* of the company; and that any arrangement ultra vires of the directors, by which, in consideration of a money payment by a applied by them severally as their own property, but the company itself, or the directors, or any number of the shareholders assembled at a meeting or otherwise, have no right to dispose of the shares of the general dividend, which belong to the particular shareholder, in any manner contrary to the will, or without the consent or authority of that particular shareholder. Any application of or dealing with the capital, or any part of the capital, or any funds or money of the company, which may come under the control or management of the directors or governing body of the company, in any manner not distinctly authorized by the act of parliament, is in my opinion an illegal application or dealing; and without meaning to say that it is or could be practicable for individual shareholders to interfere on every occasion, however small, of alleged misapplication of particular sums, I am of opinion that if, as in this case, the directors are proceeding upon an illegal principle, and for purposes not authorized by the act of parliament, to involve the company, or the shareholders of the company, or any of them, in liabilities to which the shareholders, or any of the shareholders, never consented, relief may and ought to be given in this court; and that the mere circumstance of the Brighton company having obtained, as it is not disputed they did lawfully obtain, a certain number of shares in the Portsmouth company, is not a reason why the company should be enabled or permitted to purchase more shares, and thereby increase the risks to which parliament permitted the shareholders to be exposed by the shares which may have become vested in them by the Amalgamation Act, or any reason why the directors should be permitted to divert so much of the funds of the company as they think proper, or indeed any portion of those funds, for the support of another company having distinct objects, and meant to be applied to purposes different from those in consideration of which alone those powers were granted to them." Ante, § 56. Where the statute prohibits the directors of a company from being concerned, directly or indirectly, in building its road, a contract between the company and two of its directors, for that purpose, is absolutely void. Barton v. Port Jackson, &c., Plank Road Co., 17 Barb. 397.

The deed of a joint-stock banking company contained provisions, that the directors should be not fewer than five or more than seven; that three, or more, should constitute a board, and be competent to transact all ordinary business, and that the directors should have power to compromise debts. Agents might be appointed by the directors to accept or draw bills, without reference to the directors. The number of directors became reduced to four, and three executed a deed, compromising a large debt due the company, taking from the debt or a mining concern, and covenanting to indemnify him against certain bills of exchange.

In an action on this covenant, held that it did not bind the company, not being ordinary business, and no number of directors less than five being competent to transact it. And query, whether a board of three directors could transact even ordinary business, unless when the board consisted of five only. Kirk v. Bell, 16 Q. B. 290; s. c. 12 Eng. L. & Eq. 385.

But where a series of contracts have been openly made by the officers of a corporation, within the knowledge of the corporators, who have acquiesced in

shareholder desiring to retire, they declared his shares forfeited, is not, nor can any lapse of time render it, binding on the general body of the shareholders, unless it is shown, not only that the latter might have been, but also that they actually were, fully aware of the transaction. This seems to us to be placing the question of ratification of an act ultra vires upon its only safe and salutary basis. There should always be either express or presumptive evidence of actual and unconstrained acquiescence entirely satisfactory to the court, in order to bind a principal by any act of his agent, beyond the proper limits of the authority delegated to him. This is a principle of universal acceptance and application in the law of agency.

7. One of the latest English cases 11 declares, that the power of the directors to give a bill of sale, as security for debts, is incident to all trading corporations, although it be not expressly conferred by the articles of association, or the constitution of the company. Mr. Ch. Justice Erle said, "The fact that the company carries on a trade is a sufficient answer to the first objection. Every trading company must have the power of giving security for the debts which it contracts."

and derived benefit from them, the contracts are binding upon the corporation, although not expressly authorized in its charter. And if it be a municipal corporation it is bound to pay whatever is due, by taxes, if it has no other means. Alleghany City v. McClurkan, 14 Penn. St. 81.

So also where, by consent of the board of directors, a general agent was employed in making contracts for the purchase of the right of way, and were in the habit of agreeing upon the price, by submission to arbitrators, and the awards had been paid in such cases by the company's financial officers, under a general resolution to pay the amount these agents directed, it was held that such agent, and another agent employed to assist in the same service, had power to submit the question of price, in such cases, to arbitrators, and their award was binding upon the company. And it is not requisite that the contract of submission should be under the seal of the company in such case, nor will it be avoided by the agent attaching a seal to its execution, by himself. Wood v. The Auburn & Roch. Railw., 4 Seld. 160. But the facts that the directors have executed some ten or twelve similar contracts, and that such contracts had been published in the annual reports, and distributed to the stockholders without objection, although evidence of acquiescence on their part is not evidence of the enlargement of the charter powers of the company, so as to bind the company, as between them and the primary parties entering into the contract with them. McLean, J., in Zabriskie v. C. C & C. Railw., 10 Am. Railway Times, No. 15. Ante, § 56.

11 Shears v. Jacobs, Law Rep. 1 C. P. 513; s. c. 12 Jur. N. S. 785.

8. Where power is given in the charter of a corporation or in the deed of settlement, for the directors to confirm any contract made by provisional directors, or any persons acting as directors of the company in its formation, the directors alone have power to confirm such contracts by deed.12 But the directors have no power to make any contract under seal binding upon the corporation, if the formalities prescribed by its constitution have not been complied with.13

9. The directors being but the servants or trustees of the company, it cannot, as before stated, retain money obtained from one by the fraudulent sale by the directors of the company property, unless the purchaser has by his own misconduct precluded himself from redress.14 It was here held, that directors are not justified in using reports to induce a sale of property, which were true at the time they were made, if not true at the time they are so used.

