PART II. Liability of directors for contracts. directors or agents duly authorised in that respect; provided the contract is within the power of the company to make (o).—Where goods are ordered by an unauthorised agent, and delivered and invoiced to the company and used by the directors in the business, the directors may be taken to have ratified the order and to bind the company (p). Where a company having a general borrowing power invests the directors with a limited power only, which they exceed, the unauthorised excess of loan may be ratified by the shareholders confirming the accounts presented at a meeting of the company held after due notice (7). And ratification may be inferred generally from acquiescence of all the shareholders in the transaction after full knowledge of it and with the intention of adopting it ("). But a contract which is ultra vires of the company cannot be ratified even by the unanimous assent of the whole body of shareholders (s); as in the case of a loan beyond their borrowing powers (1). The directors and agents who contract on behalf of a company unauthorised may be personally liable upon an implied warranty that they have the authority which they assume to exercise; as where they profess to borrow money, on behalf of the company without having any borrowing power, or after the borrowing powers of the company have been in fact exhausted (u). The directors of a company, which was incorporated under a private Act without power of accepting bills, having accepted a bill drawn on the company by their engineer for his services, were held liable to an indorsee of the bill, upon their implied representation that they were authorised to accept it for the company (). Upon the same principle directors by instructing the company's banker to honour the cheques of the manager or other officers of the company are taken impliedly to warrant to the banker that they have power (0) Reuter v. Electric Telegraph Co., 6 E. & B. 341; 26 L. J. Q. B. 46; Lane's case, 1 D. J. & S. 504; 33 L. J. C. 84. (p) Smith v. Hull Glass Co., 11 C. B. 897; 21 L. J. C. P. 106. (a) Irvine v. Union Bank of Australia, 2 Ap. Ca. 366; 46 L. J. P. C. 86. (r) Westbury, L. C., Grady's case, 1 D. J. & S. 488; 32 L. J. C. 326; Spackman v. Evans; Evans v. Smallcombe; Houldsworth v. Evans, L. R. 3 H. L. 171, 249, 263; 37 L. J. C. 752, 793, 800; Grant v. U. K. Switchback Co., to authorise such cheques (y). But directors, having authority to give such instructions, do not thereby impliedly guarantee the account at the bank, and the cheques drawn are cashed upon the credit of the company only (≈). CH. III. SECT. V. company. A company cannot be charged with the contracts of promoters Contracts of and others made on behalf of the company before it was formed; promoters of unless they are expressly imposed upon the company in the Act or constitution of the company (a). Nor can the company when formed be charged upon a mere ratification of such contracts; for ratification requires that the contract should have been originally made on behalf of an existing person then capable of contracting (b). But the company when formed may by a new agreement with the parties adopt the contracts of promoters in whole or in part (c); so far as they are not ultra vires of the company (d). And the company when formed may become liable to pay for work and services of promoters by voluntarily accepting the benefit (e). The company may also be affected in equity with liabilities of the promoters by claiming through them and taking possession of their rights (ƒ). And upon the same principle by taking upon themselves the liabilities of the promoters, the company may become entitled in equity to enforce their rights (g). A company may be made chargeable by an express clause of its Preliminary constitution with the payment of the preliminary expenses incurred expenses. by the promoters, as a debt of the company (h). And the Companies Clauses Act, 1845, s. 65, as to companies incorporating its clauses, enacts generally, "that all the money raised by the company shall be applied firstly in paying the costs and expenses incurred in obtaining the special Act." In such cases the lia (y) Cherry v. Colonial Bank of Australasia, L. R. 3 P. C. 24; 38 L. J. P. C. 49. (z) Beattie v. Lord Ebury, L. R. 7 H. L. 102; 44 L. J. C. 20. (a) Shrewsbury v. N. Stafford Ry., L. R. 1 Eq. 593; 35 L. J. C. 156. And see ante, p. 235. (b) Kelner v. Baxter, L. R. 2 C. P. 174; 36 L. J. C. P. 94; Scott v. Ebury, L. R. 2 C. P. 255; 36 L. J. C. P. 161; Melhado v. Porto Alegre Ry., L. R. 9 C. P. 503; 43 L. J. C. P. 253; Bagot Tyre Co. v. Clipper Tyre Co., (1902) 1 Ch. 146; 71 L. J. C. 158. (c) Spiller v. Paris Skating Rink, 7 C. D. 368; Howard v. Patent Ivory Co., 38 C. D. 156; 57 L. J. C. 878. (d) Preston v. Liverpool M. & N. Ry., 5 H. L. C. 605; 25 L. J. C. 421; 10 E. R. 1037. (e) Empress Engineering Co., 16 C. D. 125. 