CHAPTER XI. POWERS AND DUTIES OF DIRECTORS. Difference between jointstock com panies and JOINT-STOCK companies differ from private partnerships in having 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 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 and 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; Phoenix 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.' 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 Officials are special agents. (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. man entrust the management of his affairs not to one person, but to several, the general rule is that they proceed by majorities; but he may make it a rule that certain acts shall only be binding on him when they are agreed to by the whole body of his agents, by a certain majority, or by a sine quo non. From this it would seem to follow, that when the management of the affairs of a joint-stock company is entrusted to a board of officials, the presumption is for management by majorities, but that when it forms a condition that their acts shall only be binding when the whole or a certain number concur, no act will be valid which has not obtained the concurrence of the required number (a). When, however, the assent of the required number has been obtained, the observance of merely formal conditions, such as that it shall be given at a board meeting, does not seem to be of importance (6). And when the number of directors was fixed by the special act at twelve, of whom five should be a quorum, the fact that the number had been reduced to seven was not found to invalidate their proceedings (c). Officials specially appointed to represent the company in certain departments do not bind it in relation to matters which do not fall within these departments (d). Managing officials who exceed the power committed to them, and consequently do not bind the company, are nevertheless liable in indemnity to such of the public as have been misled by their misrepresentations. Yet, seeing they are not agents for each other, they do not bind such of their number as were not parties to the acts in question (e). Officials not binding com pany bind themselves. It seems too obvious a proposition to require argument, that Ratification by directors directors cannot render binding on the company contracts or transactions into which they had originally no right to enter, by any subsequent ratification by themselves, however formal; for what it exceeded their authority to do, they could not, when done, render valid. And this, no doubt, is the general rule. Yet it must be (a) Kirk v. Bell, 16 Q. B. 290; Ridley v. Plymouth Grinding Co., 2 Ex. 711; Fife and Kinross Ra. Co. v. Deas, 1859, 21 D. 187; Brown v. Andrew, 13 E. Jur. 938. (b) See The Royal British Bank v. Turquand, 5 Ell. and Bl. 248, and ibid. 327; Bargate v. Shortridge, 5 (c) Thames Haven Dock Co. v. (d) Nat. Exch. Co., 23 D. 1. (e) Haddon v. Ayers, 5 Jur. N. S. 408, Q. B.; Ellis v. Colman, 25 Beav. 662. |