The Board of Directors, &c.

The Board do consist of five directors.

That two shall retire the first year, two the second year, and one the third year; but to be eligible for re-election.

That the order of retirement shall be determined by lot.

Shareholders cannot act on their own behalf in the ordinary management of the concerns of the Company; they can act only through the directors, who are constituted their agents for all the purposes of the business. Consequently, the Company is not bound by contracts made on its behalf by any other than the directors, upon the principle delegatus non potest delegari, ("an agent cannot delegate his agency,") unless, of course, he be authorised by the terms of his agency to appoint a sub-agent, as in Smith v. The Hull Glass Company, 11 C. B. 897, where the deed of settlement provided for the appointment of a manager of works "to superintend and transact, under the control of the Board of Directors, the manufacturing business of the Company," and to whom the Board of Directors were by another clause authorized to delegate "such and so many of the powers thereby given to them as would enable him to carry on the said works and manufacturing business in an efficient manner." Company was held to be liable for goods supplied on the order of such manager, although there was no express delegation of authority. It was also held that the Company was liable for goods supplied on the orders of unauthorized persons, such as the chairman, deputy-chairman, and secretary, when such goods were with the knowledge of the

The

Duties, &c., of Directors.

directors received on the premises, and used by them for the purposes of the trade. So, in Ridley v. The Plymouth, Devonport, and Stonehouse Baking and Grinding Company, 17 L. J. 252, it was held that the plaintiff in an action on contract against a Joint Stock Company must prove that the contract was made by persons having authority from all the shareholders to bind them by such a contract, and this may be done by proving that the contract was sanctioned by the persons authorized by the deed of the Company to conduct its affairs. The plaintiff is not confined to proof of authority conferred by the deed, if he can in any other way show that the whole of the shareholders have mediately or directly given authority to those making the contract to bind them. But it is not enough to show that the contract was made or sanctioned by some of the directors, without proving that, by the Articles of Association or otherwise, the shareholders had authorised that number to act for them. Therefore, where the deed declared five directors to be a quorum, the Company was held not to be bound by contracts made at a Board meeting by three only of the directors.

The Directors, their Duties, Powers, and Liabilities. A director must hold one share at least in his own right.

A director is disqualified by ceasing to be the holder of the prescribed number of shares, or by becoming bankrupt or insolvent, or by holding any other office or place of profit under the Company, or if concerned or participating in the profits of any contract, or in the profits of any

Duties, &c., of Directors.

work done for the Company. But the discovery of previous disqualification is not to invalidate acts done before such discovery, if done bonâ fide: Directors cannot legally act in their individual capacities, but only as a Board, and only for the performance of such acts as the general law, or the Joint Stock Companies Act, or the Articles of Association, may empower them to perform; for all their powers arise from the statute that constitutes them a corporation, and if they do not act in strict performance of those powers, and especially if they exceed them, they will be personally responsible to the parties with whom they deal. It is very important that Directors of Companies with Limited Liability should be thoroughly conscious of this liability, to which there is no limit. They may be sure that disappointed creditors will look very keenly to find, if they can, a remedy against the directors of which the law has deprived them as against the members, and if the directors should exceed their powers, or exercise them irregularly, advantage will certainly be taken of it to enforce the claim against themselves personally.

Thus, where the deed appointed eleven directors and declared that five should be a quorum, the Company was held not to be bound by contracts made at a Board meeting by three only of the directors, and it was permitted to the Company to set up the objection that the persons making the contract had no authority at all to bind the shareholders: (Ridley v. The Plymouth, Devonport, and Stonehouse Baking and Grinding Company, 17 L. J. 252, Ex.)

The directors are personally exempted from liability. They are not responsible for errors of

Duties, &c., of Directors.

judgment, and they can only be dismissed at the triennial ordeal of re-election. They are, however, punishable for mutilating, altering, or falsifying any books, papers, writings, or securities, or making any false or fraudulent entry in any register, book of account, or other document: (sect. 166.) The court by which the Company is wound up may also assess damages against delinquent directors, and compel repayment of moneys misapplied or retained, with interest, or such compensation as it may think just to be made, notwithstanding that the offence is a criminal one: (sect. 165.) The court is likewise empowered, on the application of the liquidator, or any person interested, or of its own motion, to direct the prosecution of any director or officer guilty of any criminal act, and to order the costs to be paid out of the estate (sects. 167, 168.)

A very recent case has obtained the solemn decision of the House of Lords, that if a director, or any officer of a Company, be a party to the issue of reports, knowing them to be false, any person thereby induced to purchase shares may recover from such director or officer all damages thereby sustained, and that this liability extends to a secretary or other officer knowingly supplying the materials for such false report: (Cullen v. Thompson, 6 L. T. Rep. N.S. 870.) And sects. 81 to 83 of the Larcenies Act enact-that a director, member, or officer of any public Company who shall "fraudulently take or apply for his own use or benefit or for any use or purposes other than the use or purposes" of such Company, any of the property of such Company, shall be

Proceedings of the Board of Directors.

guilty of a misdemeanor; and that any director, public officer, or manager of any public Company who shall "as such receive or possess himself of the property of such Company, "otherwise than in payment of a just debt or demand, and shall, with intent to defraud, omit to make or to cause or direct to be made a full and true entry thereof in the books and accounts" of such Company, or shall "with intent to defraud, destroy, alter, mutilate, or falsify any book, paper, writing, or valuable security belonging to" the Company, or make or concur in making any false entry in the same, shall be guilty of a misdemeanor (24 & 25 Vict. c. 96, ss. 81 to 83.) Sect. 84 we present verbatim

84. Whosoever, being a director, manager, or public officer of any body corporate or public Company, shall make, circulate, or publish, or concur in making, circulating, or publishing, any written statement or account which he shall know to be false in any material particular, with intent to deceive or defraud any member, shareholder, or creditor of such body corporate or public Company, or with intent to induce any person to become a shareholder or partner therein, or to intrust or advance any property to such body corporate or public Company, or to enter into any security for the benefit thereof, shall be guilty of a misdemeanor, and being convicted thereof shall be liable, at the discretion of the court, to any of the punishments which the court may award, as hereinbefore last mentioned.

Proceedings of the Board of Directors.

The days and hours for the ordinary meetings of the Board should be appointed by a general rule, and not be permitted to be changed, except on special occasions, and with ample notice to every member of the Board. This is absolutely