The Gazette 1981

GAZETTE

DECEMBER 1981

The first Objects Clause of the Memorandum of Association in truncated form read "to acquire and hold . . . shares and stocks of any class or description, Debentures, Debenture Stock, Bonds, Bills, Mortgages, obligations, investments and securities of all descriptions and of any kind issued or guaranteed by any Company, Corporation or Undertaking . . . and investments, securities and property of all descriptions and of anykind . . .". Clause 2 (0 empowered the Company "incidentally to the objects aforesaid, but not as a primary object, to sell, exchange, mortgage, (with or without power of sale), .i' den, turn to account or otherwise d'spose of and generally deal with the whole or any part of the property, shares, stocks, securities, estates, rights or undertakings of the Company . . . " Clause 2 (k) empowered the Company "to raise or borrow or secure the payment of money in such manner and on such terms as the Directors may deem expedient and in particular by the issue of Bonds. Debentures or Debenture Stock, perpetual or redeemable, or by any Mortgage, Charge, Lien or Pledge upon the whole or any part of the Undertaking, property assets and rights of the Company, present or future, including its uncalled capital and generally in any other manner as the Director shall from time to time determine and to guarantee the liabilities of the Company in any Debentures, Debenture Stock or other securities may be issued at a discount, premium or otherwise, and with any special privileges as to redemption, surrender, transfer drawings, allotments of shares, attending and voting at General Meetings of the Company, appointment of Directors and otherwise". The Court held that it was clear that sub paragraph (k) did not authorise the execution of the Guarantee because it could be done only incidentally to objects set out in sub paragraphs (a) to (e), it held that sub paragraph (k) was essentially intended to confer a power of borrowing and the words "secure the payment of money", could not reasonably be read as conferring a power to execute Guarantees. The Court could not accept that the words "to guarantee the liabilities of

the Company" which literally construed were meaningless, should be construed as though in place of the words "the Company" there appeared the words "other person" or similar words. The Court held that the execution of a guarantee could not reasonably be regarded as "indidcntal or conducive to the attainment of "any of the objects set out in the sub paragraphs preceding sub paragraph (t); the sole object of executing the Guarantee was to facilitate the borrowing by the first named defendant. In holding that the exemption of the guarantee was ultra vires the Court found it unnecessary to decide whether if the Memorandum had conferred an express power to execute the Guarantee the transaction would none the less be ultra vires, since no conceivable benefit could result to the Company from it and indicated that the decision in Lee Behrens and Co., I 19321 2 Ch. 46 would require reconsideration in the light of the dec ision in Charterbridge Cor- poration Limited v. Llovds Bank I 1970| Ch. 2. The Court rejected the submission that the Plaintiff was protected by Section 8(1) of the Companies Act 1963. Accepting that actual, as distinguished from constructive, notice of the lack of vires as essential if a third party was to lose the protection of Section 8(1) the Court held that the Plaintiff through its Solicitor, to whom the Memorandum and Articles of the Company had been supplied prior to the execution of the Guarantee, was aware of the contents of the Memorandum and could not rely on Section 8(1). The Court further held that Section 10(1) of the Companies Act which reads "subject to sub-section (2) a Company may, by Special Resolution, alter the provisions of its Memorandum by abandoning, restricting or amending any existing object or by adopting a new object and any alterations so made shall be as valid as if originally contained therein and be subject to alterations and like manner" did not operate so as to retrospectively validate a transaction entered into prior to the passing of the resolution. Finally the Court held that the Company was not estopped from contesting the validity of the

Recent Irish Cases

COMPANY Power to Guarantee Borrowing of a Third Party — Doctrine of "Ultra Vires". The Plaintiffs agreed in November 1973 to lend money to the first named Defendant partly in consideration of the second named Defendants ("The Company") guaranteeing the loan, interest and repayment arrangements supported by a legal mortgage over the company's lands. The necessary resolution empowering the Company to execute the guarantee and the mortgage was passed and the Guarantee and Mortgage were executed by the Company. The first named Defendant defaulted in the payment of certain instalments and the Plaintiffs instituted proceedings claiming payment of £50,829 by the first named Defendant and sought an Order against the Company declaring the lands well charged with the said sum. Judgment was given against the first named Defendant for the sum claimed. The Company claimed that the execution of the Guarantee was ultra vires the Company. The Plaintiffs submitted that the Guarantee was ultra vires but that even if it were not the bank were protected by Section 8 of the Companies Act, 1963, and further that since the Company had altered its Memorandum of Association on the 18 May 1974 so as to put the Company's power to give Guarantees beyond doubt the Guarantee was retrospectively validated and finally that the Company was stopped from relying on the lack of vires.

xxxiii