Chap. XXVII. § 1 (iii). includes equitable charge. Articles cannot confer borrowing powers. a loan, as by deposit of deeds (p); and the same rule will apparently apply whether the borrowing powers of the company are express or are to be implied from the nature of its business (q). A security which shows an intention to create a charge on the property of the company may be enforceable in equity though defective as a legal mortgage (r). If a company has no power of borrowing expressly given by its memorandum of association, or necessarily implied from the nature of its business, it cannot confer such a power on itself, or on its directors, by its articles of association. A contract by a company or its directors, not authorized by its memorandum, is wholly null and void, and cannot be rendered binding on the company even by the assent of every individual shareholder (s). But the memorandum and articles are to be read as one document (f), and the latter may be referred to for the purpose such powers. of explaining or supplementing the former (u). Accordingly, if a company has power to borrow by virtue of its memorandum, the articles may regulate the mode of exercising the power by prescribing the limits within which, and the persons by whom, the power is to be exercised, and the formalities to be observed in exercising the power. Articles may regulate mode of exercising Special resolution. Articles limit- The want of a provision in the articles as to the mode of exercising the power may be supplied by a special resolution under sects. 50 and 51 of the Companies Act, 1862 (x). And articles limiting the amount to be borrowed may be similarly extended (y). Where a memorandum of association gave to the company a power of borrowing without limit, but the articles provided that the directors should have power to borrow on the security of the assets of the company to an amount not exceeding two-thirds of (p) Re Patent File Co., L. R. 6 Ch. 83. (2) See Athenæum Life Ass. Soc., 4 (r) Re Strand Music Hall Co., 3 De (8) Ashbury Railway Carriage Co. v. Riche, L. R. 7 H. L. 653. (t) Guiness v. Land Corp. of Ireland, 22 Ch. D. 349, 377, 381, C. A. (u) Harrison v. Mexican Rail. Co., L. R. 19 Eq. 358; Re Phænix Bessemer Co., 44 L. J. Ch. 638; London Financial Assoc. v. Kelk, 26 Ch. D. 107, 133; Re South Durham Brewery Co., 31 Ch. D. 261, C. A.; Re Tilbury Portland Cement Co., 62 L. J. Ch. 814. (x) 25 & 26 Vict. c. 89. See Bryon v. Metropolitan Saloon, &c. Co., 3 De G. & J. 123. (y) Jackson v. Rainford Coal Co., (1896) 2 Ch. 340. the capital of the company for the time being not called up, it was held that in computing the limit "capital not called up" included shares which had not been issued (z). Chap. XXVII. § 1 (iii). debentures at Prima facie a company, having power to borrow on such terms Issue of as they think fit, may issue debentures or debenture stock at a a discount. discount, and this power may be exercised by the directors where they have the general powers of the company (a); but the power of issuing debentures at a discount may be negatived or restricted by the articles of association or otherwise. Debentures may be deposited by a company by way of mortgage to secure a loan of an amount less than the par value thereof with power for the depositor to sell them; the depositor or his assignee will be entitled on a winding up to prove for the full amount secured pari passu with the other debenture holders (b). A company cannot issue fully paid bonus shares as an inducement to take up debentures, and the allottees will be liable to the full nominal value of the shares (c). Where debentures were made redeemable at a premium if the company should be reconstructed, but otherwise at par, it was held that the condition must be strictly construed, and that on the amalgamation of the borrowing company with another company the debentures were redeemable at par (d). directors for If borrowing powers have been exceeded, and the transaction Liability of is void as against the company, the directors will be personally excessive liable (e). If directors borrow money expressly to "replace loans falling due," and they have at the time exhausted their powers, they are liable as for a breach of warranty (ƒ); and so where a company has no power to accept