10. But the last case was reversed in the House of Lords, and the decree of Vice-Chancellor Stuart 15 affirmed with costs, - his *honor not having awarded costs, on the same grounds mainly which the Vice-Chancellor had assumed that as no specific representations had been made by the company, and no specific inquiry by the plaintiff, his case failed on that point; and inasmuch as he completed the purchase after being informed of the facts as to defect of title, he could not complain of any previous misrepresentation.16

11. But it was declared in the House of Lords,16 that if reports are made to the stockholders of a company by their directors, and adopted by them at one of their appointed meetings, and afterwards circulated in their published reports, they are binding upon the company. And if erroneous statements in such reports can be clearly shown to have been the proximate and immediate cause

12 Wilkins v. Roebuck, 4 Drew. 281.

See, also, East

13 Hambro v. Hull & London Fire Ins. Co., 3 H. & N. 789. wood v. Bain, id. 738; Bryon v. Met. Saloon Omnibus Co., 3 De G. & J. 123; Baker ex parte, 4 Drew. & Sm. 55; s. c. 6 Jur. N. S. 240.

14 Conybeare v. New B. & Canada Railw. Co., 1 De G. F. & J. 578; s. c. 6 Jur. N. S. 518; ante, § 41, pl. 2. 15 6 Jur. N. S. 164.

16 9 Ho. Lds. 711; s. c. 8 Jur. N. S. 575. See here Lord Chelmsford's strictures upon the loose mode of stating fraud. See Royal British Bank in re Mixer's case, 4 De G. & J. 575. See, also, Cullen v. Thompson, 4 McQu. 424, in the House of Lords, where all the officers of a company participating in a fraudulent representation are held liable, although but part signed the report. 9 Jur. N. S. 85.

of shares having been bought from the company by any individuals, a court of equity will not permit the company to retain the benefit of the contract.

12. But when a company issues a prospectus, a person contracting to take shares on the faith of it, has the right to claim, not only that he shall not be misled by any statements actually false, but that he shall be correctly informed by it of all the facts, the knowledge of which might reasonably have deterred him from entering into the contract. But the false representation of an officer is not that of the company, even if made at the office.18 But to become the act of the company it must be contained in a report of the company adopted at a regular meeting.18

17

13. The directors of a railway company are not justified in acting on an old resolution authorizing the issue of shares, after the purpose for which the issue was authorized has ceased to be available; 19 nor in issuing shares, supposing them to possess the power, for the express purpose of procuring votes to influence a coming general meeting.19 An injunction will be issued to restrain such action of the directors, it not being a question of the internal management of the company, but an attempt to prevent such management being legitimately carried on.

14. In a trial 20 before Martin, B., where it appeared that the profits of the company had been studiously misrepresented by the manner of keeping the books, and a large apparent profit on the year preceding the report presented, by not bringing all the cost of material forward into the account of the year in which it was consumed, it was held that any error in the mere mode of keeping the accounts would not be evidence of fraudulent representation, but the falsification of facts and figures was so, as against any of the officers of the company who were aware of the issue of the prospectus, and had aided or connived at the mode in which it was made up.

17 N. B. & C. Railw. & Land Co. v. Muggeridge, 1 Drew. & Sm. 363; s. c. 7 Jur. N. S. 132. 18 Royal British Bank in re, 3 L. T. N. S. 843.

19 Fraser v. Whalley, 2 H. & M. 10.

20 Bale v. Clelland, 4 F. & F. 117; Kisch v. Venezuela Railw. Co., 3 De G. J. & S. 122; s. c. 11 Jur. N. S. 646. The question of fraud by means of inducing a shareholder to buy his shares upon a misapprehension of the true condition of the company, is one of fact, to be judged of by the jury upon a consideration of all the facts, and is mainly one of intent. Cleveland Iron Co. v. Stephenson, 2 F. & F. 428.

15. It was also held in the last case, that as the statute required the dividend to be declared by the directors, though with the sanction of the shareholders, if to the knowledge of the directors and officers of the company such dividend so declared by the directors was paid otherwise than out of profits, they are responsible for it, and for the circulation of any declaration of it, acted upon by innocent shareholders.

16. Directors may ratify any contract made on their behalf which they have power to make themselves.21 And where the constitution of the corporation gives to the directors, with the sanction of an extraordinary meeting of the shareholders, by a majority of two-thirds, power to do any act which might be done with the consent of all the shareholders, the directors may lease. the entire business of the company in that mode.22

*SECTION II.

When Directors become Personally Liable.

1. Not liable personally, for any lawful act done as directors.

4.

Extent of powers affected often by usage and course of business.

2. But are liable upon express undertaking 5. But if contract is beyond the power of com

to be personally holden.

3. Are liable personally, if they assume to go

beyond their powers.

pany, or not in usual form, directors personally liable.

6. Statement of case illustrating last point.

§ 136. 1. The English statute enacts, what was the common law indeed, that no director should become personally liable by reason of any contract made, or any act done, on behalf of the company, within the scope of the authority conferred by the statutes of the legislature and the company, or, as it is expressed, "by reason of any lawful act done by them." Corporations are not, in general, responsible for the unlawful or unauthorized acts of their officers.1 But the corporation may be held responsible

21 Wilson v. West Hartlepool Harbor & Railway Co., 34 Beav. 187; s. c. 2 De G., J. & S. 475; 11 Jur. N. S. 124.

22 Featherstonhaugh v. Porcelain Co., Law Rep. 1 Eq. 318; s. c. 11 Jur. N. S. 994.

1 Mitchell v. Rockland, 41 Me. 363. Commissioners to accept subscriptions for a corporation, who are by the charter required to give notice of the time and place of opening the books, may give such notice by a majority of their number. Penobscot Railw. v. White, 41 Me. 512.