RE INTRODUCTIONS, LTD., INTRODUCTIONS, LTD. V. NATIONAL PROVINCIAL BANK LTD. (1969) 1 ALL ER 887

RE INTRODUCTIONS, LTD., INTRODUCTIONS, LTD. V. NATIONAL PROVINCIAL BANK LTD. (1969) 1 ALL ER 887 

FACTS

• The company named Introductions Ltd. started its career in 1951 in connection with the festival of Britain and was engaged in giving facilities to the visitors who came from abroad to enjoy the festival of Britain.
• Eventually, after the year 1953, the company was engaged in the business connected with deck chairs at a seaside port.
• From the year 1958 to 1960, the company did not carry any business but subsequently in the latter year, a transfer of shares happened in the company and a new board was elected which decided that the company will be engaged in a venture connected with breeding pigs.
• In the year 1960, the new directors of the company approached the national provincial bank with a view of opening an account in the bank. This bank account, in due course of time, became heavily overdrawn and as a result, the bank wanted security. The bank was offered two debentures secured in the company’s assets as security.
• The company failed to continue the pig breeding venture and was ordered to be wound up in 1965. An appeal was filed by the defendant bank raising the question of whether the securities held by the defendant bank are legally valid against the company or is void as according to the doctrine of ultra vires.

ISSUE

• Whether the borrowing of money by the company was within the powers of the company?
• Whether the activity for which the company was borrowing the money was within the powers of the company?

HELD
This borrowing was not for a legitimate purpose of the company; the bank knew it and therefore cannot rely on its debenture. The court dismissed the appeal.

• It was stated that an object clause can’t allow every mortal thing that one wants because that will mean to have no object at all and there was one thing that this company was not allowed to do by the objects clause that was the pig breeding.
• It is common ground that the company had provided the defendant bank with a furnished copy of the memorandum and articles of association before handing over the securities and the company after reading the memorandum and article of association, was aware of the fact that the company was solely engaged in the business of breeding pigs, which is now, ultra vires its memorandum.
• The judge also said that the case of Cotman v. Brougham that was cited by the counsel of the defendant bank did not contain any valid points that the judge can consider to protect the views alleged by the counsel because the defendant bank knew the purpose for which the money was being borrowed.
• Thus, the appeal was dismissed.

COMMENTARY
“But where a lender provides finance for a business which (within his knowledge) is not within the company's objects, the loan is ultra vires and the lenders cannot enforce the security.”