contain no provision to the contrary, the power of borrowing money by the company is implied; and the same principle appears to hold good even in incorporated companies, when the exercise of such a power is necessary for the success of the undertaking, or obviously within the company's line of business (a). When borrowing is not expressly prohibited by the company's constitution, this power may be exercised by a majority of the shareholders even though the company is limited, provided the object of the loan be not to increase capital, but to supply means for the existing wants of the company (b). borrow may be exercised. When this power is possessed by a company, the question How power to whether and in what manner it may be exercised must be determined by reference to the articles of association or other instrument of constitution; and all provisions and regulations which they contain must in general be adhered to and carried out in their entirety. In the absence of any provisions on the subject, the authority of a general meeting, or at least of a majority of the shareholders, would seem in the ordinary case necessary to the valid exercise of this power. This rule, however, will not be rigidly adhered to when money has been borrowed by the directors to meet necessary purposes in the company's line of business, and when it has been bona fide applied accordingly. Thus, when directors had without authority borrowed and applied money in constructing works necessary for carrying on the company business, they were found entitled to reimbursement from the shareholders (c). And the power of borrowing money has been deemed so necessary for carrying on the business of a banking company, that the exercise of this power by directors has been held to bind the company, even though they have not complied with all the provisions of the deed of constitution (d). But where directors have borrowed money without authority, and have applied it for purposes not within (a) Royal British Bank v. Turquand, 5 Ell. and Bl. 248; Bank of Australasia, 12 E. Jur. 189 and 407; Morgan's case, 1 Hall and T. 320; Norwich Yarn Co., 22 Beav. 143; Bryon v. Metropolitan Saloon Omnibus Co., 4 E. Jur. N. S. 1262. (b) Bryon v. Metropolitan Saloon Omnibus Co., supra; Australian Aux. (c) Troup's case, 29 Beav. 353; (d) Royal British Bank v. Turquand, 5 Ell. and Bl. 248, 6 ibid. 327 ; Agar v. Athenæum Assur. Society, 3 C. B. What if directors are speci from borrow the prescribed sphere of the undertaking, they have no claim of reimbursement against the shareholders (a). Two companies A and B were amalgamated by a deed which was afterwards found to be null and void as ultra vires and illegal. Before the amalgamation, company A had become indebted to a third party; and after the amalgamation, the directors of the company B granted him a bill drawn by them upon their cashier for the amount of the debt due by company A. It was held that company B was not liable, seeing the bill was not drawn for the legitimate purposes of the company (b). Where directors are specially prohibited from borrowing money, ally prohibited or from borrowing it in a particular manner, acts done by them in ing? contravention of these provisions will not in general bind the company, as the lenders will be held bound to acquaint themselves with the contents of the company's instrument of formation (c). But this rule will not be interpreted in a judaical manner; so, when directors were prohibited from granting bills, but had authority to borrow on mortgage, and having notwithstanding granted bills to secure an existing debt, and at the same time executed a mortgage under the seal of the company, which was made subject to redemption on payment of the bills, it was held that the mortgage was valid, as it must be taken as intended to secure the debt, and not to pay the bills (d). Informalities. The existence of the power to borrow does not authorize either the directors or the company to issue debentures for any other purpose than in security of cash advances (e). Whatever irregularities or informalities there may have been in originating or carrying through the loan by the directors, these may all be remedied by ratification,—particularly if the company has had the benefit thereof,-provided always that borrowing has not been prohibited by charter or special act (ƒ). N. S. 725; Bank of Australasia, 12 (a) Kent Benefit Building Soc., 1 Dr. (b) Balfour v. Ernest, 5 E. Jur. N. S. 439, 5 C. B. N. S. 601. (c) See Balfour v. Ernest, supra; Eastwood v. Bain, 3 H. and N. 738. (d) Scott v. Colburn, 26 Beav. 276. (e) West Cornwall Railway Co. v. Mowatt, 12 E. Jur. 407. (f) Phoenix Life Insur. Co., 2 J. and It does not, however, follow, that because the company has had the benefit of money borrowed by one of its partners or by its directors, the lender shall have recourse against the company ipso jure. The real question in such cases is, whether the loan was or was not made to the company. The fact that it received the benefit of the proceeds is certainly strong, but not conclusive, evidence of its being a party to the contract; for the lender may have dealt with the partner or the directors on their own credit solely, and the partners or the directors may have gone into the transaction. in order to enable them to pay a debt due by them to the company, or to enter into a transaction with it on their own account. The onus, therefore, of proving that the loan was made to the company rests on the lender (a). What if com pany receive the benefit of the loan? bentures. Effects of notice. Strangers cannot enforce irregular debentures as valid, if they Irregular dehave accepted of them with notice that the conditions precedent to their issue had not been fulfilled; and shareholders who accepted of such debentures, after being present at the meeting where their irregular issue was sanctioned, and thus in the knowledge of the irregularity, cannot enforce payment of their contents. Even bona fide transferrees for value from such shareholders appear to be in no better position (b). notice. Bona fide purchasers of debentures are not, however, affected Want of by their invalidity if they received no notice, and were encouraged by the company in the belief that they were valid (c). Yet where debentures have been issued in fraud of the company, a purchaser is held in England to be subject to all the equities attaching to them, even though he received no notice; nor does it make any difference that the transfers have been duly registered and that interest has been paid on them to the purchaser, provided these facts have not been communicated to the shareholders (d). H. 441; Magdalena Steam Nav. Co., 1 Johns. 