bills, and the directors accept "on behalf of the company," they are personally liable (g); and if directors hold out an agent as authorized to borrow, they are (z) English Channel Steamship Co. v. Rolt, 17 Ch. D. 715. (a) Re Regent's Canal Ironworks Co., 3 Ch. D. 43, C. A.; Campbell's Case, 4 Ch. D. 470; Webb v. Shropshire Rail. Co., (1893) 3 Ch. 307, C. A. (b) Re Regent's Canal Ironworks Co., 3 Ch. D. 43, C. A. (c) Re Railways Time Tables Co., Exp. Welton, 62 L. J. Ch. 935, C. A. (d) Hooper v. Western Counties, &c. Telephone Co., 68 L. T. 591. (e) Firbank's Executors v. Humphreys, 18 Q. B. D. 54, C. A. See West London Commercial Bank v. Kitson, 13 Q. B. D. 360, C. A. (f) Weeks v. Propert, L. R. 8 C. P. 427; Whitehaven Joint Stock Banking Co. v. Reed, 54 L. T. 360, C. A. See Wrexham, Mold, &c. Railway, (1895) 1 Ch. 440. (g) West London Commercial Bank v. Kitson, 13 Q. B. D. 360, C.A. exercise of powers. Chap. XXVII. § 1 (iii). Parol evi dence, how far admissible. Borrowing powers exerciseable by directors. Mortgage by directors to one of them selves. Concurrent powers of directors. personally liable (h); but an incorrect statement of a matter of law would not render the directors liable (i). If directors sign a document borrowing money for the company, parol evidence is admissible to explain the ambiguity, whether their signature made them personally liable (k). The power of borrowing money on behalf of a company is, according to the usual practice, vested by the articles of association in the directors (7). And by Article 55 of Table A., appended to the Companies Act, 1862 (m), which is applicable to all companies limited by shares formed under the Companies Acts, except so far as excluded or modified by articles of association (n), a general authority is given to the directors to exercise the borrowing powers of the company, except so far as otherwise directed by statute or by the regulations of the company (0). There is no objection to a director advancing his own money to his company, and taking from it debentures or other security for the loan; and if debentures are issued at a discount to the public, a director may take them at such discount value (p). If a company has, by its memorandum of association, or by company and reason of the exigencies of its business, a power to borrow, which is by the articles exerciseable by an extraordinary general meeting, such power will not be restrained by a clause in the articles giving to the directors power to borrow only to a limited amount (q). Ratification of ultra vires loan. Loan before formation of company. If in such a case the directors exceed their authority, the company may, by ratifying the transaction, render it valid (»). So, also, though acts done before the formation of a company cannot be, strictly speaking, ratified-for ratification implies an existing relation of principal and agent, and where there is no principal there can be no agent-yet a company may, after its formation, adopt such acts so as to bind itself. Thus a company (h) Chapleo v. Brunswick, &c. Co., 6 Q. B. D. 696, C. A. (i) Rashdall v. Ford, L. R. 2 Eq. 750; Eaglesfield v. Marquis of Londonderry, 4 Ch. D. 693; affirmed in H. L. 26 W. R. 540. See Cargill v. Bower, 10 Ch. D. 516. (k) McCollin v. Gilpin, 6 Q. B. D. 516. (1) See Hamilton on Comp. Law, (m) 25 & 26 Vict. c. 89. (0) See Spackman v. Evans, L. R. 3 H. L. 171, 244; Re West of England Bank, Exp. Booker, 14 Ch. D. 317, C. A. (p) Campbell's Case, 4 Ch. D. 470. See Southampton, &c. Boat Co. v. Pinnock, 12 W. R. 330. (9) Re Strand Music Hall Co., 3 De G. J. & S. 147. (r) Irvine v. Union Bank of Australia, 2 App. Ca. 366; Grant v. United Kingdom Switchback Co., 40 Ch. D. 135, C. A. may be bound by debentures issued by it pursuant to an Chap. XXVII. § 1 (iii). transactions iv. Whether Securities which are ultra vires will bind Com- Ultra vires panies.