The same principle has been followed in equity: Ex parte Eagle Insurance Co., 4 K. & J. 549, 27 L. J. Ch. 829, and the Court of Appeal in Chancery has recently expressed the opinion that it is in the highest degree important that it should be adhered to and acted upon: Campbell's ca. &c. 9 Ch. 1, 24. Cp. Totterdell v. Fareham Brick Co., L. R. 1 C. P. 674, and Re County Life Assce. Co., 5 Ch. 288, a very strong case, for the persons who issued the policy were assuming to carry on business as directors of the company without any authority at all. In Balfour v. Ernest the action was on a bill given by directors of an insurance company for a claim under a policy of another company, the two companies having arranged an amalgamation; this attempted amalgamation however had been judicially determined to be void: Ernest v. Nicholls, 6 H. L. C. 401, revg. S. C. nom. Port of London Co.'s case, 5 D. M. G. 465. The directors had power by the deed of settlement to borrow money for the objects and business of the company and to pay claims on policies granted by the company, and they had a power to make and accept bills &c. which was not restricted in terms as to the objects for which it might be exercised. It was held that, taking this with the other provisions of the deed, they could bind the company by bills of exchange only for its ordinary purposes, and not in pursuance of a void scheme of amalgamation, that the plaintiffs must be taken to have known of their want of authority which might have been ascertained from the deed, and that they therefore could not recover. "This bill is drawn by procuration" said Willes, J., "and unless there was authority to draw ... this is the bare case of one it the company are not liable (a) taking a bill from Company A. in respect of a debt due from Company B., there being nothing in the deed (which must be taken to have been known to the plaintiffs) to confer upon the directors authority to make it." The connexion with ordinary partnership law is brought out in the introductory part of Lord Wensleydale's remarks in Ernest v. Nicholls (6 H. L. C. 401, 417) : “The law in ordinary partnerships, so far as relates to the powers of one partner to bind the others, is a branch of the law of principal and agent. Each member of a complete partnership is liable for himself, and as agent for the rest binds them, upon all contracts made in the course of the ordinary scope of the partnership business. Any restriction upon the authority of each partner, imposed by mutual agreement among themselves, could not affect third persons, unless such persons had notice of them; then they could take nothing by contract [sc. as against the firm] which those (a) In form it was a bill drawn by two directors on the company's cashier, and sealed with the com. 107 Ratification of irregular transactions by assent of all the restrictions forbade. [The law in this form, i.e., the presumption of every partner being the agent of the firm, being obviously inapplicable to joint-stock companies], the legislature then devised the plan of incorporating these companies in a manner unknown to the common law, with special powers of management and liabilities, providing at the same time that all the world should have notice who were the persons authorized to bind all the shareholders by requiring the co-partnership deed to be registered. . and made accessible to all." The continuation of the passage is given by Mr. Justice Lindley (1,266); its language is however extra-judicial and of an almost dangerous latitude, and the Courts have distinctly declined to adopt it (Agar v. Athenæum Life Assce. Soc., 3 C. B. N. S. 725, 27 L. J. C. P. 95, Prince of Wales Assce. Co. v. Harding, E. B. & E. 183, 27 L. J. Q. B. 297). In fact they could not have done so without disregarding Royal British Bank v. Turquand. We now pass on to the cases which show how far transactions in the conduct of a company's affairs which in their inception were invalid as against any dissenting shareholder may nevertheless be made binding on the partnership and decisive of its collective rights (at all events as between the company and its own past or present members) by the subsequent assent of all the shareholders, though such assent be informal and shown only by acquiescence. The Spackman leading examples on this head are given by the well-known cases in . Evans, the House of Lords which arose in the winding-up of the Agriculturists' Cattle Insurance Company. We have purposely stated their general scope in guarded terms. share holders. &c., considered. They were no doubt relied on in Riche v. Ashbury Ry. Carriage Co., not merely in argument, but in the judgment of half the Court of Exchequer Chamber (L. R. 9 Ex. 269-70) as covering a wider