Powers, Authority, and Duties of Directors. 14. To cause minutes to be kept of all resolutions and Part III, proceedings of general meetings of the company, and of direc- Chap. 2. tors and managers (Sec. 154 of 1903). Duties im statute. 15. To give notice to the Registrar of any consolidation, posed by division, or conversion into stock of any shares of the company (Sec. 40 of 1903). 16. To give notice to the Registrar of any increase in capital beyond the registered capital within fifteen days of the date of the resolution by which such increase has been authorised (Sec. 43 of 1903). Penalty-For knowingly and wilfully permitting default, £5 per day while default continues. 17. To obtain his qualification shares within two months after his appointment or such shorter time as may be fixed by the company's regulations (Sec. 71 of 1903). Penalty-Vacation of office, and if he continues to act as director, £5 for every day he so acts. 18. Not to receive payment of director's fees while calls on his shares are unpaid or if he has been absent from meetings for three months without leave (Sec. 73 of 1903). Penalty- £50 for each offence (every director a party to such payment being also liable), and liability to refund any moneys so received within three years. 19. To return allotment moneys to applicants where the "minimum subscription" is not received within ninety days of first issue of prospectus. Penalty-Personal liability to repay the money, with interest, and liability to compensate the company or the allottee for damage, loss or costs (Secs. 95 (4) and 96 (2) of 1903). 20. Not to commence business or exercise borrowing powers until the issue of a certificate that the company is entitled to commence business (Sec. 99 of 1903). Penalty-£50 for every day during which breach continues. In the case of a quasi-private company, not to commence business until the declaration required by Sec. 99 (7) of 1903 has been filed. Penalty-£100 on every director. 21. To file a return of allotments and contracts relating to paid-up shares within a month after allotment (Sec. 97 of 1903). Penalty-£50 for every day during which breach continues. Part III. Duties imposed by statute. Company's liability for acts of agents. Fraud of agent in contract. In other cases. Powers, Authority, and Duties of Directors. 22. Not to pay commission for subscriptions of capital except under Sec. 57 of 1903. 23. To sign a copy of every prospectus issued by the company, and file the same (Sec. 74 of 1903). 24. To pay all calls on shares held by them on or before due date (Sec. 72 of 1903). Penalty- £50. 25. To keep at the registered office of the company for inspection of shareholders every deed of sale or transfer, or a copy thereof, where land, property, or rights are acquired by the company otherwise than for cash (Sec. 123 of 1903). Liability of a Company for the Acts of its Agents. (2) For and on behalf of the company, and not for some But there seems to be a distinction as to the extent of a company's liability in cases of fraud by its agent, and in cases either of contract or of tort other than fraud. Where the fraud of a company's agent forms part of or leads to a contract with it, the remedy of a person affected by the fraud seems to be the same, whether the principal is a company or not. Where the fraud of a company's agent, would in the case of a principal other than a corporation, afford ground for an action for deceit, the company's liability seems, as the law stands at present, to be limited by the extent to which the company has benefited by the fraud, and does not extend to the full measure of damage which has been suffered by the plaintiff. In Mackay v. The Commercial Bank of New Brunswick, 5 P.C. 394, Sir M. E. Smith, in delivering the judgment of their Lordships, said (p. 416) : "It is not necessary to determine whether or not the plaintiffs could have maintained their verdict if they had proved only they had sustained damage from the fraudulent representation of an agent of the defendants, made within the scope of his authority, without proof of the defendants having profited thereby: nor whether they could have maintained it if they had not proved the representation of Sancton to be within the scope of his authority, but had proved that the defendants had accepted the Powers, Authority, and Duties of Directors. benefit of it, with notice of the fraud-propositions which have been con- Part III. tended for at their Lordships' bar. It is enough in this case to decide Chap. 2. that the plaintiffs having established that they have suffered damage, and that the defendants commensurately profited by the fraudulent representation of Sancton made within the scope of his authority, are entitled to maintain their verdict." The extent of the benefit which a company receives from the fraud of its agent seems to be the limit rather than the test of the company's liability, as the law stands on the present decisions; see Brice on Ultra Vires, 3rd ed., pp. 428 and 429; Barwick v. English