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Published online by Cambridge University Press: 16 January 2009
Thirty men decide to engage in the business of manufacturing and selling bicycles. They procure the formation, under the Companies (Consolidation) Act, 1908, of the X Bicycle Company, Limited. In the memorandum of association the objects of the company are stated to be: “The manufacture and sale of bicycles.” The associates supply that legal unit with funds through payment of subscriptions to its stock, and the company proceeds to manufacture and sell bicycles. But the company loses money, and, on the recommendation of the directors and with the approval of all the shareholders, the manufacture, of bicycles is stopped, and the funds of the company are employed in maintaining a motor omnibus service between two towns. The driver of one of these omnibuses, while acting within the scope of his employment as prescribed by the directors of the company, by his negligence runs into A, who was at the time in the exercise of due care, and breaks A's leg. The driver is financially irresponsible. A sues the X Bicycle Company, Limited, and that company defends on the ground that maintaining the omnibus service was ultra vires. Should this defence be successful?
1 Richer. Ashbury Railway Carriage Co. L. R. 9 Ex. 224, 262.
2 10 Co. 1.
3 2 E. & B. 857.
4 Archibald, J., reported in L. R. 9 Ex. 292; Bowen, L. J., reported 36 Ch. D. 685 n.; Swinfen Eady, J., reported [1910] 1 Ch. 374.
5 L. R. 7 H. L. 653, 663.
6 L. R. 7 H. L. 668.
7 Section 9.
8 L. R. 10 A, C. 354,360.
9 In Riche v. Ashbury Co. L. R. 9 Ex. 254.
10 In Poulton v. The London and South Western Ry. Co. L. R. 2 Q.B. 534, the defendant was held not liable for the act of one of its stationmasters for causing the arrest of a passenger whom be erroneously believed had, without justification, failed to pay for the carriage of a horse. By act of Parliament, the defendant was empowered to give into custody a passenger who did not pay his fare, but was not empowered to give into custody a passenger who did not pay for the carriage of goods. The court held that the act of the stationmaster was not within the scope of his authority. Black burn, J., said: “In the present case an act was done by the stationmaster completely out of the scope of his authority, which there can be no possible ground for supposing the railway company authorized him to do, and a thing which could never be right on the part of the company to do. Having no power themselves, they cannot give the stationmaster any power, to do the act.” Mallory, J., said: “It limits the scope of authority, to be implied from the fact of being the stationmaster, to such acts as the company could do themselves, and I cannot think it ever can be implied that the company authorized the stationmaster to do that which they have no authority to do themselves.” Sheen, J., said: “An authority cannot be implied to have been given to a servant to do an act, which, if his master were on the spot, the master would not be justified in doing.” Right, power, authority are used by the judges as though they were interchangeable terms. The case decides that the implied authority of a stationmaster does not extend to the doing of acts which are ultra vires of the company, and it would seem that Sir John Almond is right in his contention that it decided no more than that. Almond, on the Law of Torts, 3rd., p. 59. The court was not called upon to decide, and did not decide, that the corporation had no legal capacity to commit an ultra vires tort.
In Mill v. Hawker, L. R. 9 Ex. 309, the plaintiff sued the members of an incorporated highway board (25 & 26 Vict. c. 61) for a trespass done to his property by a surveyor who acted pursuant to an order which the members purported to have made in their corporate capacity, and the court held the defendants liable (Kelly, O.B., dissenting). Cleasby, B., with whom Spigot, B.. concurred, said: “But it is equally clear that when the acts are such as the corporate body is not by law qualified to do, and the corporate body, if they pretend to do them, are acting ultra vires, then the mere fact of giving a corporate form to the act does not prevent it from being the act of those who cause it to be done. It seems plain that in such a case the individuals and not the corporation really do the act, and no authority is needed for that conclusion.” The learned Baron proceeded to point out that the effect of holding that such a body as the highway board were competent in their corporate capacity to commit such an act would be to cause the damages to be paid out of funds which ought to be applied in maintaining the roads, that the persons eventually responsible would be the ratepayers, and among them, perhaps, the persons entitled to redress, and to whom the damages were to be paid, and that thus the members of the highway board would acquire a power to divert and waste the funds entrusted to them for public purposes. Moreover, that it would appear to be only right, if the burden of such damages and costs were to fall upon the ratepayers at all, that they should be paid by the parish in which the road in question was situated, and that, owing to the constitution of the board, the persons who ordered the trespass might be persons representing other parishes in the district, and not the parish wherein the road was situated.
Kelly, C.B., said: “I conceive it to be settled law that no action lies against the individual members of a corporation for a corporate act done by the corporation in its corporate capacity, unless the act be maliciously done by the individuals charged, and the corporate name be used as a mere colour for the malicious act, or unless the act is ultra vires, and is not, and cannot be in contemplation of law, a corporate act at all,” but he thought the order of the board in question could not properly be said to be ultra vires as it was an act “merely un-lawful or unauthorized.”
From this decision, it would appear that all the judges conceived that there might be a wrongful act done in the name of the corporation at the instigation of its members to which no corporate significance could be attached. But, assuming that the majority was right in considering that the act in question was such an act, the decision would not be very persuasive as to a corporation organized under the Companies Act. For the protection of the ratepayers, the Legislature may well have intended that the legal capacity of such a corporation as this highway board, formed for public purposes and empowered to expend money raised by taxation, should be strictly limited, and it would be entirely consistent that it should have a different intent with respect to a private business corporation, organized for the financial benefit of its members.
11 [1904] 2 Ch. 608.
12 Chap. II. Sec. 18. p. 56.
13 Chap. II. Sec. 18, pp. 58. 59, 60.
14 See cases collected in Warren, Cases on Corporations, 2nd ed.. pp. 677–485.