field, and being in fact authorities for the proposition that the unanimous assent of shareholders may bind a company in its corporate capacity to anything. But in favour of the opposite view (which since the decision of the House of the Lords in the last mentioned case, W. N. 1875, 123, is in fact the only possible one), good reasons are shown by Archibald, J. (L. R. 9 Ex. 289-90), which may perhaps be made more clear by stating their substance in the shortest and simplest form. 1. The whole matter was one of the internal constitution and affairs of the company; there was no occasion to consider to what extent or in what transactions the assent of shareholders was capable of binding the company as against strangers. 2. The irregular act which was ratified was unauthorized as to the manner and form of it, but belonged to an authorized class, as pointed out by Lord Romilly (L. R. 3 H. L. 244—5). The general nature of the facts was thus: At a meeting of the company an arrangement was agreed to, afterwards called the Chippenham arrangement, by which shareholders who elected to do so within a certain time might retire from the company on specified terms by a nominal forfeiture of their shares. The deed of settlement contained provisions for forfeiture of shares, but not such as to warrant this arrangement. It was held— In Evans v. Smallcombe, L. R. 3 H. L. 249, that the Chippenham arrangement could be supported [sc., as having become part of the internal regulations of the company] only by the assent of all the shareholders, but that in fact there was knowledge and acquiescence A shareholder who had retired on sufficiently proving such assent. the terms of the Chippenham arrangement was therefore not liable to be put on the list of contributories: Cp. Brotherhood's ca. 4 D. F. J. 566, an earlier and similar decision in the same winding-up. In Spackman v. Evans, ib. 171, that a later and distinct compromise made with a smaller number of dissentient shareholders had not in fact been communicated to all the shareholders as distinct from the Chippenham arrangement, and could not be deemed to have been ratified by that acquiescence which ratified the Chippenham arrangement; and that a shareholder who had retired under this later compromise was therefore rightly made a contributory. In Houldsworth v. Evans, ib. 263, that time was of the essence of the Chippenham arrangement, so that when a shareholder was allowed to retire on the terms of the Chippenham arrangement after the date fixed for members to make their election, this, in fact, amounted to a distinct and special compromise which ought to have been specially communicated to all the shareholders: this case therefore followed Spackman v. Evans (a). Cp. Stewart's ca. 1 Ch. 511. The question of the shareholders' knowledge or assent in each case involved delicate and difficult inferences of fact, and on these the opinions of the Lords who took part in the decisions were seriously divided. It may perhaps also be admitted that on some inferences of mixed fact and law there was a real difference; but it may safely be affirmed that on any pure question of law there was none (b). These cases appear to establish in substance the following propositions: (1). For the purpose of binding a company as against its own shareholders, irregular transactions of an authorized class may be ratified by the assent of all the individual shareholders. (2). Such assent must be proved as a fact. Acquiescence with knowledge or full means of knowledge may amount to proof of assent, and lapse of time though not conclusive is material. The converse proposition (a) A more detailed account is given in Lindley on Ptnp. 1. 763. See also L. R. 7 C. P. 51-2, and note P. 53. the remark of Willes, J., v. Green. that the assent of a particular shareholder will bind him to an irregular transaction as against the company is likewise well established, but does not fall within our present scope. See Campbell's ca, &c., 9 Ch. 1. Phosphate The later case of the Phosphate of Lime Co. v. Green, L. R. 7 C. P. of Lime Co. 43 was of much the same kind though in a different form. The action was by the company against past shareholders for a debt, and the defence rested on an accord and satisfaction which had been effected by an irregular forfeiture of the defendant's shares, and which in the result was upheld on the ground of the shareholders' acquiescence. There is nothing to throw any light on the question whether in the case of a trading company formed under the Companies Acts, 1862, there is any class of acts which not even the unanimous assent of shareholders can ratify: it was not necessary to consider the existence of such a distinction, nor was it brought to the attention of the Court. Note