TMI Blog1964 (1) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Kapoor was added as second defendant, but at all material times up to the date of trial his whereabouts were unknown, and he was never served with the proceedings. The action accordingly proceeded against the defendant company alone. The trial took place before Judge Herbert at Westminster County Court on three days during March and April, 1963, and by a reserved judgment which he delivered on May 2, 1963, he found in favour of the plaintiffs. The defendant company now appeals to this court, contending that the liability is not theirs but that of Kapoor. It appears that Kapoor was a gentleman who carried on business as a property developer, that is to say his business was to purchase properties for the purpose of developing them. His practice was, as and when he purchased a property, to form a company for the purpose of dealing with it. He had a number of such companies, all of which were controlled from a house called "Poyle Manor," which was in fact the registered office of one of his companies, namely, Reevaham Ltd. Much of the business dealt with from Poyle Manor was handled by one Mackay, who was a director of Reevaham Ltd. and appears to have acted as general factotum fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld on December 11, 1958, record that it was resolved that the company's seal should be affixed to the conveyance. It had been agreed between Kapoor and Hoon that, pending resale of the property, the running expenses of maintaining it were to be defrayed by Kapoor personally, and that he was to be reimbursed out of the profit of the resale. This agreement appears to have been accepted by the board, although I cannot find that it was ever the subject of any resolution at a board meeting. A board meeting was held on April 3, 1959, by which time it is clear from the minutes that any prospect of a quick resale of the property had already disappeared. It is to be observed that none of the resolutions purported to be carried at this board meeting could be of any legal effect since only three members of the board were present thereat. The minutes of the meeting, however, are of considerable evidential value as showing what was taking place at the time and what was in the minds of the respective parties. The minutes show (1) that Kapoor (through another of his companies called Gurjveer Ltd.) was in fact paying the expenses of upkeep of Buckhurst Park and thereby discharging his obligation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no minute of any resolution of the board authorising the employment of the plaintiffs. It appears, however, that at this time relations between Hoon and Kapoor were already somewhat less than friendly. Hoon was complaining that some of the expenses incurred by Kapoor were not properly speaking maintenance expenses. There was also some negotiation between them with regard to a plan whereby one or other of them was to buy the other out. Nothing, however, came of this, and it is not necessary to refer to it further, since it is in no way relevant to the present appeal. Throughout the autumn of 1959 the plaintiffs were in constant communication in relation to the work they were doing both with Kapoor personally and with Mackay at the office of Reevaham Ltd. Throughout the whole of this correspondence no mention whatsoever of the defendant company's name is to be found. On the face of it the plaintiffs were purporting to act entirely for Kapoor personally. The appeal from the refusal of planning permission was submitted in his name, and a certificate under section 37 of the Town and Country Planning Act, 1959, was submitted by the plaintiffs certifying that Kapoor was the estate ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or had actual authority to employ the plaintiffs, but that in doing so he was acting within the scope of his ostensible authority. In this court the plaintiffs have adhered to their contention that Kapoor had actual authority to employ the plaintiffs. But I do not think that this view can be supported. Actual authority might, of course, be either express for example, if Kapoor were specifically authorised to engage the plaintiffs or it might be implied for example, if Kapoor had been appointed to some office which carried with it authority to make such a contract on behalf of the defendant company. There is certainly no resolution of the board specifically authorising Kapoor to engage the plaintiffs. The articles of association, however, incorporate regulations 102 and 107 of Table A., Part I. By the former, directors may delegate any of their powers to a committee of one. By the latter, they may appoint one of their body to the office of managing director. But there was never any resolution of the board whereby the directors here purported to exercise either of these powers. Nor can I find any trace of any resolution in writing signed by all the directors such as would be vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poor should be responsible for the expenses of maintaining the property. This would provide the best possible incentive to him to find a purchaser as quickly as possible. It was Hubbard's evidence that Kapoor had authority for day to day management. This is in accordance with the letter of September 2, 1959, written by Kapoor's solicitors to the solicitors acting for Hoon, in which they said: "We... trust that you have now received your client's confirmation that he has at all times agreed that Mr. Kapoor should bear the responsibility for management of the property. "Hoon's solicitors did not write to confirm that this was so at least no such letter is included in the bundle of correspondence before us. But the assertion made by Kapoor's solicitors was certainly never challenged. The judge also relied (and I think rightly relied) on the minutes of the board meetings of April 3, 1959, and March 3, 1960. As to the latter, paragraph 3 of the minutes records Hubbard complaining" that Mr. Kapoor had never given proper or full information to the board of the steps he had taken in the past to dispose of the property or of any application he had made for development. "This, I think, makes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the board in causing the respective applications for planning permission to be made. Having regard to all these considerations I can see no good ground for interfering with the judge's finding of fact that Kapoor throughout was, to the knowledge of the board, acting as managing director of the defendant company. Mr. Holdsworth recognised that if that finding be accepted his task in challenging the judge's conclusion must be rendered so much the more difficult. Nevertheless, he submitted that in law the defendant company was entitled to succeed. The doctrine of ostensible authority in relation to a limited company necessarily gives rise to difficult legal problems. For a company can act only through its officers, and the powers of its officers are limited by its articles