Brownett v Newton [1941] HCA 14

• Sec. 77 of the Companies Act 1936 (N.S.W.) provides : "(1) Where a com- pany having a share capital has issued

a ela' inviting the public to subscribe for its eae the iene shall not commence any business or exercise any borrowing powers unless

• (a) shares held subject to the pay- ment of the whole amount thereof in 'cash have been allotted to an amount not less in the whole than the minimum pemeovtion 5 (b) every director of the 'company has paid to the company, on 'each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash, a proportion equal

v. Brownelt, (1940) 41 S.R. (N.S.W.) 1; 58 W.N. (N.S.W.) 15, affirmed.

to the proportion payable on applica- tion and allotment on the shares offered for public subscription ; and (c) there has been filed with the Registrar General a statutory declaration by the secretary or one of the directors, in the prescribed form, that the conditions mentioned in paragraphs (a) and (6) of this sub-section have been complied with. . . . (3) The Registrar-General shall, on the filing of the statutory declaration, certify that the require- ments of sub-sectionone . . . have been complied with, andsthat certificate shall be conclusive evidence of that fact in favour of any person dealing

Company - Commencement of business - Statutory condition precedent unfulfilled - H.C. or A. Supply of goods to company - Directors - Warranty of authority - Companies Act 1936 (V.S.W.) (No. 33 of 1936), see 77*.

has been such that an implied warranty of their authority to make MeTi

contracts immediately binding on the company may properly be inferred

Apprat from the Supreme Court of New South Wales. A writ was issued out of the Supreme Court of New South Wa

Henry Michael Mullins, George Myer Hains, Edwin Percy She " and John Stuart Dunbar, who, at all material times, were the directors

ing into certain contracts with the defendants as and assuming to be the agents of the company for the sale by Newton to the comp: of certain goods, the defendants promised Newton that they w authorized by the company to make immediately binding contrac for it as its agents; that Newton did enter into the said contract; and was always. ready and willing to perform the same, yet defendants were not authorized by the company to make immediate binding contracts for it, whereby Newton, inter alia, was not able to enforce the performance of the said contracts and lost the value of the materials supplied thereunder. '

Applied Concrete (Broken Hill) Ltd. was incorporated under the Companies Act 1936 (N.S.W.) as a limited liability company by registration on 9th February 1938, and in September 1938 it went

Article 92 of the company's articles of association provided that the management of the business and the control of the company should be vested in the directors, who should have power, inter alia, " (d) to acquire any property and any rights which the company is authorized to acquire at such prices and generally on such terms and egnditions: as they think fit, and (1) to enter into all such negotiations and contracts . and . . . do all such things in the name, and on behalf of the company as they ay consider expedient . . for the purposes of the company."

At a meeting of the board of directors held on 17th February. 1938 it was resolved that the secretary obtain competitive quota- - tions for the purchase of material. Newton was thereupon asked to quote a price for the supply to the company of Brighton Portland cement, and at a board meeting held on 22nd February 1938 it was resolved that the price submitted by him be accepted. On 23rd

(6) If any company commences busi- ness or exercises borrowing powers in contravention of this section, every

with the company. . (4) Any contract made by a company before the date at which it is entitled to

commence business shall be provisional only, and shall not be binding on the company until that date, and on that date it shall become binding.

person who is responsible for the con- travention shall, without prejudice to any other liability, be guilty of an offence."

ton stating that the quotation tendered by him had been accepted he board. The letter continued : - '' This company will require oximately 95 tons of cement. As a result of my conversation ou on 21st instant we will expect you to be able to supply us h either large or small quantities, without delay." On 26th ril 1938 Newton sent a letter to the company stating: "We ery much pleasure in quoting you as under : Speedite cement to ton) £5 16s., delivered to site, Broken Hill," and, on yy 1938, the secretary of the company sent him a reply ig that his quotation had been accepted by the company, 4s, 10d. per bag delivered at the factory site." The company's er account with Newton, which was put in evidence, showed jewton supplied goods to the company every month from to December 1938, the first supply having been made on bruary. Up to and including 31st July 1938 the price of ods so supplied amounted to £1,709 1s. 8d. The total price 'the goods supplied by Newton was £1,973 8s. 9d. The company payments on account totalling £950, of which the last was on 17th October. Hence, at the close of the account in 1938, a balance of £1,023 8s. 9d. was shown as owing by iy to Newton, of which £809 1s. 8d. was shown as owing et of goods supplied by Newton up to the end of July 1938. admitted on behalf of the defendants that Newton did supply ds to the company. [he company was one to which sec. 77 of the Companies Act 1936 W.)applied. It was not disputed that the statutory declara- by sec. 77 (1) (c) was never filed with the Registrar- and that the company was, therefore, throughout its career, ject to the statutory prohibition against commencing business. Newton in giving evidence stated that he first heard about certifi- 'under sec. 77 in August 1938. It appeared also that it was ed to a meeting of the board of directors of the company 'on 14th February 1939 that the provisions of sec. 77 had not n complied with. At this meeting it was resolved that, in view he insolvent position of the company's finances, the company 'ised to go into voluntary liquidation. This it did in September

hearing of the action the trial judge granted a nonsuit to dants, but upon an appeal by Newton the Full Court of e Court ordered that this be set aside and a new trial Newton v. Brownett (1).

1938 a letter was sent by the secretary of the company to #- ©. or A.

From this decision the defendants appealed, by leave, to the High Court.

Further facts and the relevant statutory provisions appear in the judgments hereunder.

