[CHANCERY DIVISION]

In re HAMPSHIRE LAND COMPANY.

[0023 of 1893.]

Company - Borrowing - Irregularity - Notice - Common Officer of Two Companies.

Where one person is an officer of two companies his personal knowledge is not necessarily the knowledge of both the companies. The knowledge which he has acquired as officer of one company will not be imputed to the other company unless he has some duty imposed on him to communicate his knowledge to the company sought to be affected by the notice, and some duty imposed on him by that company to receive the notice; and if the common officer has been guilty of fraud, or even irregularity, the Court will not draw the inference that he has fulfilled these duties.

Gale v. Lewis (9 Q. B. 730; 16 L. J. (Q.B.) 119) distinguished.

The directors of a company were empowered to borrow money on its behalf, but not beyond a certain limit without the consent of a general meeting. A general meeting gave the required consent, but the notices summoning the meeting did not, as required by the regulations of the company, specify that borrowing beyond the limit was to be authorized by the meeting. The money was borrowed from a society the secretary of which was also the secretary of the company, and he knew of the irregularity:-

Held, that the knowledge of the secretary could not be imputed to the society, and that the money lent could be proved for in the winding-up of the company.

THE Hampshire Land Company, Limited, was registered under the Companies Acts, 1862 and 1867, on February 20, 1871. Its memorandum of association did not contain any borrowing power, but clause 82 of the articles of association was as follows:-

"82. The directors may borrow, in the name or otherwise on behalf of the company, such sums of money as they may from time to time think expedient .... Provided nevertheless that the aggregate of the principal money so borrowed shall not at any time exceed the amount of the paid-up capital, unless the borrowing of a larger amount shall have been previously authorized by a general meeting, in which case the directors may borrow to such an extent as is authorized."

Art. 38 provided, with respect to general meetings, as follows:-

"38. Seven days' notice at the least, specifying the place, the day, and the hour of meeting, and in case of special business the general nature of such business, shall be given by a circular letter addressed to each member and sent to his address in the company's register ...."

The company was closely connected with the Portsea Island Building Society. Both the company and the society had their offices in the same building. Four of the directors of the company were also directors of the society, and T. P. Wills was secretary to both corporations.

The society went into liquidation in 1892, and in January, 1893, the company passed an extraordinary resolution in favour of voluntary winding-up. In February, 1893, the voluntary winding-up of the company was ordered to be continued under the supervision of the Court. J. J. Saffery was the liquidator of the company, and W. Edmonds, one of the liquidators of the society, was appointed as an additional liquidator of the company.

The liquidators of the society claimed to be entitled to prove in the winding-up of the company for a debt of over 30,000l. for money lent to the company.

Saffery took out a summons in the winding-up of the company, to which summons the society and Edmonds were respondents, for the determination of the question whether the society was entitled to rank as a creditor of the company, and if so for what amount.

The summons was adjourned into Court and heard before Vaughan Williams J.

The evidence shewed that a general meeting of the company was held on February 19, 1881, and Vaughan Williams J. was satisfied that at this meeting a resolution was passed authorizing the directors to borrow 30,000l., although there was no minute in the company's books of the resolution.

It was also shewn that the notice convening this meeting and sent to the shareholders contained no reference to the fact that it was intended to propose any such resolution; that at the

date of the meeting the company was already indebted to the society in respect of money lent, and that the paid-up capital of the company was only about 10,000l.

After the resolution was passed further sums were advanced by the society, and at the date of the summons the amount due to them was about 30,000l.

There was no evidence that Wills communicated to the society with reference to any irregularity in summoning the general meeting.

Bramwell Davis, Q.C., and C. E. E. Jenkins, for Saffery. The respondents will rely on Royal British Bank v. Turquand (1) as shewing that the society was entitled to assume that all the requirements of the articles as to internal management had been complied with. That would have been so if the society and the company had been two entirely independent bodies; but they were not, several persons being directors of both the society and the company, and Wills being secretary to both.