that the difficulty as to inferences of fact was much less than in the cases before the House of Lords, as the Court had to say, not whether there had been acquiescence, but whether there was evidence from which a jury might reasonably have found acquiescence (see pp. 61-62) (a). Public E. C. R. v. It is not contended, however, that these authorities have no application except in closely similar cases of arrangements relating to the internal affairs of companies, but only that in themselves they do not decide more than we have stated, and leave it open how far their application is to be extended. There seems to be no reason why the same principle should not apply to dealings between the corporation and strangers, except so far as it is controlled by positive corporate disabilities imposed by the policy of the legislature. Doctrine of public policy. In E. C. Ry. Co. v. Hawkes, 5 H. L. C. 331 Lord Cranworth, who as we have seen was a decided upholder of the prima facie unlimited capacity of corporations, after citing Colman v. E. C. Ry. Co., Salomons v. Laing, Bagshaw v. E. Union Ry. Co. (see above p. 97, 98), expressed himself as follows:-"It must be now considered as a well settled doctrine that a company incorporated by Act of Parliament for a special purpose cannot devote any part of its funds to objects unauthorized by the terms of its incorporation, however desirable such an application may appear to be." In this case the disputed contract was held good, and the distinction was pointed out between an act which is forbidden or illegal in itself, e.g., obstructing a navigable river by building a bridge across it as in Mayor of Norwich v. Norfolk Ry. Co. (a) See further on the subject of ratification by companies, Lindley 1.273-7. Chichester 4 E. & B. 397, and an act which is merely unauthorized as between directors and shareholders. A pretty full account of this case is given Taylor v. in the judgment of Blackburn, J., in Taylor v. Chichester & Midhurst &c. Co. Ry. Co., L. R. 2 Ex. 356, 386–9; and the effect of the doctrine of public policy in imposing restrictions on corporate action which are beyond and independent of the rights of individual shareholders, and which therefore their assent is powerless to remove, is explained in a subsequent passage of the same judgment, which points out that in incorporating a company the legislature has two distinct purposes, the convenience of the shareholders and the benefit of the public. Every shareholder has rights against the corporation analogous to those of partners between themselves, and may object to unauthorized acts being done. These individual rights however may be waived. But if the legislature actually forbids the company to enter upon certain transactions, then no assent will make such transactions binding. Whether such a prohibition exists depends in each case on the construction of the statute (pp. 378-9). to policy of How far the Court should be guided in the construction of such Riche v. statutes by the consideration of the general policy of such legisla- Ashbury Ry. Cartion is a question on which there has been much difference of riage Co. opinion; so much, indeed, as almost to bring back the conflict Conflict of between the theories of general capacity and special capacities in opinion as another form. We have already referred shortly to Riche v. Ashbury Companies Ry. Carriage Co., in the Exchequer Chamber, L. R. 9 Ex. 249, where the Act. distinct question arose (for the first time it is believed), whether the Companies Act 1862 does or does not forbid a company formed under it to bind itself by contract to an undertaking beyond the purposes specified in the memorandum of association. It is certain that no such prohibition is expressed in the Act, and in the opinion of Blackburn, Brett, and Grove, JJ., there was no sufficient ground for implying it. This opinion, as we have intimated above (p. 108) is in part founded on a broad view of the effect of the judgments of the House of Lords in Spackman v. Evans &c. In the opinion of Archibald, Keating, and Quain, JJ., on the other hand, such a prohibition is to be implied from the general policy of the Act and from the language of s. 12. That section says that a company shall not alter its memorandum of association except in certain particulars as to capital and shares (a), and these judges held it to be "the policy as well as the true construction" of the Act "to ignore (so to speak) the existence of the corporation and the power of the shareholders, even when unanimous, to contract or act in its name for any purpose substantially beyond or in excess of its objects as defined by the memo(a) Extended by the Act of 1867, ss. 9, sqq., 21, but only to other matters of the like sort. |