Asprey, tor the appellants. Non-compliance with the provisions of sec. 77 of the Companies Act 1936 does not prevent the making of a contract, but only renders illegal the performance of the contract. The implied warranty the directors must be taken to have given, if they gave any at all, was only that the company had power to enter into a contract for the delivery of the goods. A contract so entered into is a provisional contract (sec. 77 (4)), and should be construed as if it contained a clause that it should not be binding on the company unless and until the company became entitled to commence business (In re " Otto" Electrical Manufacturing Co. (1905) Ltd. ; Jenkins' Claim (1); Buckley on Companies, 11th ed. (1930), p. 212; Palmer's Company Precedents, 15th ed. (1938), Part I., pp. 19, 296- 304; Topham's Company Law, 9th ed. (1934), p. 61) - See also the American Restatement of the Law of Agency, pp. 735, 736, par. 332. This case is completely different from those cases where directors have caused the issue of debentures, such as Firbank's Executors v. Humphreys (2) and Weeks v. Propert (3), in which cases the trans- actions were absolutely void ab initio. This case is analogous to Elkington & Co. v. Hiirter (4). By entering into the subject contracts - the appellants, as directors, did not warrant that the company was going to do anything to carry them out, or that the contracts would become immediately binding on the company ; they did not become guarantors of the future performance of the contracts : See In re National Coffee Palace Co. ; Ex parte Panmure (5).

Miller K.C. (with him Dwyer), for the respondent. The course of conduct as shown by the evidence clearly enables the inference to be drawn that the warranty by the directors was that'in considera-

_tion of the respondent supplying goods to the company the company

was in a position to make immediately binding contracts with respect to such goods. The obligation of satisfying the requirements of sec. 77 is upon those persons who are associated with the company, and not upon a person dealing with the company. A person so dealing with a company is not presumed to know whether a particular requirement of the Companies Act has or has not been complied with. It is not suggested that either expressly or impliedly there was any (1) (1906) 2 Ch, 390, at p. 392. (4) (1892) 2 Ch. 452.

(2) (1886) 18 Q.B.D. 54. (5) (1883) 24 Ch. D. 367, at pp. 370, (3) (1873) LR. 8 C.P. 427. 371.

m which the inference of fact can be drawn that the directors,

and to make binding contracts. The question is one of fact 'is not one of law. There is nothing in sec. 77 which precludes he making of the warranty made by the directors. A creditor is to compel directors to comply with the requirements of 77; nor is there any way by which he could insist upon the being made legally binding (New Druce-Portland Co. ud.) v. Blakiston (1) ). The respondent is entitled to maintain reed as upon breach of warranty even though it involved ince by him on the compliance by the directors with certain tory requirements. The respondent was not bound to inquire whether the statutory requirements had been satisfied (Royal ish Bank v. Turquand (2) ). In the circumstances the appellants ally liable for the moneys owed to the respondent (Chapleo mswick Building Society (3); Starkey v. Bank of England (4) ; London Commercial Bank Ltd. vy. Kitson (5) ).

ey, in reply. The directors did not have personal contact ith matters relating to the respondent; therefore Chapleo v. runswick Building Society (6) is distinguishable. If a warranty lves an incorrect statement of the law relief is not granted " v. Ford (7) ). Cur. adv. vult.

following written judgments were delivered : - C.J, I have had the advantage of reading the judgment Villiams J., and, as I agree with it, it is unnecessary for me to ite what he has said.

J. The question in this case is whether there is any 'Gvidence fit to be submitted to a jury of an implied warranty on the art of the appellants, the directors of Applied Concrete (Broken Hill) of their authority to order and obtain supplies of materials the respondent. F 9th February 1938 the company, which is now in liquidation, neorporated in New South Wales. It was formed to manufac- re and sell concrete fences and suchlike materials. The respondent 0 is ee EER OSM ER GG (Iasi) 13.Q BD. So at p. 362

y with respect to sec. 77, but there is abundant evidence H- ©. or A.

warranted that the company was in a 'position to Browser

offered to supply materials to the company, and on 23rd February 1938 the following letter was sent to him by the secretary of the - company : - "TI have much pleasure to advise that the following - quote tendered by you was accepted by the board on the 22nd inst, Brighton Portland Cement, bagged 24 bags to ton at 4s. 8d. net per bag. Delivered on site Broken Hill. This company will require approximately 95 tons of cement. As a result of my conversation with you on 21st instant we will expect you to be able to supply us with either large or small quantities, without delay." Thereafter the respondent supplied and delivered to the company considerable quantities of cement and possibly other materials, for some of which he was paid, but a balance remains due to him of about £1,000. The respondent contends that the directors thus authorized and made for the company a contract or a series of contracts between him and the company for the supply of materials to the company under a promise express or implied to pay the price agreed or, if none were agreed, a reasonable price for the materials supplied. It is clear enough that there is evidence of such a contract or a series of contracts of this nature being concluded. But it is also clear that the company was precluded from making any such contract in the circumstances of this case by reason of the provisions of sec. 77 of the Companies Act 1936 of New South Wales : - " Where a com- pany having a share capital has issued a prospectus inviting the public to subscribe for its shares, the company shall not commence any business or exercise any borrowing powers unless - (a) shares held subject to the payment of the whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscription ; (b) every director of the company has paid to the company, on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash, a proportion equal to the proportion payable on application and allotment on the shares offered for public subscription ; and (c) there has been filed with the Registrar-General a statutory declaration by the secretary or one of the directors, . . . that the conditions mentioned in paragraphs (a) and (}) of this sub-section have been complied with " : See In re "Otto" Electrical Manufacturing Co. (1905) Ltd. (1); New Druce-Portland Co. (Ltd.) v. Blakiston (2). The Registrar- General is required, on the filing of the declaration, to certify that the requirements of the section have been complied with, and his certificate is conclusive evidence of that fact in favour of any person dealing with the company. Further, it is provided that any contract

