CHAPTER V.

OF THE LIABILITY OF COMPANIES FOR THE CONTRACTS OF THEIR PROMOTERS.

§ 226. Another very important exception to the general rule, as to parties to the contract alone being parties to the action, is furnished by the doctrine introduced and acted on by Lord Cottenham, that a public company after incorporation may be sued for the specific performance of contracts entered into before the passing of its act by the promoters-on the ground that the company stands in the place of the promoters, or, to use the language of Lord Jeffrey in the court of session, that the fact of "a party having passed from the chrysalis to the butterfly state," (a) creates no difficulty in the enforcement of such a contract.

§ 227. The principle was first introduced in the case of Edwards v. The Grand Junction Railway Co.; (b) there Moss, who was the agent of the promoters of a railway, entered into a contract with the trustees of a public highway, whilst the railway bill was before Parliament by which Moss agreed that he would enter into a contract to the effect of certain clauses which the trustees had been desirous to have inserted into the bill, and would get the same confirmed under the seal of the company intended to be incorporated, the contract being expressed to be made on the understanding that the trustees should offer no opposition to the bill, and that the contract should be void on Moss delivering to the trustees the engagement of the intended company to the same effect. The bill passed: the company proposed to make a road across the railway of a narrower width than that stipulated for by the clauses beforementioned: on a bill filed by the trustees against the company for a performance of the contract and an injunction, the company was

(a) Caledonian and Dumbartonshire Junction Railway Co. v. The Magistrates of Helensburgh, 2 M'Q., 394.

(b) 1 My. & Cr., 650; S. C, 1 Rail. C., 173; before Shadwell, V. C., 7 Sim., 337.

held to be bound by the contract entered into by the promoters before incorporation. "The question," said Lord Cottenham, in delivering judgment, (c) "is not whether there be any binding contract at law, but whether this court will permit the company to use their powers under the act in direct opposition to the arrangement made with the trustees prior to the act, upon the faith of which they were permitted to obtain such powers. If the company and the projectors cannot be identified, still it is clear that the company have succeeded to, and are now in possession of, all that the projectors had before, they are entitled to all their rights, and subject to all their liabilities. If any one had individually projected such a scheme, and, in prosecution. of it, had entered into arrangements, and then had sold and assigned all his interest in it to another, there would be no legal obligation between those who had dealt with the original projector and such purchaser; but in this court it would be otherwise. So here, as the company stand in the place of the projectors, they cannot repudiate arrangements into which such projectors had entered; they cannot exercise the powers given by Parliament to such projectors in their corporate capacity, and at the same time refuse to comply with those terms upon the faith of which all opposition to their obtaining such powers was withheld." The same principle was subsequently acted on by his lordship in the cases of Stanley v. The Chester and Birkenhead Railway Co. (d) and Lord Petre v. The Eastern Counties Railway Co.(e)

§ 228. The conditions under which the doctrine in question is applicable, if they have not been narrowed by subsequent cases, have at least been more clearly defined than they were in the cases already referred to. These conditions seem to be (1) that the company must have taken the benefit of the contract, and (2) that the contract must be for something warranted by the terms of the incorporation. § 229. (1) The company itself, after incorporation, must either have taken the benefit of the contract, or have other

(c) 1 My. & Cr., 672.

(d) 3 My. & Cr., 773; S. C., 1 Rail. C., 58; before Shadwell. V. C., 9 Sim., 264.

(e) 1 Rail. C., 462. See, also, per Lord Cot. tenham in Greenhalgh v. Manchester and

Birmingham Railway Co., 3 My. & Cr., 791, and in Doo v. The London and Croydon Rail. way Co., 1 Rail. C., 257; and see Vauxhall Bridge Co. v. Earl Spencer, Jac., 64.

wise recognized it as a contract binding on them. It is not enough that the opposition to the intended bill was withdrawn, as that is a consideration moving, not to the company, but to the promoters. Therefore, where a company was incorporated in consequence of the withdrawal of the plaintiff's opposition, but after that event they had not entered upon any of the land, or in anywise adopted the contract, except by fruitless negotiations, Lord Romilly, M. R., refused specific performance of the contract, and declined to order the defendants to admit the validity of the contract in an action at law; (ƒ) and his lordship acted on the same principle in the case, which shortly afterwards came before him, of Preston v. The Liverpool, Manchester and Newcastle Railway Co.(g) In The Earl of Lindsey v. The Great Northern Railway Co.,(h) Lord Hatherley (then V. C.) ex plained the principle of these cases in a way strongly supporting the first condition above stated. He considered that the cases did not proceed on the principle of contract through the agency of the promoters, but on the principle that the court will not allow a body to exercise powers acquired by means of a previous contract and arrangement, without carrying that contract and arrangement into full effect. To this extent the court acts negatively; but having once acquired jurisdiction, then its action is positive as well as negative, and therefore it will not merely restrain the doing of acts contrary to the contract, but will enforce every portion of it. Lord Campbell also, in his judgment in The Eastern Counties Railway Co. v. Hawkes, (i) supported the same view of Cottenham's doctrine. But it must be added that Lord St. Leonards, from the observations he made in the last-mentioned case on Gooday v. The Colchester Railway Co.,(7) appeared inclined to uphold that doctrine in its utmost generality, and to hold that the conduct of the directors, after the act, in relation to the execution of their powers, cannot absolve them from liability in respect of the benefit which they secured by the withdrawal of the opposition to the bill.

