Natal Land and Colonisation Company v Pauline Colliery Syndicate

PRIVY COUNCIL

[1900-3] All ER Rep Ext 1050, Also reported: [1904] AC 120; 73 LJPC 22; 89 LT 678; 11 Mans 29

HEARING-DATES: 4 NOVEMBER, 2 DECEMBER 1903

2 DECEMBER 1903

CATCHWORDS:

Company - Contract - Specific performance - Contract made before existence of company.

HEADNOTE:

A company cannot by adoption or ratification obtain the benefit of a contract purporting to have
been made on its behalf before the company came into existence.

Kelner v Baxter (1866) 15 LT 213; LR 2 CP 174, approved.

But the facts may show that a new contract was made with the company after its incorporation on
the terms of the old contract.

Judgment of the court below reversed, on the ground that no such facts were proved in this case.

Appeal from the Supreme Court of the Colony of Natal

The facts are fully set out in the judgment of their Lordships.

NOTES:

Notes

Considered: McLeod v Cardiff Colliery Co, NL, [1924] VLR 430; 46 ALT 45 (Further proceedings: [1925]
VLR 1; 31 ALR 7; 46 ALT 114).

See Halsbury's Laws of England, 3rd ed, vol 6, p 425.

CASES-REF-TO:

Case referred to:

Kelner v Baxter (1866) LR 2 CP 174; 15 LT 213; [1861-73] All ER Rep Ext.

COUNSEL:

Danckwerts, KC, and MacSwinney for the appellants.; Haldane, KC, and Boydell Houghton for the
respondents.

Solicitors for the appellants, Kimbers and Boatman.; Solicitors for the respondents, Budd, Johnsons,
and Jecks.

C E MALDEN, BARRISTER-AT-LAW
JUDGMENT-READ:

At the conclusion of the arguments their Lordships took time to consider their judgment.

2 December.--Their Lordships' judgment was delivered by

PANEL: LORDS MACNAGHTEN, DAVEY, LINDLEY, SIR ARTHUR WILSON, SIR JOHN BONSER

JUDGMENTBY-1: LORD DAVEY:

JUDGMENT-1:

LORD DAVEY:

The appellants are an incorporated joint stock company, having their head office in London. Prior to
and in December 1897 a Mr Rycroft was their general manager in Natal under a power of attorney
dated 26 October 1888, by the terms of which he was empowered to sell and lease the company's
lands in the colony and to make contracts for these purposes. On 9 December 1897 Rycroft, on
behalf of the appellants, made a contact with a Mrs de Carrey respecting the coal mining rights in
3000 odd acres of land belonging to the appellants, and known as the Coal Company's Lots. The
terms of this agreement are contained in seven letters

extending from 30 November to 9 December 1897 between Rycroft and Messrs Shepstone, Wylie,
and Binns, then acting as solicitors for Mrs de Carrey. The material terms are as follows: (1) Mrs de
Carrey was to have an option, ie, a right of prospecting for coal for six months from 20 December
1897, with power to extend the option for a further period of three months; (2) the option was not
assignable; (3) that Mrs de Carrey should have a right, during the continuance of the option, to call
for a lease of the coal mining rights for a term of three years, subject to payment of certain rents and
royalties, with power to extend the term to 31 years; (4) Mrs de Carrey was to have a right to sell the
lease to a joint stock company fulfilling certain specified conditions; (5) Mrs de Carrey was to pay or
hand over to the appellants 25 per cent of the value received from the sale of the lease, in shares or
cash, or both, at the option of the appellants; (6) Mrs de Carrey was to pay the appellants £ 100, to
be forfeited in case the lease was not taken up, but to be repaid on compliance with certain
conditions. By an agreement dated 22 December 1897, and expressed to be made between William
Louch, "in his capacity as a provisional director of the Pauline Colliery and Developing Syndicate
about to be registered ... under the laws of the" South African "Republic", of the one part and Mrs
de Carrey of the other part, Mrs de Carrey sold and purported to assign to Louch all her interest in
(inter alia) the above option in consideration of £ 300 cash and 10,000 shares in the syndicate. Mr
Rycroft was not informed of this agreement or of the assignment purported to be made by Mrs de
Carrey, and did not in fact know of it until 17 December 1898. On 29 December 1897 the solicitors
acting for Mrs de Carrey wrote to Rycroft requesting him, as (it was stated) Mrs de Carrey was really
acting as the nominee of the syndicate, to insert a new clause in the agreement giving her the right
to cede and transfer all her rights in the option to the Pauline Syndicate on the condition that the
syndicate should assume all the rights and obligations to the appellants under the agreement. And,
on the following day, Rycroft wrote to the solicitors a letter containing the following passage: "I beg
to say that it was understood at the time of making the agreement with Mrs de Carrey that she and
the original (or parent) syndicate were one and the same, therefore I could not have any objection
to the Pauline Colliery and Developing Syndicate being substituted under section 4 of your letter of
the 8th instant (Mrs de Carrey's consent to the alteration, you assure me, has been obtained) for
Mrs de Carrey." At this time, Rycroft was not aware of the assignment to Louch which had already
been made by Mrs de Carrey by the agreement of 22 December 1897, and he did not know what
was the constitution of the so-called syndicate, or who were the persons who composed it, or what
person he had agreed to substitute for Mrs de Carrey. Their Lordships, however, will assume that the
substitution was within his powers. The respondent company was not incorporated until 22 January
1898, on which date it was registered as a joint stock company with limited liability, at Pretoria,
under the laws of the late South African Republic. The £ 100 payable under the agreement was paid
to Rycroft by the unincorporated syndicate before the incorporation of the respondent company.
This sum was subsequently (on 25 November 1898) repaid by Rycroft to one Thurston by the order
of Mrs de Carrey. On 31 January 1898, Rycroft wrote to the solicitors of Mrs de Carrey and the
syndicate a letter containing a copy of a telegram which (he says) he had that morning received from
the appellants' London office. The telegram was as follows: "Umhlali matter was not in accordance
with instructions. Do nothing further. Inform

