M, the agent, and B, the engineer, of a newly incorporated cable tramways company, of which they had been the chief promoters, arranged on behalf of the company the contract for the construction of its works. By this contract the contractors undertook, besides constructing the works, to pay the expenses incurred by the company in obtaining their Act. M and B at the same time entered into an agreement with the contractors on their own behalf, whereby they bound themselves to relieve the contractors of their liability for the expenses of the Act in consideration of the payment of a sum of pounds 17,000, the balance of which they were to retain for their own behoof.
Five years afterwards the company called on M and B to account for the sum they had received under their agreement with the contractors. In answer the defenders maintained that the company were barred from challenging the agreement, in respect that everyone interested in the shares of the company knew of and had assented to the agreement, and the company’s shares had never been issued to the public.
Held (aff. the decision of the First Division) that the alleged knowledge and assent of those who represented the company had not been proved; but even assuming such knowledge and assent, the agreement was illegal, as it was ultra vires of promoters or directors or shareholders to apply the moneys of the company, which were devoted by statute to special purposes, to any purpose which was not sanctioned by the provisions of the Act of incorporation.
Judges:
Lord Chancellor (Lord Herschell), and Lords Watson, Ashbourne, and Morris
Citations:
[1892] UKHL 140, 30 SLR 140
Links:
Jurisdiction:
Scotland
Contract
Updated: 28 May 2022; Ref: scu.634563