in a contract with the company may be a director thereof, and a director being interested is ipso facto disqualified (a). And it may be laid down generally, as to such companies, that they can only contract according to the terms in which the contract is authorised to be entered into by the Act of 1845, or the special Act by which they are controlled (b). Contracts with Joint Stock Companies. Director dis qualified by interest in contract. ultra vires. Ashbury v. Riche. A company, although created a corporation by the registration Contracts under the Companies Act, 1862, has not the inherent common law rights of a corporation, but just as the powers of a corporation are bounded by its charter, so the powers of a company are bounded by the memorandum of association; and a contract outside that will be ultra vires, and not enforceable, not even if the whole body of shareholders assented (c). A trading company has an implied power to borrow money for Implied power the purposes of its business (d). The contract of an incorporated company is not binding on the company, when such contract is foreign to the purposes for which the company was incorporated (e). But any contract by (*) So where a company had enjoyed the use and occupation of land, under conditions in which a parol contract therefor would have been valid, as between individuals, the Court will presume a parol contract against the company, Lowe v. London and North Western Rail. Co. (1852), 18 Q. B. 632, per Lord Campbell, C.J.; and this case was followed and approved in Pauling v. London and North Western Rail. Co. (1853), 8 Ex. 867; as to a case where they had not occupied and enjoyed the land, see Finlay v. Bristol, &c., Rail. Co. (1852), 7 Ex. 409; and see, too, Laird v. Birkenhead Rail. Co. (1859), Johns. 500. But this section as to parol contract will not support a claim for extras where the original contract was under seal, Homersham v. Wolverhampton Waterworks Co. (1851), 6 Ex. 137. (a) See Foster v. Oxford Rail. Co. (1853), 13 C. B. 200; and see ante at p. 264 (k). (b) Homersham V. Wolverhampton Waterworks Co. (1851), 6 Ex. 137, 142; Cope v. Thomas Haven, &c., Co. (1849), 3 Ex. 841. (c) Ashbury Carriage Co. v. Riche (1875), L. R. 7 H. L. 653; and see the observations on that case in AttorneyGeneral v. Great Eastern Rail. Co. (1880), 5 App. Cas. 473; Wenlock v. River Dee Co. (1885), 10 App. Cas. 354. (d) General Auction, Estate and Monetary Co. v. Smith, [1891] 3 Ch. 432. (e) Taylor v. Chichester, &c., Rail. Co. (1876), L. R. 4 H. L. 628; East Anglian Rails. Co. v. Eastern Counties Rail. Co. (1851), 11 C. B. 775, 813; M'Gregor v. Dover, &c., Rail. Co. (1852), 18 Q. B. 618; South Yorkshire Rail. Co. to borrow. Contract foreign to purpose of company, not binding. Taylor v. Chichester, &c., R. Co. Contracts with Joint Stock Companies. CH. IX. s. 3. the company, which may fairly be regarded as incidental to, or consequential upon those things which the Legislature has authorised, is not-unless it be expressly prohibited-to be held to be ultra vires (f). And so where an Act gave a corporation power to borrow 25,000l., borrowing a larger sum was decided by the House of Lords to be ultra vires, and that the lender could not recover, although the previous Acts dealing with that corporation were silent as to borrowing powers, so that before that Act the power to borrow would depend on what "the purposes aforesaid" for which the company was by statute incorporated were, and whether they were such as to make it reasonable to think that the Legislature intended the company should have such a power or not (g). No estoppel. How far capable of ratification. Ultra vires A corporate body cannot be estopped by deed or otherwise from showing that they had no power to do that which they profess to have done (h). If, however, the contract be merely ultra vires on the part of the officer of the company by whom it is executed, it may be ratified by the company, so as to become binding on them (i). So, a mere excess of authority by the directors will not be a defence to an action on a contract entered into by them, unless it be also shown, that by such excess of authority they had prejudiced the shareholders, and that this was known to the other contracting party (k). So, where the directors merely exceed their authority, the shareholders may ratify their act (1); or they may, by acquiescence in the act of the directors, be estopped from objecting to its validity (m). And where an action was brought against such a company for goods ordered by persons in their employ, and supplied for the v. Great Northern Rail. Co. (1853), 9 (f) Per Lord Selborne, C., Attorney- (g) Wenlock (Baroness) v. River Dee Co. (1885), 10 App. Cas. 354; nor would the fiat of the Inclosure Commissioners make the loan valid, Wenlock (Baroness) v. River Dee Co. (1888), 38 Ch. D. 354, C. A. (h) Ex parte Watson (1888), 21 Q. B. D. 301. (i) Reuter v. Electric Telegraph Co. (1856), 6 E. & B. 341, 348. (k) Royal British Bank v. Turquand (1856), 6 E. & B. 327, Ex. Ch.; Agar v. Atheneum Assurance Society (1858), 3 C. B., N. S. 725; Prince of Wales, &c., Co. v. Harding (1857), E., B. & E. 183. (1) Irvine v. Union Bank of Australia, 2 App. Cas. 366; Grant v. United King dom Switchback Co. (1888), 40 Ch. D. 135, C. A. (m) Re Magdalena Steam Navigation C. (1860), 29 L. J., Ch. 667. And the question of acquiescence in such cases is said to depend upon this: viz., had the shareholders notice of the way in which the affairs of the company were being conducted, and its property managed; and were they content not to oppose those acts which they knew were being done? Per Lord Cairns, C., Evans v. Smallcombe (1868), L. R., 3 H. L. 249, 256; and see Phosphate of Lime Co. v. Green (1871), L. R., 7 C. P. 43; London Financial Association v. Kelk (1883), 26 Ch. D. 107. |