Binns must wait board's orders." Binns was a member of the firm of Shepstone, Wylie, and Binns,
the solicitors for Mrs de Carrey, the unincorporated syndicate and the respondent company.
Rycroft's comment on this telegram in his letter was: "I do not know what particular part of our
negotiations this may refer to, but if anything more is required of me by the Pauline Syndicate or
Mrs de Carrey I am bound by these instructions to await orders from the board." Their Lordships are
of opinion that after this date Rycroft had no authority to make a new agreement or to vary the
existing agreement or in any other way to bind the appellants in the matter. The term was extended
to 30 September 1898, as provided in the agreement The respondents had been engaged in boring
for coal on an adjoining property and did not prospect or bore for coal on the property of the
appellants till shortly before the expiration of the extended term, and very little work appears to
have been done. But on 15 September 1898 the secretary of the respondents, by a letter of that
date, informed Rycroft that his board was given to understand that his syndicate had struck a 3ft 8in
seam of coal on the appellants' property at a depth of 293ft, and claimed a lease to the respondents
in terms of the correspondence between Rycroft and Messrs Shepstone, Wylie, and Binns, which
they alleged constituted an agreement between the appellants and the respondents. Rycroft, on the
same day, answered the letter, stating that he should send a copy of it to the London secretary of his
company to be laid before the board for their instructions. On 12 December 1898, Rycrofit, acting
under the instructions of the appellants' board, declined to entertain the claim, but offered to
consider an application for a lease at the same rent and royalties, but subject to certain conditions.
This offer was not accepted. On 30 May 1899 the respondents commenced the present action
against the appellants for specific performance of the agreement contained in the seven letters
dated 30 November to 9 December 1897, or in the alternative for damages. In their declaration the
respondents alleged that on 22 December 1897 they acquired all the interest of Mrs de Carrey in the
agreement, but did not allege any other assignment to them or title to the benefit of the agreement.
The appellants in their plea to the declaration averred that there was no contract between the
respondents and themselves, and alleged that the agreement to substitute the syndicate for Mrs de
Carrey was obtained from Rycroft by misrepresentation, the misrepresentation charged being that
Mr Binns and Louch had represented that Mrs de Carrey had been acting for the syndicate all
through the negotiations, whereas the syndicate or Louch had purchased the benefit of the
agreement from her for a large sum. The court, consisting of Finnemore and Beaumont, JJ, decided
in favour of the respondents on both points, and by their judgment of 29 May 1902 decreed specific
performance of the agreement with costs. On the question of privity of contract, they seem to have
held that a new contract on the terms of the old one had been made between the appellants and
the respondents. The acts of part performance which were relied on by the learned judges as
evidence of such new contract were the occupation and working of the land in question by the
respondents, the expenditure of money on the faith of the agreement, and the acceptance by the
appellants of the payment of £ 100 as a guarantee for prospecting operations. This sum, however (as
already stated), was in fact paid before the incorporation of the respondents. Their Lordships do not
think it necessary to say whether the agreement was or was not voidable on the grounds alleged or
on other grounds appearing in the correspondence, because they are clearly of opniion that there
was no contract between the appellants and the

respondents. The contract was made with Mrs de Carrey, and even if she can be treated as having
made it on behalf either of the unincorporated syndicate, who were the promoters of the
respondent company, or on behalf of the company itself when incorporated, it is clear that a
company cannot by adoption or ratification obtain the benefit of a contract purporting to have been
made on its behalf before the company came into existence. It is unnecessary to cite all the cases in
which this has been decided from Kelner v Baxter (1866, 15 LT 213; LR 2 CP 174) downwards. But the
facts may show that a new contract was made with the company after its incorporation on the terms
of the old contract. The circumstances relied on for that purpose in the present case are not, in the
opinion of their Lordships, necessarily referable to, and do not necessarily imply, a new contract with
the respondents. But a conclusive reason which negatives any new contract is that Rycroft, by whose
agency the new contract must be supposed to have been made, had no power or authority after 31
January 1898 to make such a contract on behalf of the appellants, and his want of authority was
known to the solicitors acting for the respondents. He was not either the actual or the ostensible
agent for that purpose of the appellants Their Lordships will therefore humbly advise His Majesty
that the judgment of 29 May 1902 ought to be reversed and that instead thereof judgment ought to
be given for the defendants in the action with costs. The respondents will also pay the costs of this
appeal.
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