by that partner was held bound to show that it was granted by the partner as representing the firm, and not by himself as an individual (a).

(a) South Carolina Bank v. Case, 1828, 3 Ross Le. Ca. 508, 8 B. and C. 427; and see also per C. J. Cockburn in Nicholson v. Ricketts, 6 E. Jur. N. S. 422. See also Stephen v. Reynolds,

5 H. and N. 513; Story on Part. sec. 139; U. S. Bank v. Burney, 5 Mast. 176, and Etherton v. Burney, 1 Pick. 274, American cases, and both quoted in Ross Le. Ca. 516-17.

CHAPTER XI.

POWERS AND DUTIES OF DIRECTORS.

panies and

firms.

JOINT-STOCK Companies differ from private partnerships in having Difference between jointa large and fluctuating body of members, in relation to whom there stock comis no delectus persona, and who can in no sense be regarded either as the agents of the company or of each other. What they contribute is not ability, skill, or industry, but money. The affairs of such associations are accordingly carried on, not by the partners or shareholders, but by directors, managers, or other officials specially appointed for that purpose. These, and not the partners, are the agents of the company.

This doctrine applies not only to corporations, but to all jointstock companies whatsoever deserving the name; and it is so based in equity and even necessity, that in all transactions with such associations the public are held entitled to deal with the proper officials only (a).

As a general rule, it may be assumed that the managing officials of a joint-stock company hold the same kind of agency in relation to it that partners do in relation to a private firm; and it will be found that the principles which regulate the special and implied powers of both are very similar or analogous (b). Much of what has been already said in regard to the agency of partners, is therefore applicable to managing officials.

There are, however, some peculiarities or points of difference which it is of importance to notice. In the case of private firms, the sphere of implied agency includes all that is usual and necessary in the particular line of business prosecuted; but this is not always the case in joint-stock companies. If the company is a corporation,

(a) Forth Marine Insurance Co., reported in House of Lords as Burness v. Pennel, 6 Bell's App. 541, and 2 House of Lords Cases 497 (1849).

(b) Macalister (Caledonian Dairy Company) v. Alexander, 1843, 5 D. 580.

Officials as

contrasted

with partners.

Points of the power of

difference in

agency.

Common law companies.

Ratification.

Onus of proof.

its sphere of action may be greatly restricted by its charter or special act, within what would naturally be implied from the character of its business. In such a case the directors have no power to bind the company beyond the limits of its constitution; and any transaction beyond the prescribed sphere of action, entered into by them as for the company, will be a mere nullity as regards the company, though it may subject such officials in damages to the party aggrieved. Nay, so much is this the case, that no ratification of an act ultra vires of a company incorporated by charter or special act will be of much avail towards rendering it valid (a).”

Even as regards joint-stock companies which are not incorporated, but exist only under the common law, the leaning of the tribunals is towards the adoption of a similar principle. When, in such a case, the articles of association restrict the company's sphere of action within what would be implied from the nature of the undertaking, the public have been held bound to make themselves acquainted with the restriction (b). But the soundness of this view has been questioned (c); and a person employed by directors to do ordinary work has been held not bound to inquire whether they were acting within the limits of their power (d). However this may be, there seems no reason to doubt that transactions entered into by directors in unincorporated companies, beyond the prescribed sphere of operations, are always capable of being ratified by the whole body of shareholders, or even by rei interventus, provided it has been sufficiently marked, and of sufficiently long duration to involve their acquiescence (e). But the Court will never compel the company to implement a contract which was plainly ultra vires of the directors, and had not been validated by ratification (ƒ).

When transactions of this kind have actually been carried out, the onus of showing that they were ultra vires of the constitution of

(a) Keene's Executors, 3 De G. M. and G. 272; Soc. of Practical Knowledge, 2 Beav. 559; Eastern Union Ra. Co., 7 Ha. 114.

(b) Per Lord Wensleydale in Ernest v. Nicholls, 6 House of Lords Cases 419; Maxton v. Brown, 1839, 1 D. 367; Dickinson v. Valpy, 1829, 3 Ross Le. Ca. 561.

(c) London Dock Co. v. Sinnott, 8 E. and B. 347.

(d) Green v. Nixon, 22 Beav. 530.

(e) Maxton v. Brown, supra; Fleming v. Campbell, 1845, 7 D. 935; Re Richmond, 4 Kay aud J. 305; Morgan's case, 1 De G. and S. 750; Lawes' case, 1 De G. M. and G. 443.