690; Pare v. Clegg, 29 Beav. 589; Wood's Claim and Brown's Claim, 9 W. R. 366, and 10 W. R. 662. (a) See Emly v. Lye, 15 East 7, 3 Ross L. C. 552; Beckham v. Drake, 9 M. and W. 99; Bevan v. Lewis, 1 Sim. 376; Smith v. Craven, 1 Cr. and J. 500; Worcester Corn Ex. Co., 3 De G. M. and G. 180; Hawtayne v. Bourne, 7 M. and W. 595; ex parte (b) Magdalena Steam Nav. Co., 1 (c) South Essex Gas Light and Coke Co., 31 L. J. Ch. 293, 2 J. and H. 306. (d) Athenæum Life Assur. Soc. v. Pooley, 5 E Jur. N. S. 129. PLEDGING. The power of borrowing seems to infer that of impignorating the partnership property for the advances required. In England, it appears never to have been doubted that pledging of the company chattels fell under the partners' implied agency (a); and the same would seem to be law in this country, though, from the contract of pledge being less extensively used with us than in England, examples of its operation are less common. It has been said by the Court, that one authorized to sell can effectually pledge the goods of his constituent (b). English law. MORTGAGING. A more difficult question presents itself, when it is asked whether the granting of a heritable security over the company's real property falls within the implied agency of an individual partner. The point does not seem ever to have come up for judicial determination in Scotland. According to the law of England, one partner cannot mortgage the real property of the firm (c). But the value of this rule as a precedent throwing light upon the law of Scotland depends on whether it is to be considered as founded simply on the technical rule of the common law, that one partner cannot bind another by deed under seal; or whether it is in part at least founded on considerations of public policy, e.g. the danger of one partner giving a favourite creditor an undue preference over the company property. Now, in Scotland the granting of security over the company's heritable property is not attended by any technical difficulties, such as those presented by the English mortgage; and as cases may often occur where the absence of this implied power would be ruinous to the partnership (as when one of two partners is abroad, and an immediate advance of money is required), (a) Raba v. Ryland, 1 Gow 132 ; ex parte Bonbonus, 8 Ves. 540, 3 Ross L. C.; Lindley 229; 2 Bell's Com. 618. (b) See Colquhoun v. Finlay Duff and Co., 1816, 19 F. C. 208, and 1 Bell's Com. 484, and cases there re ferred to. See also Attwood v. Kinnears, 1832, 10 S. 817. (c) See Harrison v. Jackson, 7 Term. Rep. 203, dictum of Lord Kenyon, 206, 3 Ross L. C. 557; Lindley 229. it may well be questioned whether such a power does not exist where the emergency calls for its exercise. That the English rule is founded in mere technical reasons, seems to be indicated by the fact that one partner has power to mortgage ships belonging to the company (a); and that an equitable mortgage, which does not require to be by deed, is held, it would seem, to be within the implied agency (b). Act 1845. The provisions of the Companies Clauses (Scotland) Act, Provisions of 1845, with respect to borrowing of money by the company, are as follows: If the company be authorized by their special act to borrow on mortgage or bond, they may borrow in this manner such sums not exceeding the sum prescribed by their special act as shall from time to time be authorized by order of a general meeting. They may even mortgage the undertaking itself, as well as the future calls on the shareholders (sec. 40). On the original debt being paid off, the company may again borrow as before, and so on from time to time as may be required; but unless this power of re-borrowing be exercised in order to pay off an existing debt, it requires the authority of a general meeting. That is to say, while the directors may make such arrangements as they see proper with reference to a loan already existing, they can do nothing towards creating a new debt without the authority of a general meeting (sec. 41). Where it forms a condition precedent to the exercise of the power of borrowing, that a certain amount of the capital shall have been subscribed or paid up, or that the authority of a general meeting shall have been obtained, the certificate of a sheriff that the prescribed amount of capital has been subscribed or paid, and a copy of the order of a general meeting to effect the loan, are declared to be sufficient evidence that the foresaid conditions precedent have been implemented. The sheriff is required to grant the certificate on production to him of the company's books, and of such other evidence as he may think sufficient (sec. 42). The mortgages or bonds granted by the company must be by deed under the company seal, duly stamped and bearing the consideration truly stated. They may be in the forms (a) Australia Steam Clipper Co., 4 K. and J. 733; ex parte Howden, 2 M. D. and D. 574. (b) See ex parte Lloyd, 1 Mont. and Ayr. 494. See Lindley 229. Mode of exercising the power. |