Phosphate of Lime Co. v. Green. 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 sufficiently proving such assent. A shareholder who had retired on 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 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. The later case of Phosphate of Lime Co. v. Green, L. R. 7 C. P. 43 of much the same kind though in a different form. The action was (a) A more detailed account is given in Lindley on Ptnp. 1. 763. See also L. R. 7 C. P. 51-2, and note the remark of Willes, J., 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 Act 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). 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. E. C. R. v. In E. C. Ry. Co. v. Hawkes, 5 H. L. C. 331, Lord Cranworth, who Public as we have seen was a decided upholder of the prima facie unlimited Policy. capacity of corporations, after citing Colman v. E. C. Ry. Co., Salomons v. Laing, Bagshaw E. Union Ry. Co. (see above p. 100, 101), 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. 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 Chichester 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 (a) See further on the subject of 1. 273-7. ratification by companies, Lindley &c. Co. Act. 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). Ashbury Ry. Carriage Co. v. Riche. Policy of We have already referred shortly to Ashbury Ry. Carriage Co. v. Companies Riche. In this case the 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. The 12th section of the Act says that a company shall not alter its memorandum of association except in certain particulars as to capital and shares (a); the Exchequer Chamber was equally divided as to the effect of this. Blackburn, Brett and Grove, JJ. were of opinion that it did not amount to making companies incapable of binding themselves to anything beyond the scope of the memorandum; Archibald, Keating and Quain, JJ. held that it did. They thought 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 memorandum of association" (p. 291). Admitting that a corporation has prima facie as incident at Common Law the large powers laid down in the Sutton's Hospital case, 10 Co. Rep. 30 b, and citing the statement of the law by Lord Cranworth in Shrewsbury and Birmingham Ry. Co. v. N. W. Ry. Co. (given above, p. 104) the judgment of Archibald, J. (L. R. 9 Ex. pp. 292-3) proceeds to say that "the presumption of a prima facie general authority to contract" is rebutted by the “ express provision that the scope and objects of the company as originally declared by its memorandum of association shall be unchangeable." The corporation may be regarded How far the Court should be guided in the construction of such statutes by the consideration of the general policy of such legislation is a question on which there has been much difference of opinion. (a) Extended by the Act of 1867, ss. 9, sqq., 21, but only to other matters of the like sort. as non-existent for the purpose of contracts beyond these objects; and if so, the individual assents of all the shareholders cannot give the ideal legal body of the corporation a capacity of which the legislature has deprived it, so as to render an agreement substantially beyond the defined objects " a contract of the ideal legal body, which exists only as a corporation, and with powers and capacity which are thus admittedly exceeded." This opinion was confirmed by the unanimous decision of the House of Lords, L. R. 7 H. L. 653, which proceeds not so much on any one section as on the intention of the Act appearing from its various provisions taken as a whole. The existence and competence of the company are limited by the memorandum of association, which is "as it were the area beyond which the action of the company cannot go" (Lord Cairns, at p. 671). Precisely analogous questions are not likely to arise very often (a), but the decision lays down with sufficient clearness the lines that must henceforth be followed in the treatment of the law. struments. It is not proposed to enter on any further discussion of the Inability of corporaparticular contracts which particular corporate bodies have been tions to held incapable of making. One class of contracts, however, is make nein a somewhat peculiar position in this respect, and requires a gotiable inlittle separate consideration. We mean the contracts expressed in negotiable instruments and governed by the law merchant. It is said and truly said that as a general rule a corporation cannot bind itself by a negotiable instrument. The origin and meaning of the rule are easily misapprehended. At first sight it looks like an obvious deduction from the doctrine of limited special capacities. If a corporation can only make such contracts as it is empowered to make, then it follows of course that among other things it cannot issue bills or notes without express or implied authority to do so; but we have seen that this ground is now hardly tenable. In order to state what we believe to be the true view we must to some extent anticipate the subject of the following chapter, so far as it relates to the form of corporate contracts. The general rule is that the contracts of a corporation must be The diffi. made under its common seal, and it follows that a corporation culty is partly cannot prima facie be bound by negotiable instruments in the formal ordinary form. The only early authority which is really much to the point was argued and partly decided on this footing (b). (a) See per Blackburn, J., L. R. 9 Ex. 271. (b) Broughton v. Manchester Waterworks Co. 3 B. & Ald. 1. The chief Partly in the nonapplicability of the ordinary rules of partnership agency. on. Of late years incorporated companies have issued documents under seal purporting to be negotiable; but by the law merchant an instrument under seal cannot be negotiable, and it is the better opinion that the fact of the seal being a corporate one makes no differenec; it cannot be taken as merely equivalent to signature because the party sealing is an artificial person and unable to sign (a). Putting this last question aside, however, there are very many matters about which a corporation can contract without seal, and in particular in the case of a trading corporation all things naturally incident to the business it carries Why should not the agents who are authorized to contract on behalf of the company in the ordinary course of its business be competent to bind the company by their acceptances, &c., on its behalf just as a member of an ordinary trading partnership can bind the firm? There is a twofold answer to this question. First, the extensive implied authority of an ordinary partner to bind his fellows cannot be applied to the case of a numerous association, whether incorporated or not, whose members are personally unknown to each other, and it has been often decided that the managers of such associations cannot bind the individual members or the corporate body, as the case may be, by giving negotiable instruments in the name of the concern, unless the terms of their particular authority enable them to do so by express words or necessary implication (b). In the case of a corporation this authority must be sought in its constitution as set forth in its special Act, articles of association, or the like. And partly Secondly, the power of even a trading corporation to contract without seal is limited to things incidental to the usual conduct in the peculiar point was on the statutes giving the (a) Crouch v. Crédit Foncier, L.R. 8 Q. B. 374. (b) As to unincorporated joint stock companies: Neale v. Turton, 4 Bing. 149, Dickinson v. Valpy, 10 B. & C. 128, Bramah v. Roberts, 3 Bing. N. C. 963, Bult v. Morrel, 12 A. & E. 745, Brown v. Byers, 16 M. & W. 252. As to incorporated companies Steele v. Harmer, 14 M. & W. 831 (in Ex. Ch. 4 Ex. 1, not on this point), Thompson v. Universal Salvage Co. 1 Ex. 694, Re Peruvian Rys. Co. 2 Ch. 617; cp. Ex pte City Bank, 3 Ch. 758, per Selwyn, L. J. The two last cases go rather far in the direction of implying such a power from general words. |