of association. It is well established that all persons dealing with a company are affected with notice of its memorandum and articles of association, which are public documents open to inspection by all; see Mahoney v. East Holyford Mining Co. [1875] L.R. 7 H.L. 869 H.L. But by the rule in Royal British Bank v. Turquand [1856] 6 E. B. 327, re-affirmed in Mahoney's case ( supra ), it was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the defendant company; nevertheless the company was held bound by a guarantee given to the plaintiffs by the chairman of the board, one N. Pal. and signed in the following form : " Federated European Bank Ltd. (signed) N. Pal." Again in Clay Hill Brick Tile Co. Ltd. v. Rawlings [1938] 4 All E.R. 100 a company was held bound by the Act of its chairman, who acted as managing director though never appointed as such, in receiving cheques from a customer in payment for goods supplied by the company. These, it will be seen, were all cases in which not only did the articles of association confer power on the directors to delegate, but the person purporting to act for the company was acting within the scope of what would normally be expected to be within the authority of one in his position. It has been submitted on behalf of the defendants, however, that where, as here, the person contracting with someone purporting to act on behalf of a company has in fact no knowledge of its articles of association, and has made no inquiries with regard thereto, he cannot rely on any power of delegation contained therein when there has been no actual delegation. In such a case, it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Kreditbank case ( supra ) a branch manager of a company carrying on business as forwarding agents purported to draw bills of exchange on behalf of his company which he subsequently endorsed on their behalf. In Rama's case ( supra ) a director of the defendant company purported to make an agreement with a director of the plaintiff company whereby the two companies were to join in subscribing to a fund to be used for financing the sale of goods produced by a third company, the defendant company being responsible for administering the fund and accounting to the plaintiffs. Thus in none of these cases were the plaintiffs in a position to allege that the person with whom they contracted was acting within the scope of such authority as one in his position would be expected to possess. There was accordingly no ground for saying that the officer in question was in fact being held out by the company as having authority to perform the act relied on. The plaintiffs, indeed, had nothing to go on beyond the fact that in each case power to do the acts relied on might, under the articles of association, have been delegated to the person with whom they contracted. But in none of the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director in the transaction of the company's affairs." These words are, I think, of the utmost significance, for they express in the clearest possible way the very distinction which I myself have been seeking to draw between the present case and the cases relied on by the defendants. The same distinction is implicit in the judgment of Atkin L.J. in the Kreditbank case ( supra ). As appears from what he said, he founded his decision on the view that it would be wrong, in the absence of evidence, to assume that the manager of a branch business is a person who has ostensible authority to sign bills on behalf of his company. Later [1927] 1 K.B. 826, 843, he went on to explain what he described as " the true limits " set by the decision in Houghton's case ( supra ) (to which he was himself a party) on the doctrine established by Turquand's case ( supra ) and Mahoney's case ( supra ). After pointing out that a person dealing with somebody purporting to act on behalf of a company is to be in the same position as if he had read the articles of association, he went on to say that there are cases in which it is not necessary to inquire any further as to whether a power of delegat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plaintiffs accordingly do not have to inquire whether he was properly appointed. It is sufficient for them that under the articles there was in fact power to appoint him as such. In my judgment the judge here, having found that Kapoor was throughout acting as managing director to the knowledge of the board of the defendant company, rightly applied the principle enunciated by Lopes L.J. in Biggerstaff's case ( supra ). I think that he came to the right conclusion, and I would accordingly dismiss the appeal. Pearson L.J. I agree. The defendant company was formed with a view to purchasing the Buckhurst Park Property and making a quick and profitable resale, which was thought to be in prospect. After the company had been formed and had purchased the property, the intended resale was not achieved. Thereafter, as the judge has found, the whole purpose of the company was to dispose of the property as advantageously as possible. Kapoor was a director of the company and he was, with the knowledge and approval of the other directors, carrying on the business of the company. In the course of carrying on the company's business and professing to act on its behalf, he instructed the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght give to the other contracting party a right of action for damages for breach of warranty. In this case the company has known of and acquiesced in the agent professing to act on its behalf, and thereby impliedly representing that he has the company's authority to do so. The company is considered to have made the representation, or caused it to be made, or at any rate to be responsible for it. Accordingly, as against the other contracting party, who has altered his position in reliance on the representation, the company is estopped from denying the truth of the representation. The identification of the persons whose knowledge and acquiescence constitute knowledge and acquiescence by the company depends upon the facts of the particular case. In one case those persons were the shareholders and subscribers of the company's memorandum and articles of association who permitted the de facto directors and de facto secretary to carry on the company's business : Mahoney v. East Holyford Mining Co. L.R. 7 H.L. 869, 895, 897, 898. More frequently those persons are the directors :"Biggerstaff's case ( supra ). Other illustrations of the principle involved will be found in Ernest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of association might be such as to make impossible for Kapoor to be acting intra vires on behalf of the company in giving his instructions to the plaintiffs. Rama Corporation Ltd. v. Proved Tin and General Investments Ltd. [1952] 1 All. E.R. 554, 566 was another case of an unusual transaction, and it was decided on the ground that the plaintiffs, having no knowledge of the defendant company's articles of association, could not claim to have acted in reliance