le by a company before the date at which it is entitled to com- business shall be provisional only and shall not be binding company until that date and on that date it shall become d The company had a share capital and had issued a pros- tu inviting the public to subscribe for its shares, but the statutory tion required by the section was never filed, and consequently eate from the Registrar-General was or could be obtained. ingly, the principle stated in Collen v. Wright (1) was relied to establish that the directors were liable upon an implied that they had authority to make the concluded contract ries of contracts on behalf of the company which they did make.

doctrine of implied warranty of authority is as applicable to of companies as to other agents (Cherry and M' Dougall olonial Bank of Australasia (2); British Russian Gazette and Outlook Ltd. vy. Associated Newspapers Ltd. (3) ). '* But with to directors, it must not be forgotten that in most cases the of their authority can be readily ascertained, and are supposed known ; and a person who deals with directors whom he knows, 8 supposed to know, to be exceeding their authority, cannot jlain of them if he finds that their acts are repudiated " (Lindley 0 p 6th ed. (1902), vol. 1, at pp. 350, 351; Rashdall v.

rd (4); Haglesfield v. Marquis of Londonderry (5) ). nd a warranty of authority cannot be relied upon if all the facts from which the nature and extent of the authority » director or agent may be inferred were fully known to the 'contracting party or if in fact he did not rely upon any warranty. 'it is quite " immaterial for the purpose of the application of this of the law whether the supposed agent knew of the defect of thority or not ; he undertakes for the truth of his assertion of " (Cherry and M'Dougall v. Colonial Bank of Australasia Starkey v. Bank of England (7) ), though an honest mistake on part of directors as to the legal extent of their authority would render them liable (Beattie v. Lord Ebury (8) ). doubt persons who deal with companies whose memorandum 'icles of association are registered and accessible to the public hold them liable if the directors exceed their authority as by the regulations (Moss Steamship Co. Ltd. v. Whinney |. And this is equally true of the provisions of the Companies 8 E. & B. 647, at p. 657 (6) (1869) LR. 3 P.C., at p. 31. ee 241, at ened (7) (1903) A.C., at p. 119,

Eq. 750. (9) (1912) A.C. 254, at p. 266. 698 5 (1878) 38

Act and, in particular, of sec. 7. "This doctrine," says Li) on Companies (6th ed. (1902), vol. 1, p. 218), "is based upon necessity of protecting shareholders (and the public) against the unauthorized acts of . . . directors, and ought not to be extended to cases in which persons who are really ignorant of powers of directors, seek to make them personally responsible the assumption of powers they did not really possess." Accordingh it has been held that " directors, like other agents, impliedly warrant all facts necessary to confer the authority which they profess exercise . . . So where directors of a company authorized th manager to overdraw the company's account, they were held liabl for the overdraft, for although the company had no power to borrow - without the consent of a meeting of shareholders, they had power to do so with such consent (Cherry and M'Dougall v. Colonial Bank of Australasia (1) ). So where a company had power to issue debenture stock to a limited extent, and the directors, after the power was exhausted, issued more debenture stock, they were held personally liable to the holders of the unauthorized stock (Firbank's: Executors v. Humphreys (2) )" i andiey on Companies, 6th ed. (1902), vol. 1, pp. 351, 352).

In the present case the company's contracts were declared by the Act to be provisional only until the company was entitled to com- mence business. And whether the company was entitled to com- - mence business and conclude contracts depended upon compliance with the provisions of the Companies Act; upon a matter of fact, and not upon the construction of the Act or any matter of law. But there is evidence that the directors made a concluded contract. or a series of concluded contracts which did not bind the company because of the provisions of the Companies Act and which under the Act were provisional only until the company was entitled to com- mence business (British Russian Gazette and Trade Outlook Ltd. y. Associated Newspapers Ltd. (3) ).

In my opinion, therefore, there is evidence fit to be submitted to- a jury of a warranty on the part of the directors, to be implied from their acts and conduct, that they had authority to make the contract or the series of contracts which in fact were made by them on behalf of the company with the respondent. It will be for the jury to consider and determine whether the respondent relied upon this. warranty and whether he did not know and appreciate as a business. man all the material facts in connection with the restriction imposed. upon the company to commence business.

(1) (1869) LR. 3 P.C. 24. (2) (1886) 18 Q.B.D. 54. (3) (1933) 2 K.B., at p. 642.