Joint Stock Bank, L.R. 2 Ex. 259; British Mutual Bank v. Charnwood &c. Co., 18 Q.B.D. 714; Barnett &c. Co. v. South London &c. Co., 18 Q.B.D. 815; George Whitechurch, Ltd., v. Cavanagh, 1902, A.C. 117; Thorne v. Heard, 1895, A.C. 495, at p. 502; and National Bank v. National Mortgage Co., N.Z. 3 S.C. 257. Irregularities of “Indoor Management.” Strangers not with irregularities of inment not ultra concerned As stated on p. 6 supra, persons dealing with companies are not bound to do more than know the Memorandum and Articles, and, therefore, all that directors do with reference to the indoor management of their own concern may be presumed by persons external to the company, acting without notice of irregularity, vires. to have been done regularly; see cases cited at p. 6 supra. Where a public company has been incorporated by virtue of a statute which prescribed certain rules for the constitution of such companies, and for regulating their proceedings, it will be assumed in judging of the transactions between the company and other parties that the requirements of the statute have been complied with: Colonial Bank &c. v. Willan, 5 P.C. 417. Thus, where directors had power to borrow on debentures with the consent of the shareholders in general meeting, a holder of debentures irregularly issued was held entitled to assume that such resolution had been duly passed, he having no notice of the irregularity: Romford Canal Co., 24 C.D. 85; Duck v. Tower Galranizing Co., 1901, 2 K.B. 314. Where the acquiescence of the shareholders of a company is necessary to give validity to a transfer of shares to a trustee. for the company, the entry of the transfer in the company's books, and the return of the name of the transferee to the registration office is sufficient notice to the shareholders, whose acquiescence, after two years, will be presumed: Grady's case door manage Part III. When Court refuses to interfere. When Court will interfere. Irregularities of "Indoor Management." 11 W.R. 385. See also County of Gloucester Bank v. Rudry Merthyr &c. Co., 1895, 1 Ch. 629; East Holyford Mining Co. v. Costelloe, 19 W.R. 1010; Murray v. Bush, 6 H.L. 37. The Court refuses to interfere, as between the shareholders and the company, where an irregularity has been committed, if it is in the power of the persons who have been guilty of it to correct it by taking de novo the necessary steps with all due formalities; Browne v. La Trinadad, 37 C.D. 1; Gregory v. Patchett, 11 L.T. 357. See also Foss v. Harbottle, 2 Hare 461, 492; Mozley v. Alston, 16 L.J. Ch. 217; Macdougall v. Gardiner, 1 C.D. 13. But the Court will interfere to prevent a majority of the shareholders from effecting what would amount to a fraud on the others Menier v. Hooper's Telegraph Works, 9 Ch. 350; Burland v. Earle, 1902, A.C. 83; Cannon v. Trask, 20 Eq. 669; British Water Gas v. Notts, and Derby &c. Co., 1 Meg. 427. A single shareholder may obtain an injunction restraining the company from acting ultra vires: Charlton v. Newcastle &c., 7 W.R. 731; Clinch v. Financial Corporation, 38 L.J. Ch. 1. CHAPTER III. Borrowing Powers. Generally. Debentures and Debenture Stock. Registration of Mortgages and Debentures. Generally. THE power of a company to borrow money depends either on the nature of the company's business, or on the express powers conferred by the Memorandum. Part III. Power to A trading company may borrow without an express power in its Memorandum: General Auction Co. v. Smith, 1891, 3 Ch. Trading com432; Jackson v. Rainford Coal Co., 1896, 2 Ch. 340. But the pany. Memorandum of Association almost invariably contains borrowing powers. Directors are usually given authority to exercise the com- Powers pany's borrowing powers without reference to the general body cised by of shareholders, by a clause in the Articles either expressly con- directors. ferring on directors all the powers of the company not required either by statute or by the Articles to be exercised by the company in general meeting, or by express authority to exercise the company's borrowing powers; but sometimes a less extensive authority is given, as where directors are empowered to borrow only up to a certain sum, or are restricted to borrowing only on the security of part of the company's assets, or with the sanction. of a general meeting of members. Thus, where directors have power only to borrow on the security of the company's "property," they cannot charge the uncalled capital: Russian Spratts Ltd., 1898, 2 Ch. 149; Streatham and General Estates Co., 1897, 1 Ch. 15. A power to borrow implies a power to secure the payment of Power to the borrowed money by mortgage: Patent File Co., 6 Ch. 83. mortgage. Overdrawing the company's banking account is borrowing: Cunliffe Brooks & Co. v. Blackburn &c. Society, 9 A.C. 857, 865. A lender advancing a company by arrangement with the Directors directors a greater sum than the directors have power to borrow under the Articles, can only recover against the company to the must act within powers |