1 (f) Edwards v. Grand Junction Ry., M. & Cr. 650; 6 L. J. C. 47; see Stanley v. Chester Ry., 3 M. & Cr. 773; Bagot Tyre Co. v. Clipper Tyre Co., supra. (9) Bedford Ry. v. Stanley, 2 J. & H. 746; 32 L. J. C. 60. (h) Tilson v. Warwick Gas Co., 4 B. & C. 962; Carden v. General Cemetery Co., 5 Bing. N. C. 253; 8 L. J. C. P. 163; Touche v. Metrop. Warehouse Co., L. R. 6 Ch. 671. PART II. bility of the company is to the promoters only who were directly engaged in its formation; parliamentary agents, solicitors, valuers and other subordinate agents cannot sue the company for their costs, but only the persons who in fact engaged their services (i). But the preliminary expenses may have been incurred gratuitously, or conditionally, or under such circumstances as not to be chargeable at all (k). (i) Wyatt v. Metrop. Board, 11 C. B. N. S. 744; 31 L. J. C. P. 217; Re Kent Tramways Co., 12 C. D. 312; Re Skegness Tramway Co., 41 C. D. 215; 58 L. J. C. 737. (k) Savin v. Hoylake Ry., L. R. 1 Ex. 9; 35 L. J. Ex. 52; Re Brampton and Longtown Ry., L. R. 10 Ch. 177; 4 L. J. C. 670; Re Hereford Waggon Co., 2 C. D. 621; 45 L. J. C. 461. PART III. THE MATTER OF CONTRACTS. CHAPTER I. THE CONSIDERATION. PAGE The consideration of contracts-bills of exchange-guarantees- 425 ........ Voluntary bonds and covenants-gifts and trusts-voluntary con- ... 427 ...... 429 tion Adequacy of consideration-nominal consideration-effect in 431 Consideration of moral obligation-promises to pay debts dis- 433 Consideration of existing legal obligation-payment of existing duties 434 Forbearance of rights-equitable rights-pretended claims-dis- .... 436 Consideration of marriage-marriage settlements 439 Consideration of tenure 440 Consideration partly void-partly illegal-failure of considera tion 441 A CONTRACT founded upon agreement consists of two distinct The conparts: the consideration for the promise on the one side; and sideration. the promise on the other. The consideration is the matter accepted or agreed upon as the equivalent for which the promise is made; and it is a rule of law that a promise cannot be made binding by mere agreement without a consideration; the object of this rule being to avoid the risk of giving a binding effect to promises made without an obligatory intention (a).—Contracts which are put into writing but not under seal are simple or parol contracts which require a consideration (b). Contracts PART III. Bills of exchange. Guarantees. made in the form of a deed under seal and contracts of record do not require a consideration as between the parties; the formality of the contract giving sufficient security for the obligatory intention (c). Bills of exchange are an apparent exception to the rule requiring a consideration in simple contracts, in that by the custom of merchants (which is now embodied in the Bills of Exchange Act, 1882) the consideration is not usually stated upon the face of the bill; and the law following the custom, but requiring a consideration in fact between the parties as in all other simple contracts, adopts the presumption that a bill of exchange passes for value, unless the contrary is proved. Hence in an action upon a bill it is not necessary to allege or prove the consideration; and if it is denied, the burden of proof is cast upon the party denying it (d). Promissory notes were placed upon the same footing as bills of exchange, in this respect, by the statute 3 & 4 Anne, c. 8; which has been superseded and repealed by the Bills of Exchange Act, 1882 (e). But if in an action on a bill or note it is admitted or proved that the acceptance, issue, or subsequent negotiation of the instrument was affected by fraud, duress, or force and fear, or illegality, the burden of proof is shifted until the holder proves that, subsequently to the alleged fraud or illegality, value has in good faith been given for the instrument (f). The Bills of Exchange Act, 1882, s. 27 (which is declaratory of the common law), enacts that "valuable consideration for a bill may be constituted by (a) any consideration sufficient to support a simple contract; (b) an antecedent debt or liability, whether the bill is payable on demand or at a future time." An antecedent debt may constitute a consideration when the bill operates in payment of the debt (g). Contracts of guarantee, or "promises to answer for the debt, default or miscarriages of another person" present another apparent exception to the rule, in that, though required by the Statute of Frauds to be in writing, by the Mercantile Law Amendment Act, 1856, they are not to be deemed invalid by reason only that the consideration for such promise does not appear in writing. A (c) Ante, p. 96; see post, p. 427. (d) Bills of Exchange Act, 1882, (f) Bills of Exchange Act, 1882, 8. 30 (2); Ld. Blackburn, Jones v. Gordon, 2 Ap. Ca. 616; 47 L. J. B. 1; Tatham v. Haslar, 23 Q. B. D. 345; 58 L. J. Q. B. 432. (g) See Pt. IV., Chap. VII. |