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The memorandum of association may, in the case of a Articles of company limited by shares, and must, in the case of a company association. limited by guarantee, or unlimited, be accompanied, when registered, by articles of association. They may adopt all or any of the provisions in Table A in the schedule to the Act of 1862 and unless these regulations are excluded or modified by registered articles they are to be deemed the regulations of the company (1).

The articles are to be printed, expressed in separate paragraphs numbered arithmetically, stamped with a 108. deed stamp, and with a 58. companies regulation stamp, and signed by each subscriber.

"The articles," said Lord Cairns, in a celebrated judgment, "play a subsidiary part to the memorandum of association. They accept the memorandum as the charter of incorporation of the company, and so accepting it the articles proceed to define the duties, the rights, and the powers of the governing body as between themselves and the company at large, and the mode and form in which the business of the company is to be carried on, and the mode and form in which changes in the internal regulation of the company may from time to time be made" (2).


Money payable in pursuance of such regulations is a specialty debt (3), and when registered the articles operate as a covenant by each member to conform to the regulations, but as they are merely a contract by the shareholders inter se, a person (being an outsider) in whose favour a stipulation is made is not in the same position as if he had entered into a contract with the company" (4), and cannot enforce it.

registrar is to register it, and to certify under his hand the registration thereof, and his certificate "shall be conclusive evidence that all the requisitions of this Act with respect to such alteration and the confirmation thereof have been complied with, and thenceforth (but subject to the provisions of this Act) the memorandum or deed of settlement so altered shall be the memorandum of association or deed of settlement of the company, or, as the case may be, such substituted memorandum and articles of association shall apply to the company in the same manner as if the company were a company registered under Part I. of the Companies Act, 1862, with such memo

randum and articles of association,
and the company's deed of settlement
shall cease to apply to the company.

If a company makes default in
delivering to the registrar any docu-
ment required by the Act to be
delivered to him the company shall
be liable to a penalty not exceeding
ten pounds for every day during
which it is in default.

(1) Companies Act, 1862, ss. 14, 15. (2) Ashbury Co. v. Riche, L. R. 7 H. L. 668; and see Wood v. Odessa Waterworks Co., 42 Ch. D. 636; Re Crown Bank, 44 Ch. D. 634.

(3) Companies Act, 1862, s. 16.

(4) Browne v. La Trinidad, 37 Ch. Div. 1, at p. 14; Eley v. Positive Assurance Co., 1 Ex. Div. 88. See also

Articles of association.

Position of directors.

The regulations of the company contained in its articles of association may from time to time be modified or added to by special resolution (1).

Every company is bound under penalty to supply its members on demand, and upon payment of a small fee, with copies of the memorandum and articles of association (2), and also to keep a register of its members (3), and, if limited, a register of mortgages, open for inspection (4), and to give notice to the Registrar of Joint Stock Companies as to the disposition or conversion of its shares (5), and also annual returns as to its members and capital (6).

The company when formed cannot act in its own person, for it has no person. It can act only through its directors (7). The subscribers to the memorandum are, according to the model set of articles contained in Table A, to be deemed directors until directors are appointed (*). A general meeting must be held within four months after registration (9), and the shareholders themselves have then power to elect a new directorate.

An irregularity in the appointment of directors would not affect dealings with strangers who were ignorant of it (1o), but as between the company and its members an irregularity has been held to avoid a call (11) and a forfeiture of shares (12).

But directors de facto are liable in the same manner and to the same extent as if they had been de jure as well as de facto directors (13).

What is the position of the directors of a joint stock company? Their general position has been judicially summed up by two of the greatest judges of modern times (the late Sir George Jessel and the late Lord Justice James (14)) as follows:"Directors have sometimes been called trustees, or commercial trustees, and sometimes they have been called managing partners.

Re Rotherham Chemical Co., 25 Ch. D.
103; Re Wheal Buller Consols, 38
Ch. D. 42.

(1) Companies Act, 1862, s. 50.
(2) Companies Act, 1862, ss. 19, 54.
(3) Companies Act, 1862, s. 25.
(*) Companies Act, 1862, s. 43.

Companies Act, 1862, ss. 28, 53.
(6) Companies Act, 1862, ss. 26, 27.
() Ferguson v. Wilson, L. R.
2 Ch. 77.

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It does not much matter what you call them so long as you understand what their true position is, which is that they are really commercial men managing a trading concern for the benefit of themselves and of all the other shareholders in it. The distinction between a director and a trustee is an essential distinction, founded on the very nature of things. A trustee is a man who is the owner of the property and deals with it as principal, as owner, and as master, subject only to an equitable obligation to account to some persons to whom he stands in the relation of trustee, and who are his cestuis que trust. The same individual may fill the office of director and also be a trustee having property, but that is a rare, exceptional, and casual circumstance. The office of director is that of a paid servant of the company. A director never enters into a contract for himself, but he enters into contracts for his principal, that is, for the company of whom he is a director, and for whom he is acting. He cannot sue on such contracts nor be sued on them unless he exceeds his authority. That seems to me to be the broad distinction between trustees and directors" (1).

"With respect to the capital of the company," said Kay, J., in a very recent case," which is under their management, it has been said that directors are quasi-trustees for the company (2). In that and other respects they are to a certain extent trustees." They are certainly not trustees in the sense of those words as used with reference to an instrument of trust, such as a marriage settlement or will. One obvious distinction is that the property of the company is not legally vested in them. Another perhaps still broader difference is that they are the managing agents of a trading association and such control as they have over its property and such powers as by the constitution of the company are vested in them are confided to them for purposes widely different from those which exist in the case of such ordinary trusts and require that larger discretion should be given to them" (3).