(f) Gooday v. Colchester, etc., Railway Co., 17 Beav., 132; Williams v. St. George's Harbor Co., 3 Jur. (N. S.), 1014 (Lord Romilly, M. R.); 2 De G. & J., 547.

(g) 17 Beav., 115.
(h) 10 Ha., 664.
(i) 5 H. L. C., 356.
(j) Id., 30s.

§ 230. In Williams v. The St. George's Harbor Co., (k) the company after incorporation had, by an agreement, been made parties to an action by the plaintiff against the promoters on a contract entered into by the promoters be fore incorporation, and had consented to a judgment in that action. That judgment, by consent, was held to be a sufficient recognition of the contract of the promoters as a contract binding on the company to give the court of chancery jurisdiction.

§ 231. Where the contract is within the powers of the future company, and is beneficial for the company, and the company sues upon it, the other contracting party cannot, on the ground of want of mutuality, raise any objection to the company's enforcing the contract. ()

§ 232. (2) The second condition, viz.: that the contract must be for something warranted by the terms of the incorporation, and which the company is, therefore, competent to perform under the powers of its act, is established and illustrated by the case of The Caledonian and Dumbartonshire Junction Railway Co. v. The Magistrates of Helensburgh, (m) which came before the House of Lords from the court of session in Scotland. The magistrate of Helensburgh had agreed with the promoters of the railway to afford the projected company certain facilities for the construction of the railway through the town, and to petition Parliament in favor of the bill; and the promoters on their part agreed that the company should pay for the making of a quay and harbor, which the magistrates were to apply to Parliament for powers to make. Lord Cranworth, after animadverting on the general principle introduced by Lord Cottenham, decided the case on the ground that, in the instances before that judge, the acts to be done were within the powers of the company when incorporated, whereas here the object of the arrangement was to apply the funds raised under legislative authority for the purpose of the railway to an object foreign from that of the railway, namely, the construction of a pier and harbor.

§ 233. Again, in Preston v. The Liverpool, Manchester

(k) 2 De G & J., 547.

(1) Bedford and Cambridge Railway Co. v. Stanley, 2 J. & H., 746.

(m) 2 M'Q., 391.

and Newcastle-upon-Tyne Junction Railway Co.,(n) Lord Cranworth held that a contract to pay £5,000 to a person for not opposing a bill in Parliament would be ultra vires of a railway company when incorporated, and, therefore, that it could not be enforced against the company by reason of its having been entered into by the promoters. A very similar decision was pronounced by Kindersley, V. C., in The Earl of Shrewsbury v. The North Staffordshire Railway Co. (0) There the promoters had agreed to pay to the plaintiff £2,000 for his support in obtaing their act, and the directors of the company after incorporation had ratified the bargain. It was held to be ultra vires of the company and not binding, though entered into by the promoters before the passing of the act.

§ 234. Not only have these conditions been imposed on the doctrine as laid down by Lord Cottenham, but grave doubts have been thrown on the very principles of his decisions by Lords Cranworth and Brougham, and by Kindersley, V. C. Thus, in the case already referred to of The Caledonian and Dumbartonshire Junction Railway Co. v. The Magistrates of Helensburgh, (p) Lord Cranworth, in a written judgment which had before its delivery received the concurrence of Lord Brougham, though deciding the case upon the point before mentioned, fully considered the general principle in question, and disapproved of it. His lordship observed that the doctrine in question could be supported only on the assumption that the company when incorporated is in substance, though not in form, a body succeeding to the rights and coming into the place of the projectors; and then proceeded to show that, in his judgment, it is such a body neither in form nor in substance. The body incorporated, he argued, is not confined to the projectors, and may even include none of them; the act of parliament when passed becomes the charter of the company, prescribing its duties and declaring its rights; and all persons becoming shareholders have a right to consider that they are entitled to all the benefits held out by the act, and liable to no obligation beyond those which are there

(n) 5 H. L. C., 605, §21. See, also, Leomin. ster Canal Co. v. Shrewsbury and Hereford Railway Co, 3 K. & J., 654.

(0) L. R. 1 Eq., 593.

(p) 2 M'Q, 391. See, also, Williams v. St. George's Harbor Co., 3 Jur. (N. S.), 1014 (Lord Romilly, M. R.); 2 De G. & J., 547.