y company, called Applied Concrete (Broken Hill) Ltd., to which pondent supplied cement during the period from February n to the following December. It appeared that the total of the materials supplied was £1,973, of which the company 950, leaving an unpaid balance of £1,023. The company went tidation. articles of association of the company empowered its to purchase such goods for the company. But the rs of the company to make contracts were restricted by sec. 77 1e Companies Act. The company was subject to sec. 77 (1), h provides that a company in its situation shall not com- ice business unless the conditions mentioned in pars. a, b and complied with. The last of these conditions is that " there filed with the Registrar-General a statutory declaration by or one of the directors, in the prescribed form, that the mentioned in paragraphs (a) and (b) of this sub-section been complied with." No statutory declaration was filed. (4) provides that " any contract made by a company before te at which it is entitled to commence business shall be wisional only, and shall not be binding on the company until at date, and on that date it shall become binding." If a company im business in contravention of these provisions, every who is responsible for the contravention is liable to a penalty 0 for every day during which the contravention .continues ee. 17 (6)). Referring to similar provisions, Buckley J. said in "Otto" Electrical Manufacturing Co. (1905) Ltd. (1): " The rd 'provisional' there means, I think, this, that the contract is be read as if it contained a provision that it shall not be binding e company unless and until the company becomes entitled to nce business." g no enforceable claim against the company, the respondent ought an action against the appellants. He sued on five counts, 4 which he abandoned at the trial, and on the others he was msuited. The fourth count is the only one which is now material. his is in the usual form of a count against an agent on the implied utanty that he had authority to contract with the person suing _ It varies from the usual form by alleging that the contracts tich the agent warranted he was authorized to make were " immedi- ly binding" contracts. But this verbal variation does not alter substance of the cause of action: Cf. Simons v. Patchett (2).

i (1906) 2 Ch., at p. 392, (1857) 7 E. & B, 568, at p. 574 (119 E.R. 1357, at p. 1359).

'AN J. The appellants were the directors of a limited- H. C. or A.

The count stated that, in consideration of the plaintiff, the present respondent, entering into certain contracts with the defendants, the present appellants, as and assuming to be the agents of the company, for the sale by the plaintiff to the company of certain goods, the defendants promised the plaintiff that they were authorized. by the company to make immediately binding contracts for it as its agents; that the plaintiff did enter into the contracts with the defendants as and assuming to be the agents of the company, and was always ready and willing to perform the same on his part, yet the defendants were not authorized by the company to make the contracts for it as its agents ; and that by reason thereof the plaintiff was not able to enforce the performance of the contracts, and the same were not performed, and he suffered the damage then alleged in the count. Defences were pleaded, which are to be read distribu- tively, denying the promise and the breaches alleged in the count, and issue was joined thereon.

The cause of action pleaded is based on the rule in Collen v. Wright (1). In this case Willes J., in affirming the judgment of the Court of Queen's Bench, laid down the following rule with the concurrence of Pollock C.B., Williams J. and Bramuell, Watson and Channell Bs., Cockburn C.J. dissenting : - " A person, who induces another to contract with him as the agent of a third party by an unqualified assertion of his being authorized to act as such agent, is answerable to the person who so contracts for any damages which he may sustain by reason of the assertion of authority being untrue. This is not the case of a bare misstatement by a person not bound by any duty to give information. The fact that the professed agent honestly thinks that he has authority affects the moral character of his act; but his moral innocence, so far as the person whom he has induced to contract is concerned, in no way aids such person or alleviates the inconvenience and damage which he sustains. The obligation arising in such a case is well expressed by saying that a person, professing to contract as agent for another, impliedly, if not expressly, undertakes to or promises the person who enters into such contract, upon the faith of the professed agent being duly authorized, that the authority which he professes to have does in point of fact exist. The fact of entering into the transaction with the professed agent, as such, is good consideration for the promise. Indeed the contract would be binding upon the person dealing with the professed agent if the alleged principal were to ratify the act of the latter. This was, in effect, the view taken by the Court of Queen's Bench, and to which 1

(1) (1857) 7 E. & B. 301 [119 E.R. 1259]; 8 E. & B. 647 [120 E.R. 241].

(1). In Dickson v. Reuter's Telegram Co. Ltd. (2) Bramwell xplained the rule, using these words : - ' The general rule of clear that no action is maintainable for a mere statement, untrue, and although acted on to the damage of the person n it is made, unless that statement is false to the knowledge . person making it. This general rule is admitted by the 's counsel, and prima facie includes the present case. But is urged that the decision in Collen v. Wright (3) has shown t there is an exception to that general rule, and it is contended 'this case comes within the principle of that exception. I do that Collen v. Wright (3), properly understood, shows here is an exception to that general rule. Collen v. Wright ) lishes a separate and independent rule, which, without ng language rigorously accurate, may be thus stated : if a person and, by asserting that he is clothed with the necessary , induces another to enter into a negotiation with himself transaction with the person whose authority he represents e has, in that case there is a contract by him that he has the rity of the person with whom he requests the other to enter the transaction. That seems to me to be the substance of the in Collen v. Wright (3). Brett LJ. made these observations rule; " The decision in that case " (Collen v. Wright (3) ) " was upon a different and independent rule, which may be stated , that where a person either expressly or by his conduct invites to negotiate with him upon the assertion that he is filling a n character, and a contract is entered into upon that footing, he le to an action if he does not fill that character ; but the liability not from the misrepresentation alone, but from the invitation -and from the acting in consequence of that invitation " (4). be impossible, without undue length, to discuss all the cases the rule was applied. In Starkey v. Bank of England (5) dley said that the rule was disputed for the first time in that 'Tt was then affirmed again. Lord Halsbury said in that case hat what gave rise to the liability of the defendant were the cireum- ances of the power of attorney being presented to the bank " for the of being acted upon, and being acted upon on the representa- the agent had the authority of the principal, which he had (6). "That," the Lord Chancellor added, "' does import an ition - the contract being for good consideration - an undertak- the part of the agent that the thing which he represented to be

SE. &B., at pp. 657, 658 (3) (1857) 8 E. & B, 647 [120 E.R. 241). at p. (4) (1877) 3 C.P.D., at pp. 7, 8.