Under art. 82 it was ultra vires the directors to borrow an amount exceeding that of the paid-up capital without the assent of a general meeting. There is no minute of any resolution of a general meeting empowering the directors to go beyond this limit, and on the evidence there seems to have been no resolution.

[VAUGHAN WILLIAMS J. I think there was a resolution.]

Even if the resolution was passed it would not be valid unless the meeting was regularly convened in accordance with the articles. Art. 38 required the notices of the general meeting to refer to any special business to be transacted. The notices did not refer to the proposed extension of the borrowing power, which was clearly special business: Garden Gully United Quartz Mining Co. v. McLister. (2)

[VAUGHAN WILLIAMS J. The onus is on you to prove the want of notice.]

The notices do not refer to the proposed borrowing; and therefore the general meeting was not regularly convened, and the

(1) 6 E. & B. 327.

(2) 1 App. Cas. 39.

borrowing, so far as it was in excess of the power possessed by the directors without the assent of a general meeting, was ultra vires the directors. The resolution, being irregular, was not binding on the company unless the society took without notice of the irregularity. But the society was not in the position of an outside creditor, and, having regard to the position of Wills and the other circumstances, cannot rely on Royal British Bank v. Turquand. (1) Wills must have known what the borrowing power of the company was, and that the conditions had not been complied with, and through him the society knew that the company could not lawfully borrow the money. Notice to an officer of a company is notice to the company: Buckley on Companies, 6th ed. p. 74. Knowledge by an agent or officer of one company dealing through him with another company of which he is the officer is the knowledge of the latter company: Ex parte Waithman (2); Gale v. Lewis.(3) A company can only act by its agents. Wills was the agent of the society to receive this notice. Suppose that as secretary of the company he had written to himself as secretary of the society, that would have been notice to the society. There is nothing which requires the notice to be in writing.

This is not a case of fraud in which different considerations apply - it did not matter to Wills personally whether the society had notice or not. The principle relied on is that the knowledge of an agent is the knowledge of his principal, subject to certain exceptions of which this case is not one.

The shareholders of the company did not ratify what was done. They could not ratify a borrowing ultra vires the directors without knowing that there had been an ultra vires borrowing.

[They also referred to Irvine v. Union Bank of Australia (4); Alletson v. Chichester. (5)]

Haldane, Q.C., Eve, Q.C., and E. C. Macnaghten, for the liquidators of the society. The resolution was properly passed. Assuming the notice did not refer to special business, the

(1) 6 E. & B. 327.

(2) 4 Deac. & Ch. 412.

(3) 9 Q. B. 730, 743.

(4) 2 App. Cas. 366.

(5) L. R. 10 C. P. 319.

society had to look at the company's articles of association but was not bound to see that the interim formalities had been complied with: Royal British Bank v. Turquand. (1) Under the circumstances, the knowledge of Wills did not come to him as the secretary or agent of the society, and, that being so, the case is within the authority of In re Marseilles Extension Ry. Co. (2)

[They were stopped by the Court.]

VAUGHAN WILLIAMS J. The question really is, whether the shareholders in the building society or the shareholders in the company ought to bear any loss that would result from the resolution authorizing the directors of the company to borrow this money. So far as the shareholders of both the two corporations are concerned, they are innocent people.

It must be taken that in fact a resolution was passed by the shareholders of the company authorizing the borrowing of the 30,000l., and it must be also taken that no notice was given to them that this special business was intended to be proposed to the meeting which passed the resolution, and that therefore the authority of the directors of the company to borrow this money was not perfected. They had no authority in the absence of a properly passed resolution to borrow this money. But in that state of things, the money having been lent by the society and received by the company, the question which I have stated arises. It is not disputed that the authority of Royal British Bank v. Turquand (1) is such that the society had a right to assume in a case like this that all these essentials of internal management had been carried out by the borrowing company, and that it is only in case the law imputes to the society knowledge of these irregularities that the society is not to rank upon the estate of the Hampshire Land Company as a creditor for the amount lent.

The question, therefore, is this: Is it right to impute this knowledge to the society? It is said that it is right, because Mr. Wills was the common officer of both the society and the company, and was aware of these irregularities; and I think it

(1) 6 E. & B. 327.

