IN RE (JON) BEUFORTE (LONDON) LTD. (1953) CH. 131

IN RE (JON) BEUFORTE (LONDON) LTD. (1953) CH. 131

FACTS

• A company was authorised by its memorandum of association to carry on the business of costumiers, gown makers, and other activities ejusdem generis (Ejusdem generis is a Latin phrase that means "of the same kind").
• The company decided to undertake the business of making veneered panels, which was admittedly ultra vires, and for this purpose erected a factory at Briston.
• The company later went into compulsory liquidation. A number of proofs of debt were lodged, which were rejected by the liquidator on the ground that the contracts to which they related were ultra vires.
• Applications by way of appeal were lodged, by three creditors, none of whom had actual knowledge that the veneer business was ultra vires.

 

ISSUE

• Whether the debts arising from contracts entered into for activities that were ultra vires (beyond the powers of) Jon Beauforte (London) Ltd. could be proved in the company’s liquidation?
• Whether the suppliers had sufficient notice that the contracts were ultra vires the company?

 

HELD

The proofs submitted by the claimants for the debts arising from ultra vires transactions with Jon Beauforte (London) Ltd., which was in compulsory liquidation, were rejected. It was further agreed that, as the three applicants had been selected to represent other creditors in a quasi-representative capacity, they should be entitled to their costs as between party and party.

• No judgement founded on an ultra vires contract could be sustained unless it embodied a decision of the court on the issue of ultra vires, or a compromise of that issue; Great North-West Central Railway Co. v. Charlebois [(1899) A.C. 114], considered and explained.
• The suppliers of the coke were fixed with clear notice of the purposes of the factory.
• The rejection of the applicants' proofs was without prejudice to any rights which they might have (a) of tracing any of their money or property, or (b) of participating in the distribution of surplus assets, after provision had been made for the claims of proving creditors, costs and expenses.
• ROXBURGH, J. - “I need not consider what the position might have been if the fuel merchant had not had clear notice that the business, which the company was carrying on and for which the fuel was required, was that of veneered panel manufacturers. The correspondence shows that they had notice of that, and as they had constructive notice of the contents of the memorandum of association, they had notice that the transaction was ultra vires the company. Their proof was rightly rejected.”

 

COMMENTARY

“The objection to an ultra vires contract is, not merely that the corporation ought not to have made it, but that it could not make it. The question is not as to the legality of the contract: the question is as to the competency and power of the company to make it. An ultra vires contract, being void ab initio, cannot become intra vires by reason of estoppel, lapse of time, ratification, acquiescence or delay. No performance on either side can give the unlawful contract any validity or be the foundation of any right of action upon it. This incapacity of a company occasionally results in manifest injustice. For example, in Beauforte (Jon) (London) Ltd,: and had a claim of £ 1011. A third firm sought to prove a simple contract debt of £107 in respect of coke supplied to the factory. None of these applicants had actual knowledge that veneered business was ultra vires, yet none of them could make the company liable for his claim.”