HIGH COURT (194. genuine was genuine. That contains every element of warranty' (1). Lord Davey said of the rule that "it is not confined to th bare case where the transaction is simply one of contract, but it extends to every transaction of business into which a third party is induced to enter by a representation that the person with whon he is doing business has the authority of some other person"

The question for our consideration is whether or not the jury could properly infer that there was such a representation by the appella to the respondent of authority to make the contracts for the pureh of the cement which he supplied in 1938 as to found the warranty sued upon in the fourth count of the declaration. The evidence is fully reviewed in the judgment of Jordan C.J. The contracts wei constituted by orders given for the supply of cement presumabl at the price and on the conditions expressed in quotations which the company invited from the respondent. He was informed tha one of these quotations had been accepted on 22nd February 1938 by the board of directors, and on 2nd May 1938 he was inforn that the other had been accepted by the company. It was clearly open to the jury to find that the appellants or some of them responsible for giving the orders and for the acceptance of the cement by the company. No question of misjoinder is raised.

The warranty sued upon is one that has to be implied. In_ Marzetti v. Williams (3) Patteson J. said that the only distinctio between the two species of contract, express or implied, is as to the mode of proof. "The one" he stated, "is proved by the exp words used by the parties, the other by circumstances showing that the parties intended to contract." If there were no other cireum- stances to be taken into consideration by the jury except the evidence of the course of dealing and the part which the jury could reasonably infer that the appellants took in it, the jury could properly hav found that the appellants or some of them represented to the respon- dent that they were authorized by the company to make those contracts. The liability of the person who proposes to act as a} but whose authority is defective arises under an implied contract. In Yonge v. Toynbee (4) Buckley LJ. said : - * This implied contract may, of course, be excluded by the facts of the particular case. Tf, for instance, the agent proved that at the relevant time he told thi party with whom he was contracting that he did not know whet! the warrant of attorney under which he was acting was genuine or not, and would not warrant its validity, or that his principal was

(1) (1903) A.C., at p. 118. (3) (1830) 1 B. & Ad. 415, at p. 428 (2) (1903) A.C, at p. 119. [109 E.R. 842, at p. 847].

d and he did not know whether he was still living. there will » been no representation upon which the implied contract will And in Halbot v. Lens (1) Kekewich J. said that in order tain an action against the person professing to have the rity which he has not "there must be misrepresentation in usted by the person to whom it is made." He added : - * I myself see how a man can be properly said to have made representation when in truth and substance he has said, ough I will, if you wish it, sign this on behalf of the alleged pal, I tell you plainly that I have no authority from him to

#0, and have every reason to believe such authority will not be g.' A man, of course, might say, 'I have no authority, bably cannot obtain such authority, but yet I will contract tain it, and run the risk of damages.' Such a contract is ble, and would be good in law, but ought not, I think to rred except from facts leading directly to that conclusion " _ It is immaterial whether the appellants knew of the defects in r authority or not (Starkey v. Bank of England (3)). There is from which the jury could infer that they took a part in etions between the respondent and the company which ible of implying the representation that no restrictions on the powers of the company to carry on business and make under which the respondent would be entitled to payment goods he supplied. It is not suggested that the appellants e any warning or notice to the respondent which might exclude representation which their profession of authority could imply. » restrictions on the powers of the company which prevented contracts binding the company were imposed by the Companies it contains provisions which have the object of enabling erson dealing with the company to ascertain whether the had been removed without trusting to any representation company or the directors that the restrictions had been 0" The absence of the statutory declaration which is pre- bed by sec. 7 (1) (c) from the Registrar-General's file was notice world that the restrictions continued in force. "In the case

| Tegistered joint stock company, all the world, of course, have 'of the general Act of Parliament, and of the special deed has been registered pursuant to the provisions of the Act : here be anything to be done which can only be done by the under certain limited powers, the person who deals with directors must see that those limited powers are not being

(1) (1901) 1 Ch. 344, at p. 351. (2) (1901) 1 Ch., at p. 351. (8) (1903) A.C., at p. 119,

exceeded " (Fountaine v. Carmarthen Railway Co. (1) ) - See alo Royal British Bank v. Turquand (2). et

The case js in this respect different from such cases, for example, as Firbank's Executors v. Humphreys (3), where Lindley 1.4. said "He" (the plaintiff) "could not know whether the company or had not already issued the full amount of debenture stock whic it was authorized to issue. He was justified in assuming that th directors had power to do what they did: and by giving him the debenture stock certificates they in truth represented to him that they had such power." It is true as a general proposition that a person dealing with the company would not be justified in assuming that sec. 77 (1) (c) had been complied with: See Irvine v. Union Bank of Australia (4). It would be his duty to ascertain whether i had done so or not by looking at the file in the Registrar-General's office to see if the statutory declaration had been filed or by inspecting the certificate which sec. 77 (3) requires the Registrar-General to give on the filing of the statutory declaration. This certificate is made by sub-sec. 3 of sec. 77 conclusive evidence that the require- ments mentioned in sec. 77 (1) have been complied with in favour of any person dealing with the company. But the contract alleged in the present case is one between the respondent and the appellants personally. It is collateral to the contracts which they assumed to enter into as the agents of the company. The evidence does not show that the respondent knew in fact that the requirements of sec. 77 (1) had not been complied with. For the purposes of this collateral contract there is no presumption that he must be taken to have known that the restrictions imposed on the company by sec. 77 of the Act had not ceased. The appellants on their part and the respondent on his part were free to enter into such a con- tract. Neither the Act nor any rule of law stood in the way of the respondent relying upon the representation of authority implied by the appellants' acts and the part they took in the transactions between the respondent and the company.

