Ruben v Great Fingall Consolidated: HL 1906

The company secretary, to pursue a fraudulent objective of his own, presented to innocent lenders a share certificate appearing to be that of the company and appearing to be signed by two directors as well as by the secretary. However, the seal had been affixed by the secretary fraudulently and the secretary had forged the two signatures of the directors.
Lord Loreburn said: ‘I cannot see upon what principle your Lordships can hold that the defendants are liable in this action. The forged certificate is a pure nullity. It is quite true that persons dealing with limited liability companies are not bound to inquire into their indoor management, and will not be affected by irregularities of which they had no notice, But this doctrine, which is well established, applies only to irregularities that otherwise might affect a genuine transaction. It cannot apply to a forgery.
Another ground was pressed upon us, namely, that this certificate was delivered by Rowe in the course of his employment, and that delivery imported a representation or warranty that the certificate was genuine. He had not, nor was held out as having, authority to make any such representation or to give any such warranty. And certainly no such authority arises from the simple fact that he held the office of secretary and was a proper person to deliver certificates. Nor am I able to see how the defendant company is estopped from disputing the genuineness of this certificate. That, indeed, is only another way of stating the same contention. From beginning to end the company itself and its officers, with the exception of the secretary, had nothing to do either with the preparation or issue of the document.
No precedent has been quoted in support of the plaintiffs’ contention except the case of Shaw v Port Philip Gold Mining Co(1). I agree with Stirling LJ in regarding that decision as one that may possibly be upheld upon the supposition that the secretary there was, in fact, held out as having authority to warrant the genuineness of a certificate. If that be not so, then in my opinion the decision cannot be sustained.’
Lord Macnaghten said: ‘The thing put forward as the foundation of their claim is a piece of paper which purports to be a certificate of shares in the company. This paper is false and fraudulent from beginning to end. The representation of the company’s seal which appears upon it, though made by the impression of the real seal of the company, is counterfeit, and no better than a forgery. The signatures of the two directors which purport to authenticate the sealing are forgeries pure and simple. Every statement in the document is a lie. The only thing real about it is the signature of the secretary of the company, who was the sole author and perpetrator of the fraud. No one would suggest that this fraudulent certificate could of itself give rise to any right or bind or affect the company in any way. It is not the company’s deed, and there is nothing to prevent the company from saying so.
Then how can the company be bound or affected by it? The directors have never said or done anything to represent or lead to the belief that this thing was the company’s deed. Without such a representation there can be no estoppel.
The fact that this fraudulent certificate was concocted in the company’s office and was uttered and sent forth by its author from the place of its origin cannot give it an efficacy which it does not intrinsically possess. The secretary of the company, who is a mere servant, may be the proper hand to deliver out certificates which the company issues in due course, but he can have no authority to guarantee the genuineness of validity of a document which is not the deed of the company.
I could have understood a claim on the part of the appellants if it were incumbent on the company to lock up their seal and guard it as a dangerous beast and if it were culpable carelessness on the part of the directors to commit the care of the seal to their secretary or any other official. That is a view which once commended itself to a jury, but it has been disposed of for good and all by the case of Bank of Ireland v Trustees of Evans’ Charities (1) in this House.
Of all the numerous cases that were cited in the opening none, I think, is to the point but Shaw v Port Philip Gold Mining Co.(1), and that, as it seems to me, cannot be supported unless a forced and unreasonable construction be placed on the admissions which were made by the parties in that action.’
Lord Davey said: ‘It is admitted that Rowe was the proper person to deliver certificates to those entitled to them. From this harmless proposition, the appellant slides into another and very different one, that it was the secretary’s duty to warrant on behalf of the company the genuineness of the documents he delivered. There is no evidence that any such duty or power was, in fact, entrusted to Rowe and it is too great a strain on my powers to ask me to imply it from the mere fact of his being the secretary or the proper person to deliver documents.’
Lord James, Lord Loreburn, Lord Macnaghten, Lord Davey
[1906] 1 AC 439
England and Wales
CitedShaw v The Port Phillip and Colonial Gold Mining Company Ltd 1884
A company secretary was to procure execution of certificates of shares in accordance with prescribed formalities. A certificate was issued and presented by the secretary in favour of a purchaser in the usual form with signature of director and . .

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Updated: 17 June 2021; Ref: scu.374703