(f) Ellis v. Colman, 25 Beav. 662.

the company appears even in the case of incorporated associations. to lie on those challenging their validity; for it is not to be presumed that the transaction was beyond the sphere of the company's power until this has been plainly made to appear (a). The case is different when directors are sought to be interdicted from doing something not yet accomplished, on the ground that it is ultra vires of the company. Here the onus would seem to lie on the directors to show that the contemplated act is within the powers of the company as defined in its constitution, particularly if that constitution. has been conferred by charter or special act (b).

ance of for

If the directors have power by the constitution of the company Non-observto do certain acts in its name, the company will be effectually malities, etc. bound, though the acts in question have not been carried through with all the formalities, and in the manner required by the deed of constitution. So, where directors were empowered to borrow money, the company was held bound, though the money had been borrowed without fulfilment of a condition precedent, which required a general resolution of the shareholders before this power could be exercised (c). And where a protracted litigation had been engaged in by officials on behalf of the company, in which the company was ultimately found liable in expenses, allegations to the effect that the officials had no right to involve the company in the litigation were disregarded, as it appeared the company had homologated their proceedings by acts, and at least by silence (d).

The present state of the law on this subject may be perhaps best indicated by the following quotations from the opinions of two eminent English judges.

'All persons,' said Lord Wensleydale, 'must take notice of the Lord Wensdeed and the provisions of the Act (referring to a Registration Act). dictum. leydale's

(a) Per Lord Cranworth in Shrewsbury Ra. Co., 6 House of Lords Cases 113. See also Bostock v. N. Stafford Ra. Co., 4 E. and B. 798; South Wales Ra. Co. v. Redmond, 10 C. B. N. S. 675. See, as to this matter generally, Great Nor. Ra. Co., 1 Dr. and Sm. 154; Phœnix Life Assur. Co., 2 J. and H. 441; Manchester and Sheffield Ra. Co., 7 E. Jur. N. S. 887; West Cornwall Ra. Co., 2 H. and N. 703. And see Lindley, Sup. 43.

(b) Colman v. Eastern Co. Ra. Co., 10 Beav. 1; Bagshaw v. East. Ra. Co., 7 Ha. 114; Simpson v. West Palace Hotel Co., 1 De G. F. and J. 141.

(c) Royal British Bank v. Turquand, 5 Ell. and Bl. 248, and 6 Ell. and Bl. 327; Athenæum Life Ins. Soc. v. Pooley, 5 E. Jur. N. S. 129.

(d) Ramsay v. Smail, 1840, 2 D. 1336.

dictum.

If they do not choose to acquaint themselves with the power of the directors, it is their own fault; and if they give credit to unauthorized persons, they must be contented to look to them only, and not to the company at large. The stipulations of the deed which restrict and regulate their authority are obligatory on those who deal with the company; and the directors can make no contract so as to bind the whole company of shareholders, for whose protection the rules are made, unless they are strictly complied with. The contract binds the persons making it, but no one else (a).' In a subV.-C. Wood's sequent case (b), Vice-Chancellor Wood approved of these observations, but explained and qualified them as follows: There is no doubt an important distinction to be drawn between that which on the face of it is manifestly imperfect when tested by the requirements of the deed of settlement of the company, and that which contains nothing to indicate that those requirements have not been complied with. Thus, where the deed requires certain instruments to be made under the common seal of the company, every person contracting with the company can see at once whether that requisition is complied with, and he is bound to do so; but when the conditions required by the deed consist of certain internal arrangements of the company, for instance, resolutions at meetings and the like,-if the party contracting with the directors finds the acts which they undertook to do to be within the scope of their power under the deed, he has a right to assume that all such conditions have been complied with. In the case last supposed, he is not bound to inquire whether the resolutions have been duly passed, or the like; otherwise he would be bound to go further back, and to inquire whether the meetings have been duly summoned, and to ascertain a variety of other matters into which if it were necessary to inquire, it would be impossible for the company to carry on the business for which it was formed.'

Officials are special agents.

Furthermore, the position of managing officials differs from that of partners in this respect, that whereas the authority of partners to represent the firm is implied by the mere fact of partnership, that of managing officials to represent the company is the result of direct appointment. The agency of the one may therefore be taken as implied, that of the other as special. Now, if a

(a) Per Lord Wensleydale in Ernest v. Nicholls, 6 House of Lords Ca. 419.

(b) Ex parte The Eagle Company, 4 K. and J. 549.