Cases on Company Law These cases are intended to be read in conjunction with the notes on Introduction to Company Law. They are intended to show the reader the flavour of the case and its importance in the development of company law. There are a number of cases on the objects clause in the memorandum of association. These are of value in showing the history of the legal approach to the object clause and provide evidence as to why the object clause was so radically changed in 1985 - 1989. Company Promotion R v Kyslant 1931

Company issued shares and in the prospectus implied that it had paid a regular dividend out of current earnings. In fact the dividend, had for some years been paid out of reserves.

HELD : Duty to disclose as the facts must be complete enough to avoid giving a misleading impression.

Promotion / Directors

Derry v Peek 1889

Derry and others set up a company to operate trams in Plymouth. The prospectus setting out the details if the company said that a licence was required to operate the trams but that the issuing of the licence was a formality. As it turned out they were wrong and a licence application was refused.

HELD : Not fraudulent misrepresentation as the directors believed what they said. Since the Misrepresentation Act 1967 such a statement would be considered as negligent misrepresentation.

Ramsgate Victoria Hotel v Montefiore 1866

M applied for shares in the hotel company. He heard nothing and then after 5 months he received a letter of acceptance. By this time he had decided that he did not want the shares.

HELD : The lapse of time was so great that the offer to buy the shares had lapsed.

Boston Deep Sea Fishing Co v Ansell 1888

Ansell was a managing director who obtained commissions from clients to whom he had given company contracts. His employer found out and dismissed him. They also sued to recover the lost commissions. HELD : The dismissal was justified and Ansell was required to pay the commissions he had received over to his employer.

Legal Personality

Salomon v Salomon 1897

S transferred to his own company the business of making boots and shoes. The company bought the business for 39,000 and issued shares and a debenture for 10,000 secured by a floating charge on the assets. The business became insolvent and the trade creditors argued that the company and Salomon were one and the same. As a consequence, they claimed, his debenture was void since a man cannot be a creditor of himself. HELD : It is possible for the sole owner of a company to assert rights against it as a secured creditor, because the company is a separate legal person distinct from its members.

Macaura v Northern Assurance Co 1925

M was a landowner who sold timber from his estate to a company of which he was the sole owner. he insured the timber that lay on his land in his own name as the person insured under the policies issued by the insurance company. A few weeks later the timber was destroyed by fire. M claimed on the insurance policy. Northern Assurance claimed that the timber belonged to the company and as a consequence it was not properly insured.

HELD : The timber belonged to the company and not to M. As a result his claim failed as he did not have an insurable interest in the property.

Pre Incorporation Contracts

Kelner v Baxter 1886

Baxter and two others agreed on behalf of a company yet to be formed to purchase trade stock for its business. Later the company was formed and accepted and used the trade stock, but failed to pay for the stock. HELD: The company was not liable as it could not ratify a pre incorporation contract with retrospective effect to a date before the company existed. Baxter and friends were therefore unable to recover their money.

Company Name

Penrose v Martyr 1858

In this case a company secretary accepted a bill of exchange drawn on a limited company. The name of the company was as written but the company secretary omitted the words "limited"

HELD : The company secretary was held to be personally liable

Objects Clause

Introductions Ltd v National Provincial Bank Ltd 1968

The main object of the company was to provide accommodation for overseas students. The objects clause included an express right to borrow money and a declaration that each part of the objects clause was a main object. The company changed its business to pig breeding and received a bank loan. When the business became insolvent the liquidator claimed that the bank loan was ultra vires and void.

HELD: The loan was ultra vires as the power to borrow money must be subordinate to the main objects of the business. As a result the loan was irrecoverable.

Ashbury Railway & Iron Co v Riche 1875

The objects were to make and sell railway carriages. The directors made an ultra vires contract to build a railway.

HELD: Contract could not be valid even if it were subsequently approved by the shareholders in general meeting.

Ewing v Buttercup Margarine Co Ltd 1917

Ewing who traded under the name Buttercup Diary Company sued to restrain a newly registered company called Buttercup Margarine Company Ltd from using the name on the grounds that the general public might reasonably believe that there was a link between the two businesses. HELD: Ewing was successful.

Aerators Ltd v Tollit 1902

In this case it was held that it would have been unreasonable to prevent the registration of the word aerator as part of the name Automatic Aerators Patents Ltd, because the word aerator was a word in common use in the English language.

John Wilkes (Footwear) Ltd v Lee International (Footwear) 1985

Lee International ordered several pairs of moccasins from Wilkes. The order was placed on an old form that gave the company's former name. The order was signed by one director.HELD :The other director was not liable, in person; for the debt as he had not authorised the making of the order.

Anglo Overseas Agencies ltd v Green 1961

This case is important for the view of Salmon J on the main objects rule of construction. "Where a memorandum of association expresses the objects of a company in a series of paragraphs and one paragraph. or the first two or three paragraphs appear to embody the main objective of the company, all the other paragraphs are treated as merely ancillary to this main objective.Note : This main objective doctrine can be excluded by an appropriate provision in the memorandum. See: Cotman v Brougham 1918

Cotman v Brougham 1918

The objects clause contained no fewer than 30 sub clauses that permitted the rubber company to carry on almost any business. The memorandum stated that every sub clause should be regarded as a substantive clause in its own right. The company underwrote and was allotted shares in an oil company. When the oil company was wound up the rubber company was placed on the list of contributories. HELD: The rubber company was held liable as the underwriting was held to be intra vires the rubber company.

Re German Date Coffee Co 1882

The objects of the company were specific in that it was to make coffee from dates using a German patent. The patent was never granted and coffee was made with a Swedish patent. the company was solvent and the majority of shareholders wanted it to continue. However two shareholders petitioned for a winding up on the grounds that its objects had failed.