(2) L. R. 7 Ch. 161.

must be taken that he was aware of them. Then it is said that his knowledge as the officer of the company is equally his knowledge as the officer of the society, and that therefore I ought to impute this knowledge to the society. I do not agree. Both Mr. Bramwell Davis and Mr. Jenkins shrank from saying that wherever there is a common officer of two societies, the knowledge of such officer personally is to be imputed to both the societies employing him. In fact it was quite impossible, having regard to the decision in In re Marseilles Extension Ry. Co. (1) that they could successfully contend for so wide a proposition. It is quite plain from the judgments of Mellish and James L.JJ. in that case that both those judges were of opinion that there might be cases in which the personal knowledge of the common officer did not affect both the companies of which he was the officer. I called attention in the course of the argument to the following passage in the judgment of Mellish L.J. in In re Marseilles Extension Ry. Co. (2): "I cannot think that is sufficient to affect the CrŽdit Foncier with notice of any improper mode in which this money was to be expended, even if Mr. Heritage had .... notice that it was to be expended for an improper purpose." It is quite plain, when one has read that passage, that the Lord Justice negatives the general proposition that the knowledge of the common officer is always the knowledge of the two companies. But the moment you have done that you have to ask yourself this: Where is the line to be drawn, or what is the test to be applied in order to say whether or not in each case the knowledge of the common officer is the knowledge of each company employing him? It seems to me that, broadly, the Lords Justices do draw the line thus, that the knowledge which has been acquired by the officer of one company will not be imputed to the other company, unless the common officer had some duty imposed upon him to communicate that knowledge to the other company, and had some duty imposed on him by the company which is alleged to be affected by the notice to receive the notice. I think that that view of the case is very much confirmed by a consideration of the report of Gale v.

(1) L. R. 7 Ch. 161.

(2) L. R. 7 Ch. 169.

Lewis. (1) In that case the jury found that the common agent was authorized, by the company which it was sought to affect with notice, to receive the notice that was given by him as the officer of the other company. Then, that being so, when Lord Denman comes to give judgment he says (2): "It was further contended that Densem communicated to Loosemore in his capacity of attorney, and not as agent for the insurance office. But, where the two capacities are united in one person, a notice received in one capacity for the purpose of being transmitted to the other is an effectual notice in both capacities." Of course, you must add to that statement of Lord Denman's the finding of the jury that the company did authorize Loosemore to receive notice of these assignments; and if you add that, it seems to me that it makes it quite plain that both in In re Marseilles Extension Ry. Co. (3) and in Gale v. Lewis.(1) the test applied by the Court was this: First, was it within the scope of the duty of the officer to give notice to the other company of the information he had got; and, secondly, was it within the scope of his duty, as the officer of the company sought to be affected by notice, to receive such notice? It seems to me that that is not at all the case here. The case is very much more like the one which both Mr. Bramwell Davis and Mr. Jenkins had to admit was an exception to the general rule that they sought to lay down, for they admitted that if Wills had been guilty of a fraud, the personal knowledge of Wills of the fraud that he had committed upon the company would not have been knowledge of the society of the facts constituting that fraud; because common sense at once leads one to the conclusion that it would be impossible to infer that the duty, either of giving or receiving notice, will be fulfilled where the common agent is himself guilty of fraud. It seems to me that if you assume here that Mr. Wills was guilty of irregularity - a breach of duty in respect of these transactions - the same inference is to be drawn as if he had been guilty of fraud. I do not know, I am sure, whether he was guilty of actual fraud; but whether his conduct amounted to fraud or to

(1) 9 Q. B. 730.

(2) 9 Q. B. 743.

(3) L. R. 7 Ch. 161.

breach of duty, I decline to hold that his knowledge of his own fraud or of his own breach of duty is, under the circumstances, the knowledge of the company. I must, therefore, admit the proof. The costs of all parties will come out of the assets of the Hampshire Land Company.

Solicitors for applicant: Munns & Longden.

Solicitors for liquidators of the society: Learoyd, James & Mellor.

F. E.