In my opinion, there was evidence upon which the jury could find that the appellants or some of them represented that they had the authority of the company to purchase the goods supplied to it by the respondent. It has been observed that no question of mis- joinder was raised. There was also evidence, in my opinion, that consideration was given by him in the shape of action on the faith of such representation. There were no circumstances proved which,

(1) (1868) L.R. 5 Eq. 316, at p. 322. (3) (1886) 18 Q.B.D., at p. 62. (2) (1856) 6 E. & B., at p. 332 [119 (4) (1877) 2 App. Cas, 366, at p. 379, E.LR., at p. 888}.

reasonably find had been made by the appellants, would exclude » warranty or render it impossible as a matter of law for the find that the warranty alleged in the fourth count was made that the appellants failed to make it good. n my opinion this appeal should be dismissed.

is J. The company was incorporated under the Companies 1936 (N.S.W.) on 9th February 1938. The first meeting of the rd of directors was held on the same day. The minutes of the g state that the secretary reported that the company's solicitor ed information from Sydney that the company had been and that more than the number of shares referred to in

ld proceed to allotment had been applied for. The company fact issued two prospectuses inviting the public to subscribe 'its shares, one dated 13th December 1937 and the other 4th nary 1938. The minimum subscription in the first was 3,000 din the second 1,000 shares, but it would appear that the second treated as the operative document. Mr. Asprey so informed court, and his statement was not contested by Mr. Miller. The board then proceeded to allot 1,020 shares, which was more in the minimum required by the second prospectus. the board appears to have been ignorant of the provisions of | of the Act, because it commenced to carry on the business of company from the date of incorporation. As a consequence of e, although sub-secs. 1 (a) and (6) were in fact complied the directors never caused the declaration required by par. ¢ At a meeting of the board held on 22nd February 1938 it was that the price submitted by the respondent be accepted, ly, Brighton Portland cement, bagged, twenty-four bags to the 4s. 8d. net per bag delivered on site Broken Hill. The respon- was notified to this effect by a letter dated 23rd February d by the secretary for and on behalf of the company, which ted that he had much pleasure in advising him that his quotation been accepted by the board on 22nd inst. He added that the u would require approximately ninety-five tons of cement. be noted that this offer and acceptance did not constitute ract for the delivery of any quantity of cement. It was only ment that cement would be supplied, when ordered, on the ns mentioned. The contract would have been constituted by he orders for particular quantities of cement and its delivery 'xv, 30

n in conjunction with the representation which the jury could #- © or A-

pursuant thereto. Subsequently, on 26th April 1938, the respondent quoted a price for Speedite cement (twenty-four bags to the ton) £5 16s. delivered to site Broken Hill, and this was accepted by the secretary on behalf of the company on 2nd May 1938. Again the contracts would have been constituted by orders and deliveries pursuant thereto. .

The company's ledger shows that, commencing on 28th February 1938, the respondent did in fact supply the company with goods - every month during the balance of the year and received certain payments in respect thereof, leaving a balance unpaid of £1,023 8s. 9d.,_ of which £809 1s. 8d. was for goods supplied prior to the end of July 1938. The respondent first ascertained that the company had not complied with the requirements of sec. 77 from his solicitor in August 1938, but the directors do not appear to have realized its obligations under the section until about February 1939, because, at a meeting of the board held on that date, the solicitor (Mr. Davoren) reported that he had ascertained that the provisions of the section had not been complied with. He undertook to see the Registrar- General about this and another difficulty caused by two prospectuses having been filed, and left the meeting. After he had left the meeting, the board resolved that, in view of the insolvent position of the

company's finances and the legal difficulties which must be faced, it

would take the steps necessary to advise the company to go into voluntary liquidation if the matters referred to by Mr. Davoren were settled satisfactorily.

The company went into voluntary liquidation in September 1939. The liquidator rejected the proof of the respondent for the balance of his account.

Sub-sec. 4 of sec. 77 provides that any contract made by a company before the date at which it is entitled to commence business shall be provisional only and shall not be binding on the company until that date and on that date it shall become binding. The contracts for the supply and delivery of goods made between the respondent and the company, therefore, never became binding on the company, and the liquidator was right in refusing to allow the respondent to prove (In re " Otto" Electrical Manufacturing Co. (1905) Lid. (1); New Druce-Portland Co. (Ltd.) v. Blakiston (2) ).

On 2nd February 1940 the respondent issued a writ against the appellants, who were the five directors of the company from the date of its incorporation, and his amended declaration dated 9th August 1940 contained five counts, of which only one (namely, the