The practical result is this: Directors are special agents of the company. Their authority is limited by the articles of asso

(1) Directors are trustees or agents of the company-trustees of the company's money and propertyagents in the transactions which they enter into on behalf of the company: Per Lord Selborne, Great Eastern Ry. Co. v. Turner, L. R. 8 Ch.


(2) Flitcroft's Case, 21 Ch. D. 519, 534. See also Great Eastern Railway Co. v. Turner, L. R. 8 Ch. 149; Russell v. Wakefield Waterworks Co., L. R. 20 Eq. 474; British Seamless Paper Box Co., 17 Ch. D. 467, 479.

(3) Re Faure Electric Co., 40 Ch. D. 150.

Position of directors.


[Book V. Position of ciation (1), and where these are silent they have a general authority to bind the company in all things ordinarily and reasonably done in carrying on the defined and legitimate business of the company (2). Directors are personally liable for any act, even though done bona fide, which is foreign to or inconsistent with the ordinary scope of the company's business as defined by the memorandum of association. If directors apply money of the company for purposes so outside its powers that the company could not sanction such application, they may be made personally liable as for breach of trust (3). On the other hand, if they apply the money of the company, or exercise any of its powers in a manner which is not ultrà vires, then a strong and clear case of misfeasance must be made out against them (4). Directors are bound to act honestly and to use reasonable diligence, but they are not bound to do more (5).

Every limited company is bound to keep a register, and enter therein, all mortgages and charges specifically affecting its property. This register, which is to be open to the inspection. of creditors and members of the company, is to contain a short description of the property mortgaged or charged, the amount of the charge created, and the names of the mortgagees or persons entitled to the charge, and any director, manager, or officer who knowingly authorises or permits the omission of an entry on such register of any such charge is liable to a penalty not exceeding £50 (6). This section has been the subject of many decisions, and has given rise to some curious diversities of judicial opinion which may now however be considered, for practical purposes, as settled by a recent judgment of the House of Lords that the mere omission to register a charge, even in favour of a director, without concealment, does not invalidate the security as between the director and the other creditors of the company (7).

A director is not a servant, and there is no implied contract

(1) Ernest v. Nicholls, 6 H. L. C. 419; Mahony v. East Holyford Railway Co., L. R. 7 H. L. 869; Chapleo v. Brunswick Building Society, 6 Q. B. D. 696.

(2) Hutton v. West Cork Railway Co., 23 Ch. Div. 654.

(3) Re Faure Electric Co., Kay, J., 40 Ch. D. 141, 150, 152. See also West London Bank v. Kitson, 13 Q. B. D. 360.

(*) See Marzetti's Case, 28 W. R. 542: Overend Gurney & Co. v. Gibb, L. R. 5 H. L. 480. But see Joint

Stock Discount Co. v. Brown, L. R.
8 Eq. 396: Pickering v. Stephenson,
L. R. 14 Eq. 322, 342; and Land
Credit Co. v. Lord Fermoy, L. R. 5
Ch. 763.

(5) Per Jessel, M.R., Re Forest of Dean Coal Mining Co., 10 Ch. D. 452. They are not liable for an honest error of judgment: Re Brighton Brewery Co., 37 L. J. (Ch.) 278.

(6) Companies Act, s. 43; see as to debentures, ante, p. 283.

() Wright v. Horton, 12 App. Cas.




to pay for his services (1). If a remuneration is fixed by the Position of articles he can recover it by action (2), or a general meeting may vote remuneration for past services, but he will not be allowed to prove for the amount in the winding-up in competition with the general creditors (3).

As a director occupies a fiduciary position (4) he must not so act as to allow his duty and his interest to conflict. If, therefore, he, without the fullest knowledge of the company, receive any secret profit, bonus, percentage, or commission from any transaction in which the company has an interest, he will be guilty of a fraud and a breach of duty, and he may not only be dismissed from his office, but he will also be compelled to account for the profit received.

The prospectus issued to the public is the basis of the contract to take shares (5).

A very important Act "to amend the law relating to the liability of directors and others for statements in prospectuses and other documents soliciting applications for shares or debentures" was passed in the year 1890, which is called the Directors' Liability Act, 1890 (53 & 54 Vict. c. 64). The Act was passed in consequence of the decision in Derry v. Peek, which has been mentioned in a previous page (ante, p. 494). Sect. 3 provides; that where, after the passing of the Act (18th August, 1890), a prospectus or notice invites persons to subscribe for shares in, or debentures or debenture stock of, a company, the following classes of persons, viz. :

1. Every person who is a director of the company at the time of the issue of the prospectus or notice;

2. Every person who having authorised such naming of him is named in the prospectus or notice as a director of the company or as having agreed to become a director of the company either immediately or after an interval of time;

3. Every promoter of the company; and

4. Every person who has authorised the issue of the prospectus or notice,

(1) Hutton v. West Cork Railway Co., 23 Ch. D. 671.

(2) Dunston v. Imperial, &c., Co., 3 B. & Ald. 125; Orton v. Cleveland Firebrick Co., 3 H. & C. 868.


(3) Ex parte Cannon, 30 Ch. D.

(4) Boston Co. v. Ansell, 39 Ch. D. 339; Rothschild v. Brookman, 2 Dow. & C. 189, 197; Parker v.

McKenna, L. R. 10 Ch. 96; Aber-
deen Railway v. Blaikie, 1 Macq.
461; Cavendish Bentinck v. Fenn,
12 App. Cas. 653.

(5) Pulsford v. Richards, 17 Beav.
87; Jennings v. Broughton, 17 Beav.
234, where the prospectus is spoken
of as a representation "dans locum

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