CHAPTER XII. POWERS OF PARTNERS, DIRECTORS, AND OTHER OFFICIALS. HAVING thus reviewed the general principles by which the powers of majorities, of partners, and of directors of companies are regulated, we shall now proceed to consider in detail the more common instances of the exercise of such powers in the course of the company management. Buying and selling. BUYING AND SELLING. It seems never to have been doubted, that every partner of a firm has the implied power of purchasing either with the funds or on the credit of the company such goods as are necessary for carrying on the business. In an old case the Court held this to be so clearly fixed, that they found a partnership liable for goods bought by a partner, although the seller did not know of the partnership, and the other partner had settled with his copartner for them (a). And similar decisions have frequently been given in England (b). Nor is it necessary that a stranger who sells to a single partner shall show that the goods are de facto applied to partnership purposes, in order to enable him to recover the price against the company. Thus it was held in England, that where a party sold a quantity of bits to one partner of a firm of harness-makers, who pawned them for his own purposes, the seller was entitled to sue both partners for their price (c). The goods supplied must be of the kind required by the partnership business; but if this be so, it (a) Logy v. Durham, 1697, M. Main. 31; City of London Gas Company v. Nicholls, 2 Car. and Payne 365. (c) Bond v. Gibson, 1 Camp. 185. is of no consequence whether the firm be of a trading description or not (a). From the very nature and object of trading partnerships, it necessarily follows that every partner has the implied power of selling the partnership goods. What limits (if any) are to be set to this implied power, does not appear from any decision or authoritative dictum in the law of this country, so far as the writer is aware. In England it was held in one case, that a single partner could even make a valid sale of the company books (b). How far this can be taken as the law of Scotland may be doubted. In the absence of any decision, it is also open to question, whether a partner, without the express consent of his fellows, can dispose of the company's stock, by means of which alone its business could be carried on. This would in effect amount in some cases to a total dissolution of the concern; and anything leading to such a result could hardly be considered as falling under implied powers, which, as we have already seen, mean authority or agency to do what is necessary for carrying on, not terminating the business. Yet in the English case of Wilson v. Miers, where the directors of a steamship company, whose affairs were in a very unsatisfactory state, had entered into a contract for the sale of its whole shipping, and the purchaser demurred to completing the contract on the ground that general powers to buy and sell did not authorize the directors to sell off the whole of the company vessels without a special resolution to dissolve the concern, it was held by the Court of Common Pleas that the transaction was within the powers of the directors (c). General powers of buying and selling in the course of management do not include the power of amalgamating the company with another; for this would infer a power to buy and sell the company business, with all its liabilities. To carry through such a transaction requires a special resolution of all the partners of an unincorporated company, and in the case of proper corporations can only be effected by the intervention of public authority (d). Purchase of real property. Sale of real property. As regards the purchase of real property by a partner or director for the company, this power will be held to be implied where the acquisition is one in the company's line of trade, e.g. stances for a building society, or where it may fairly be presumed to be a beneficial purchase, as for instance premises for carrying on the business (a). But it is thought one of the public would not be safe in relying on the company's responsibility for extensive purchases of land made by an individual partner, which might involve a diversion of the partnership funds from their legitimate purposes, or which would not likely be an acquisition of any value to the concern. The same principle would seem to regulate the power of selling real property. Unless the nature of the partnership business be such as to render the sale of its real property a thing likely to fall under the scope of the partnership contract (as in the case of building societies), it is probable that the power of selling this kind of property would not be considered as coming under the implied agency; for otherwise the affairs of the company might at any time be thrown into confusion by the sale of its premises by one partner without the knowledge of the others. The circumstance that the property is held in trust by a third party for the firm, or that it is conveyed to the partners pro indiviso for that purpose, would not avoid the sale; for if a single partner had the power of transferring the jus ad rem, the purchaser could complete the conveyance by adjudication in implement. Nor would the fact that the law requires writing in obligations relative to land affect the question; for if the partner has power to bind the company at all, he has power to sign socio nomine. It must, however, be admitted that this question has never, in so far as the author is aware, been judicially determined either in this