was seriously pressed. This count alleged that in considera- 1 of the plaintiff entering into certain contracts with the defendants nts for the company for the sale of goods the defendants d that they were authorized to make immediately binding cts for it as its agents, that the plaintiff did enter into the said cts and was always ready and willing to perform the same e defendants were not authorized to make immediately binding cts for it whereby the plaintiff, inter alia, was not able to e the performance of the said contracts and lost the value of iterials supplied thereunder. action came on for hearing in September 1940 before Maz- ., who granted a nonsuit. The plaintiff appealed to the Full , which ordered that this be set aside and a new trial be had parties. The defendants have by leave appealed to this against the order of the Full Court. 'substantial question in issue on the appeal is whether there evidence on which the jury could reasonably find that the nts impliedly warranted their authority to make absolutely ng contracts on behalf of the company for the purchase of the already mentioned. clear that every person dealing with a company registered der the Act is bound to read the statute and its memorandum articles of association, copies of which are registered in the ¢ of the Registrar-General and available for public inspection British Bank v. Turquand (1); Mahony v. East Holyford Co. (Ltd.) (2) ). Notice is imputed to such a person of all contained therein, or, in other words, of what has been called external position of the company." 77 imposes on every company subject to its provisions the y of complying with its requirements as a condition precedent lawful commencement of the carrying on of its business. It means by which members of the public may ascertain this hikdition has been fulfilled or not. The statutory tion referred to in sub-sec. 1 (c) is open to public inspection. 3 requires the Registrar-General, on its filing, to certify e requirements of sub-sec. 1 or 2 of the section, as the case have been complied with, and provides that the certificate conclusive evidence of that fact in favour of any person ng with the company. Persons dealing with such a company ind to ascertain that the condition has been fulfilled (Peirce

(1) (1856) 6 E. & B, 327 (119 E.R, 886). (2) (1875) LR. 7 HLL. 869,

v. Jersey Waterworks Co. (1); Fountaine v. Carmarthen Railway (2); Pacific Coast Coal Mines Ltd. v. Arbuthnot (3) ).

Where directors purport to enter into a contract on behalf of 7 company they are acting for a principal whose powers are limited, So long as their action does not involve any express or implied warranty of a fact, they cannot be made liable if the operation of the contract is affected by legal consequences which are deemed to be within the knowledge of both parties. or instance, the contra act may be ultra vires the objects of the company on the proper construe. tion of its memorandum ; the object relied on to give the power to enter into the contract, though sufficient on its face, may illegal; the contract may contain a clause which is inoperati because it is in conflict with some section of a statute which is to take effect notwithstanding any stipulation to the contrary (See, - for instance, the Conveyancing Act 1919-1939 (NS.W.), sec. 97 (1) ), il because some statutory condition to its efficacy is missing (avoidance _ of personal covenants in mortgages of land in New South Wales | in the absence of the certificate required by the Moratorium Act ; 1932-1937 (N.S.W.), sec. 34) ; the registration of the company may J be void because it is a trade union (sec. 5 (3) ) - Rashdall v. Ford (4); ; Beattie v. Lord Ebury (5); Saffron Walden Second Benefit Building Society v. Rayner (6).

Relief will not be granted where a mistake is one of general law (Halsbury's Laws of England, 2nd ed., vol. 23, p. 131; Werrin v. The Commonwealth (7) ).

As Lord Atkinson said in Moss Steamship Co. Ltd. v. Whinney (8), "the directors of a company . . . are not estopped at law from relying on the fact that a contract which they made or an _ act which they did was ultra vires and invalid (whether it was an act which could be ratified by the shareholders or not) as against a person who knew, or should be taken to have known, what their powers were, and therefore knew, or should be taken to have known, that the contract or act was ultra vires."

The respondent must therefore be deemed to have known that until the declaration had been filed the company could only enter into a provisional contract, but that when it had been filed the company could make an absolute one.

An express statement that the company could make an absolute contract would be a mixed representation of law and fact, because

(1) (1870) LR. 5 Ex. 209, (5) (1872) 7 Ch. App. 777; (1874) (2) (1868) LR. 5 Bq., at pp. 322, 323. LR. 7 H.L..102.

(3) (1917) A.C. 607, at p. 616. (6) (1880) 14 Ch, D. 406.

(4) (1866) L.R. 2 Eq. 750. (7) (1938) 59 C.L.R. 150.

to do so, namely, the filing of the declaration, had occurred.

t the professed entering into contracts on behalf of a com- y by directors, which were intended to be absolute, would be luct from which such a promise could be implied.

Jollen v. Wright (1) Willes J. said that "a person, who induces to contract with him as the agent of a third party by an ified assertion of his being authorized to act as such agent, ible to the person who so contracts for any damages which sustain by reason of the assertion of authority being untrue," "a person, professing to contract as agent for another, ly, if not expressly, undertakes to or promises the person rs into such contract, upon the faith of the professed agent y authorized, that the authority which he professes to have point of fact exist." As Lord Davey pointed out in Starkey of England (2), it is utterly immaterial whether the supposed nt knew of the defect of his authority or not. British Russian Gazette and Trade Outlook Ltd. v. Associated ers Ltd. (3) Scrutton L.J. said the doctrine of Collen v. (4) had been extended beyond making contracts to doing acts a legal effect by Starkey v. Bank of England (5) and Firbank's v. Humphreys (6), and Greer L.J. said: " It is clear that cases where the contract which the agent warranted he had rity to make would not, if authorized, create any legal obliga- n by his principals, the agent is none the less liable for damages 'a breach of warranty of authority " (7). the doctrine of Collen v. Wright (4) has often been applied to entered into by directors on behalf of bodies corporate | unincorporate. 's Laws of England, 2nd ed., vol. 5, p. 416, it is stated : n an agent expressly contracts on behalf of his company or es a contract in the name of the company, he is not personally to the other contracting party in the absence of fraud or tation unless he expressly or impliedly warrants an y which he has not got or a state of facts that does not exist, case the contracting party has a remedy against him." ts v. Propert (8), Chapleo v. Brunswick Permanent Building (9), West London Commercial Bank Ltd. v. Kitson (10), (5) (1903) A.C. 114. (6) (1886) 18 Q.B.D. 54. (7) (1933) 2 K-B., at p. 649. at pe (8) (1873) L.R. 8 C.P. 427.