-Generally a corporation created for particular purposes not generally is not bound at law by a deed under the corporate seal, where, binding. by the express provision of, or necessary implication from, the statute which creates the corporation, the deed is ultra vires (u). advances. But though a company may have no power to borrow money, Ultra vires and the securities may be consequently void, yet if the moneys valid to loans, when advanced have been properly applied in payment of a legitimate extent of debt of the company, the holders of the securities, whether directors or others, can recover such advances with interest (r). The principle of these cases is not, as was at one time supposed (y), that the lender is entitled to be subrogated to the rights of the creditor whose debt has been paid out of his loan, but that the lender is merely entitled to have his loan treated as valid to the extent to which it has been so applied. The lender is therefore not entitled to the benefit of securities held by the creditor so paid off or of his priority over other creditors (≈). Where a company having no borrowing powers raised money Sale and by sale of rolling stock to a waggon company, at the same time hiring of rolling stock. making a contract with the waggon company for the hire of the rolling stock at a rent which would repay the amount of the purchase-money with interest in five years, and for its repurchase at the expiration of that period at a nominal price, the transaction was upheld as bonâ fide, and, therefore, valid (a). for benefit of If directors issue debentures for their own benfit, not for Debentures that of the company, they will be liable to return any benefits directors. received by them (b). Re Beulah Park Estate, L. R. 15 Eq. (y) Re National Permanent, &c. Soc., (2) Wrexham, Mold, &c. Railway, (1899) 1 Ch. 440, C. A. (a) Yorkshire, &c. Waggon Co. v. Maclure, 21 Ch. D. 309, C. A. (b) London Trust Co. v. Mackenzie, 62 L. J. Ch. 870. Chap. XXVII. § 1 (iv). Debentures Where directors having power to raise money issued debentures in satisfaction of certain debts of the vendor of the business which the company was formed to take over under an agreement by the company to indemnify the vendor against issued in payment of debts such debts, amongst which was a debt due to the managing director of the company; it was held that under the circumstances the debentures were issued for the benefit of the company, and were accordingly valid (c). taken over from founder. Estoppel. Fraud of director. Where sums have been voted to promoters and directors, who take out the sums in debentures, the sums, being misappropriations, must be repaid, and the debentures will remain valid in the hands of holders without notice of the fraud (d). The company are estopped from disputing irregular debentures if they are valid on their face and assignable (e), especially if the company have registered or accepted notice of the assignment thereof, or paid interest thereon (f), or have dealt with the assignee, or by asking for time (g). Where debentures have been issued irregularly, the company are estopped from setting up the irregularity against holders for value without notice who have had them registered (), and also against equitable transferees who had no reason to suspect any irregularity, but only to the extent of their bonâ fide advances (i). In one case, where debentures had been issued through the fraud of the managing director, and repudiated by the company as soon as the fraud was discovered, it was held that the company were entitled to repudiate the debentures on the ground that the debentures in question were choses in action not assignable at law, so that the assignee could not stand in any better position than the original holder, and must take subject to the equities which affected the assignor (k); but the correctness of this decision has been questioned as regards the application to that case of the general rule on which it purported to be grounded (1). (c) Seligman v. Prince & Co., (1895) 2 Ch. 617, C. A. (d) Re Anglo-French Co-operative Soc., 21 Ch. D. 492, C. A. (e) Webb v. Commissioners of Herne Bay, L. R. 5 Q. B. 642. (f) Brunton's Claim, L. R. 19 Eq. 302; Re Northern Assam Tea Co., L. R. 10 Eq. 458; Exp. Chorley, L. R. 11 Eq. 157. (g) Hulett's Case, 2 J. & H. 306. (h) Romford Canal Co., Carew's Claim, 24 Ch. D. 85. (i) Pocock's Claim, 24 Ch. D. 85. See also Shaw v. Port Philip, &c. Co., 13 Q. B. D. 103 (forged share certificate). (k) Athenæum Life Ass. Soc. v. Pooley, 3 De G. & J. 294. See also Re Natal Investment Co., L. R. 3 Ch. 355. (1) Re Hercules Ins. Co., Brunton's Claim, L. R. 19 Eq. 302, at p. 312, per Malins, V.-C. |