country, in England, or in America (b). (a) Sorley's Trs. v. Grahame, 1832, 10 S. 319; York Buildings Co., 1779, 2 Paton's App. 541. (b) See, on this subject, Story on Part. 124, and 154-6; and Bisset 45, note. From certain dicta in English and American authorities, it might be supposed that partnership realty could in no circumstances be alienated by the act of a single partner (Story, Part. secs. 101 and 119; Bisset 45, n. e). Such dicta, however, appear merely to mean, that since no partner has implied power to bind his copartners by deed under seal, he cannot convey the legal titles LEASING. As in the general case the granting of leases of partnership property does not fall under the ordinary business of a firm, it should seem that such a power is not covered by the præpositura of a partner. But if a partnership were formed for the purpose of acquiring houses or other tenements, in order that they might be let to tenants, there seems no reason no doubt that each partner would be held entitled to bind the firm in transactions of this kind. On the other hand, the acquisition of leasehold property for partnership purposes is not a transaction of such urgency as to require to be entered into without the express concurrence of the company; and accordingly it has been held in England, that one partner has no implied authority to contract for a lease of premises in behalf of the firm (a). BORROWING. It is worthy of remark, that there is a very material difference between a power to borrow money on the company's credit, and a mere authority to incur company debts by ordering work or goods on its behalf. In the latter case the transaction is generally carried on more openly, and produces something tangible; in the former, a partner may easily abuse his powers by incurring unnecessary obligations, or may even defraud his copartners by applying the proceeds of the loan to his own purposes. Still it is obvious, that unless partners of trading companies possessed the power of borrowing money, it would often happen that the exigencies of commerce could not be met, and the common undertaking would be involved in ruin. The rule accordingly seems to be, that this power will in company real estate without the concurrence of his copartners. But it must be observed that, in the ordinary case, a valid agreement to sell land may be made by writing, though not under seal, and that a court of equity will often enforce this by a decree for specific performance, which, if the vendor refuse to obey, the Court will make an order vesting the estate in the vendee de plano. Now, whether a court of equity would, in the case of a partner entering into an agreement of this kind, decree specific performance, is the real question; and it has never, in so far as we are aware, been determined. (a) Sharp v. Milligan, 22 Beav. 606. Knowledge by lender of pro hibition. Ratification. Public companies. be held to be implied, wherever its exercise is necessary for the transaction of the partnership business in the ordinary way (a). It must be observed, however, that the power to borrow is merely implied from the circumstances of the case; and is not to be inferred where its exercise is neither ordinary, in the line of trade, nor justified by necessity. If, therefore, the creditor knows, or ought to have known, that the loan was intended not for partnership but for private purposes, he will have no recourse against the company (b). So also, a fortiori, where borrowing is prohibited by the constitution of the partnership, and the lender is aware of this prohibition (c). Even where the lender is not aware of any direct prohibition, and where the purpose appears reasonable, he is not entitled to infer that this power is implied, when the business is of a kind usually carried on on ready money principles (d). Increasing partnership capital is not an act within the scope of ordinary business, and therefore the company is not bound by loans contracted in their name by a partner for such a purpose (e). Ratification by all the partners will always validate such transactions, however ultra vires or irregular they may have been (ƒ). But it must be observed, that in the absence of power to borrow, either express or implied, and in default of ratification, the mere circumstance of the proceeds of the loan having been applied in rem versam of the partnership will not of itself validate the transaction, unless the case amounts to one of adoption (g). Where the articles of association of a common law company (a) Dewar v. Millar, 1766, M. 14569; Glass v. Hutton, 16 Jan. 1794, F. C., M. 2587; Selkrig v. Dunlop, 1804, Hume 277; Turnbull v. M`Kie, 1822, 1 S. 331; Anderston, 1828, 6 S. 928; Blair Iron Co., 1855, 18 D. 49, House of Lords Cases, and 27 Jur. 614; Bothwell v. Humphries, 1 Esp. 406; Lloyd v. Frenchfield, 2 Car. and Pa. 333. See Shaw's Bell's Com. 217; Lindley 213; Coll. 268. (b) Johnston v. Phillips, 1822, 1 S. App. 244; Blair v. Bryson, 1835, 13 S. 901; M'Leod v. Tosh, 1836, 14 S. 1058. (c) Worcester Corn Ex. Co., 3 De G. M. and G. 180. (d) Hawtayne v. Bourne, 7 M. and W. 595; Ricketts v. Bennet, 4 C. B. 686; Arden v. Sharp, 2 Esp. 524, 3 Ross L. C. 505. (e) Fisher v. Taylor, 2 Ha. 218; Greenslade v. Dower, 7 B. and C. 655. See Bryon v. Metro. Saloon Omnibus Co., 4 E. Jur. N. S. 680. (ƒ) Pare v. Clegg, 29 Beav. 580; Athenæum Insurance Company v. Porley, 3 De G. and J. 294; Galway v. Matthews, 10 East. 264, 3 Ross L. C. 507. (g) Johnston, Sharp, and Co. v. Phillips, 1822, 1 S. App. 244; Burmestro v. Norris, 6 Ex. 796; Hawtayne v. Bourne, 7 M. and W. 596. |