E. & B. 647 [120 ER. (9) (1881) 6 Q-B.D. 696. (10) (1884) 13 Q.B.D. 360,

d involve a promise that a necessary fact to enable the H- © or A.

nts never made such a statement, and the critical question p,owxerr

H.C. or A. Firbank's Executors v. Humphreys (1), Whitehaven Joint Stock en Banking Co. vy. Reed (2) and other similar cases, some or all of the Brownerr directors were held liable for having falsely warranted that their Re ae as institutions had power to borrow or had not exceeded a borrowing

• limit. The powers of these institutions depended upon private Acts of

Williams J. Parliament or rules, knowledge of the contents of which would not be imputed to outsiders. A representation that the directors had authority to borrow on behalf of their principal would relate to

matters of private right and so of fact, while the question whether

such a limit had been exceeded would also be one of fact. In West

London Commercial Bank Ltd. v. Kitson (3) Bowen L.J. said : -

"Tt is a representation as to the powers of a company to accept

bills, and that depends on their private Acts of Parliament. Suppose

I were to say I have a private Act of Parliament which gives me

power to do so and so. Is not that an assertion that I have such

an Act of Parliament? It appears to me to be as much a repre-' sentation of a matter of fact as if I had said I have a particular

bound copy of ' Johnson's Dictionary.' These cases do not, there-

fore, solve a problem such as the present, arising under a public Act.

But Cherry and M'Dougall v. Colonial Bank of Australasia (4) is an authority directly in point. There the Loch Fyne Gold Mining Co.

was incorporated under a public Act, namely, the Mining Companies

Limited Liabilities Act 1864 (Vict.), sec. 21 of which authorized

a company registered under the Act with the sanction of a majority

in number and value of the shareholders given in general meeting

to borrow money not exceeding such sum as such majority directed.

Two directors, without this sanction, wrote a letter to the bank informing it that they, as directors of the company, had appointed

one C. E. Clarke to be the legal manager of the company and had authorized him to draw cheques upon the account of the company.

The account was overdrawn at the time, as the two directors knew.

In an action brought by the bank against the directors, the Privy

Council held there was evidence on which the jury could find that

they had impliedly warranted their authority to make the contract

on behalf of the company. The extent of the decision was explained

by Sir @. Mellish in Beattie v. Lord Ebury (5), where he said : -

"There the directors of a joint stock company gave authority to

their manager to overdraw the account. If the facts of the case

are examined it will be found that the directors had power to borrow

(1) (1886) 18 Q.B.D. 54. (3) (1884) 13 Q.B.D., at p. 363 (2) (1886) 54 L.T 360. (4) (1869) L.R. 3 P.C. 24. (5) (1872) 7 Ch. App., at pp. 801, 802.

y, provided they got the consent of a meeting of the share- rs, but not otherwise. There was, therefore, a misrepresenta- on in point of fact, because when they represented they had power ) they practically represented they had obtained authority a meeting of the shareholders to enable them to borrow," and rd Cairns L.C. on appeal (1) as follows : - " Two directors of y ina colony, who were not a majority, and who, therefore, ing to the company's Act, had no right to bind it, transmitted the bankers a letter, in which they stated that a particular person been legally appointed manager of the company, and was n d to draw cheques. At the time when this letter was trans- d, in point of fact, the account of the company was overdrawn bankers, and the manager had not been legally appointed. a statement false in fact and erroneous in law, that he had y to draw cheques upon the bankers, or to bind the company." iso would directors who gave an order for the immediate y of goods impliedly warrant that the company was then d to carry on business and able to make such a contract. conduct would involve, as in Cherry's Case (2), a representation namely, that the company had complied with the require- of sec. 77 (1), which, if false, they would have to make good. 'remaining question is whether there was any evidence on the jury as reasonable men could hold that the directors had so ed. The prospectus showed that the principal business of the ny was the manufacture and sale of precast concrete sections

gement of the business of the company should be vested e directors. The minutes of the meetings of directors showed pany was carrying on business. The statutory report, filed 'sec, 93 of the Act, showing receipts and payments up to 27th | 1938, contained items relating to the business; namely, from progress payments, £500, and disbursements, wages ies, £697 14s. 7d., welding, £121 11s. 7d., and plant and y, £377 19s. 9d. The two letters sent by the secretary to

" As a result of my conversation on the 21st instant we will you to be able to supply us with either large or small quantities delay." The two quotations accepted by these letters were preliminary to actual orders, but they were obviously accepted diate anticipation thereof. The ledger showed a regular

}) (1874) LR. 7 HL, at p. 111. (2) (1869) LAR. 3 P.C. 24.

supply of goods by the respondent to the company for a period of nine months. Its admissibility in evidence against the appellant was not made a ground of appeal. The concrete was required for manufacture into concrete sections. It could only have been ordered by a principal able to enter into an absolute contract.

This evidence would be sufficient to enable the jury to infer that the orders the respondent received were given by the authority of the directors and that by authorizing such orders the directors had impliedly warranted that the company was such a principal (Leggo v. Brown & Dureau Ltd. (1) ).

The way in which damages should be assessed if the plaintiff succeeded was not argued, and I therefore express no opinion on this question.

Solicitor for the appellants, J. J. Davoren, Broken Hill, by C, M. P.

Horan. Solicitor for the respondent, HZ. R. Hudson, Broken Hill, by

Nicholl & Hicks. Bi (1) (1928) 32 C.L.R. 95, at p. 107.