HELD: The substratum had failed as it was impossible to carry out the objects for which the company was formed.

Re Kitson & Co 1946

The company objects were to carry out the business of general engineering and inter alia to acquire a specified existing business. The existing business was acquired and later sold.The company intended remaining in the general engineering business and acquiring another business. Some shareholders petitioned for a winding up order on the grounds that the substratum had gone ie as in German Date. HELD: The company was not wound up as the main object was to be an engineering business. Note in German Date a main object was to acquire and to work a particular patent.

Re Jon Beauforte (London) Ltd 1953

The company was authorised by its memorandum to carry on the business of costumers and gownmakers. The company then started the business of making veneered panels. This was ultra vires. Builders built the factory, coke suppliers sold the company coke. The coke company knew from the correspondence that the company was engaged in veneer production. They therefore were under constructive notice of the contents of the memorandum.

HELD: They were unable to sue for the price of the coal as the transaction was ultra viresBell Houses Ltd v City Wall Properties Ltd 1966

In this case the first object was to carry on the business of builders and developers. Further into the object clause said " to carry on any other trade or business whatsoever". The company entered into an agreement with another company and in return for a fee agreed to introduce the other company to some Swiss bankers. The other company refused to pay the introduction fee on the grounds that the contract was outside of the objects clause. HELD: The act of introduction was held to be within the objects clause and was intra vires and not ultra vires.

Rolled Steel Products Holdings Ltd v British Steel Co 1985

RSP had two directors one of whom owed a substantial sum to a subsidiary of BS through a company he owned. RSP entered into a guarantee to BS for the debt of the company owned by one of the RSP directors. The objects clause of RSP stated that it had the power of making a guarantee. At the board meeting at which the guarantee was given the director concerned did not declare his personal interest in it. BS received a copy of the board minutesand should have realised that the decision to guarantee the debt was invalid. HELD : The decision to give the guarantee was invalid.

Power and Objects problems

Evans v Brunner Mond & Co Ltd 1921

The chemical company made a donation for scientific education and research. Evans claimed that the donation was ultra vires and void. HELD: The donation was held to be intra vires as the purpose was incidental to the main clause which was to "do all such business and things as may be incidental or conducive to the above objects, or an of them"

Simmonds v Heffer 1983

A general donation by the League Against Cruel Sports Ltd to the Labour Party (because of its commitment to animal welfare).

HELD: The donation was ultra vires as the money was in the form of a general donation and could be used for any purpose. Note : A second donation to the Labour Party to be used for the promotion of animal welfare was held to be intra vires.

Relations between member and company

Hickman v Kent or Romney Marsh Sheep Breeders Assocn 1915

The articles provided that disputes between members and the association be resolved by arbitration. Hickman brought an action against the company in the courts. HELD: The association were entitled to have the action stayed as the articles constituted a contract between Hickman and the association in respect of their rights as members.

Wood v Odessa Waterworks Co 1889

The company declared a dividend and passed a resolution to pay it by giving their shareholders debenture bonds bearing interest. The articles provided that the company declare a dividend to be "paid in cash"

HELD: The words meant paid in cash and in consequence a shareholder could restrain the company from acting ultra vires.

Share Transactions

Scott v Brown Doering McNab & Co 1892

In this case the firm of solicitors Slaughter and May sought to recover money from the stockbrokers, but were told, along with their client Mr Scott that it was an indictable offence and illegal contract, to agree to purchase shares in the Steam Loop Company in an attempt to create a false market in their shares.

HELD : The act of keeping up the shares was held to be a fictitious premium and consequently illegal conduct.

Greenhalgh v Aderne Cinemas Ltd 1951 The articles stated that shares could not be transferred to a non member as long as any other member was prepared to purchase them.Articles were changed to allow the free transfer of shares to non members, as long as an ordinary resolution was passed approving the transfer.

HELD : Such an alteration was valid as it was to the general good of the company.

Sidebotham v Kershaw, Lease & Co 1920

Proposed alteration of the company articles would permit the directors to expropriate the shares of any member who carried out a competing business.

HELD ; Valid as it was for the company goodAllen v Gold Reefs of West Africa Ltd 1900

Articles gave the company a lien on partly paid shares, in respect of all debts and liabilities of the company.A member dies with unpaid calls due on the shares. Articles were altered so as to give the company lien on the fully paid shares.

HELD : Alteration valid as it was for the genuine protection of the company.

Veil of Incorporation

Gilford Motor Co Ltd v Horne 1933

Horne left the Gilford Motor Company in order to set up his own business. When he left he agreed that he would not solicit any of his former employers customers. As a way around this restriction he set up a company. HELD: Horne was prevented by an Injunction from soliciting the clients of his former employer. His company were also subject to the injunction as the Judge went behind the veil of incorporation and ruled that the company and Horne were one and the same.

Protection of a minority

Foss v Harbottle 1843

Foss was a shareholder in a company formed to buy land for use as a pleasure park. Foss alleged that the defendants had defrauded the company. Foss and others in the minority attempted to sue the defendants

HELD : Since the members of the company had not been consulted and since it was possible that the company in membership could resolve to allow the defendants to retain their alleged profit, the court would not permit the minority to proceed with their action.

Duty of auditor to company

Saudi Banque v Clarke Pixey & Another 28 July 1989 Ch Div

Although it was foreseeable that banks, when considering whether to continue or grant loan facilities to a company, might rely on the companies audited accounts, the auditors did not owe a duty of care because the relationship between the banks and auditors was not sufficient to create a duty of care. Stephen John 1993 Return to Law Contents