on a provision for delegation contained therein. It was expressly recognised in the judgment [1952] 1 All. E.R. 554, 566 that "It is possible to have ostensible or apparent authority apart from the articles of association, though not where it is inconsistent with or beyond the articles of association." In my view the judgment cannot reasonably be regarded as saying or implying that a person dealing with a director of a company in a normal transaction within the ordinary scope of the company's business is not protected by the director's ostensible authority unless that person obtained and studied the company's articles of association and the incorporated provisions of Table A and made sure that the directors had power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alid board meeting) but there was no quorum present as required by article 19 of the articles of association. Nothing that happened at that meeting can thus be relied on as conferring an actual authority on Kapoor to employ agents, although it shows that the three directors present knew that Kapoor was acting as if he were in fact so authorised. The oral evidence of Hoon, who was not present, justifies the inference drawn by the judge that he too acquiesced in Kapoor taking steps to find a purchaser on behalf of the company, but not necessarily that he communicated his acquiescence to the other directors or to Kapoor. The other board meeting relied upon on March 3, 1960, which was properly constituted but held after the expenditure had been incurred, is equivocal. It is consistent with the view that Kapoor had on some previous occasion been authorised by the board to employ agents to dispose of the property and to apply for development permission, but I myself do not feel that there is adequate material to justify the court in reaching the conclusion of fact (which the county court judge refrained from making) that actual authority to employ agents had been conferred by the boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities between the principal and the contractor. It may be that this rule relating to "undisclosed principals," which is peculiar to English law, can be rationalised as avoiding circuity of action, for the principal could in equity compel the agent to lend his name in an action to enforce the contract against the contractor, and would at common law be liable to indemnify the agent in respect of the performance of the obligations assumed by the agent under the contract. An "apparent" or "ostensible" authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an act which the corporation is not permitted by its constitution to do itself. Secondly, since the conferring of actual authority upon an agent is itself an act of the corporation, the capacity to do which is regulated by its constitution, the corporation cannot be estopped from denying that it has conferred upon a particular agent authority to do acts which by its constitution, it is incapable of delegating to that particular agent. To recognise that these are direct consequences of the doctrine of ultra vires is, I think, preferable to saying that a contractor who enters into a contract with a corporation has constructive notice of its constitution, for the expression " constructive notice " tends to disguise that constructive notice is not a positive, but a negative doctrine, like that of estoppel of which it forms a part. It operates to prevent the contractor from saying that he did not know that the constitution of the corporation rendered a particular act or a particular delegation of authority ultra vires the corporation. It does not entitle him to say that he relied upon some unusual provision in the constitution of the corporation if he did not in fact so rely. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company is estopped from denying to anyone who has entered into a contract with the agent in reliance upon such "apparent" authority that the agent had authority to contract on behalf of the company. If the foregoing analysis of the relevant law is correct, it can be summarised by stating four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown: (1)that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor; (2) that such representation was made by a person or persons who had "actual" authority to manage the business of the company either generally or in respect of those matters to which the contract relates ; (3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and (4)that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed, and it was the conduct of those who, under the constitution of the company, were entitled to appoint them which was relied upon as a representation that certain persons were directors and secretary. Since they had "actual" authority to appoint these officers, they had "actual" authority to make representations as to who the officers were. In both these cases the constitution of the company, whether it had been seen by the contractor or not, was relevant in order to determine whether the persons whose representations by conduct were relied upon as creating the "apparent" authority of the agent had "actual" authority to make the representations on behalf of the company. In Mahoney's case ( supra ) if the persons in question were not persons who would normally be supposed to have such authority by someone who did not in fact know the constitution of the company, it may well be that the contractor would not succeed in proving condition (3), namely, that he relied upon the representations made by those persons, unless he proved that he did in fact know the constitution of the company. This, I think, accounts for the passages in the speeches of Lord Chelmsford and Lord Hat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by the board to occupy would normally be authorised to enter into on behalf of the company. I find some confirmation for this view of Sargant L.J.'s" judgment in the dictum of Atkin L.J. in the Kreditbank Cassell case ( supra ), another case of an "abnormal" contract. He says : " If you are dealing with a director in a matter in which normally a director would have power to act for the company you are not obliged to inquire whether or not the formalities required by the articles have been complied with before he exercises that power." I therefore, disagree with the conclusion which Slade J. draws in the Rama Corporation case ( supra ) as to the law laid down in Houghtons' case ( supra ) and the Kreditbank Cassell case ( supra ), but if 1 am wrong as to this, I think that Houghton's case ( supra ) as construed by Slade J., is contrary to tee decisions of the Court of Appeal in Bigger staff v. Rowatt's Wharf Ltd. [1896] 2 Ch. 93 and the British Thomson-Houston case ( supra ) and 1 prefer and would follow the latter. In the Biggerstaff case ( supra ) the agent (who had never been appointed managing director) had been permitted by the board to manage the afia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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