BARCLAYS BANK (D.C.O.) LTD. v. PERSEVERANCE TRANSPORT SERVICES LTD [1961] GLR 665

DIVISION: IN THE HIGH COURT, KUMASI

DATE: 15TH NOVEMBER, 1961

BEFORE: APALOO, J.

CASES REFERRED TO

(1) Pacific Coast Coal Mines, Ltd. v. Arbuthnot & Ors.[1917] A.C. 607

(2) Royal British Bank v. Turquand (1856) 6 EL. & BL. 327;119 E.R. 886

(3) Wilson v. Lloyd (1873) L.R. 16 Eq. 60

(4) Conquest’s Case (1875) L.R. 1 Ch. 334

NATURE OF PROCEEDINGS

RULING on an application by originating summons for a declaration of rights under a memorandum charging certain properties in favour of the bank-applicant.

COUNSEL

G. Davey for the plaintiff-bank.

J. Reindorf for the defendant-company.

JUDGMENT OF APALOO, J.

By an originating summons taken out of this court on the 15th August, 1960, the plaintiff-bank sought a declaration that by virtue of a memorandum and deposit of an equitable charge the plaintiff-bank are entitled to be considered as mortgagees of the lands and hereditaments comprised in the memorandum and sought an order to have the same enforced by sale or foreclosure. There were also sought some other consequential reliefs which it is unnecessary to set out at great length. The plaintiff-bank is a well-known banking company. The defendant is a limited liability company. I have no evidence when it was incorporated or what the nature of its business is. Neither its memorandum of association or articles have been put in evidence. Its name, however, suggests that its business is that of running transport. It appears that it was at sometime prior to 1953 one of the customers of the plaintiff-bank. The evidence shows that credit facilities were extended to it before 1953. In that year, the defendant-company applied to the bank for a loan. It was asked to produce its authority to borrow. Accordingly, one of its officers produced to the bank what purports to be a resolution of its directors at a meeting held at Kumasi on the 15th December, 1953. It purports to have been signed by the chairman of the board of directors and the secretary. The seal of the company was duly affixed to it. It was put in evidence as exhibit A. This authorised the manager to raise on behalf of the company £G5,000 for the expansion of the company’s activities. I am satisfied that on the faith of this the plaintiff-bank advanced various sums to the company. I am not able to determine what specific sum was advanced to the defendant-company on its production of exhibit A, but it seems clear however that sometime in 1954 or presumably before it, the plaintiff-bank asked for security for the repayment of the various sums it had advanced to the defendant-company. The evidence satisfies me that in compliance with

[p.667] of [1961] GLR 665 this request the defendant-company executed in favour of the plaintiff-bank the memorandum of equitable deposit which the plaintiff-bank now seeks to enforce. That memorandum was, it is to be noted, executed on behalf of the defendant-company by its director and secretary and the company’s seal was duly affixed to it. It is not disputed in these proceedings that the execution of the equitable deposit was the act of the defendant-company.

As I have said, although the memorandum of association and articles of the defendant-company were not produced in evidence, it is agreed that the defendant-company was operating under Table A of the Companies Ordinance.1(1) Section 65 of Table A forbids the defendant-company borrowing monies in excess of its issued capital without the sanction of the company in general meeting. At the time that the facilities were extended to the defendant-company on or about January, 1954, its paid up capital was £G1,438. The loan it sought by exhibit A was £G5,000. Accordingly, a general meeting of the company was necessary to sanction the said borrowing. Mr Reindorf has contended with great force that as there is no evidence that any such meeting was held, the loan was ultra vires the company and was on that account irrecoverable. He said the security given by the company to secure the repayment of that loan was equally unenforceable. To this, I shall later return. In July 1955, the defendant-company informed the plaintiff-bank that it had arranged a loan with the Industrial Development Corporation (I.D.C.) and that the said I.D.C. would pay to the plaintiff-bank the debt outstanding against it in return for a transfer to the latter of the defendant-company’s security in the hands of the plaintiff-bank. The plaintiff-bank was agreeable to this proposal and in furtherance of it executed a memorandum of discharge of the equitable mortgage. This is exhibit C. This document was forwarded to the Accra branch of the plaintiff-bank with instructions that it be held against the payment to it by the I.D.C. of the sum then owing to it by the defendant-company. In September 1956, the I.D.C. through its solicitors informed the plaintiff-bank that it did not intend to go ahead with its loan to the defendant-company. Accordingly, exhibit C and its supporting documents were recalled and until they were tendered in evidence in this case have always been in possession of the plaintiff-bank.

As the loan arrangement fell through and as the plaintiff-bank pressed the defendant-company for payment of its debt, the defendant-company approached the plaintiff-bank with a proposal to assign to the bank the rents of the premises it had mortgaged to it in satisfaction of its debt. This was accepted and accordingly the defendant-company executed exhibit D in which it directed its tenant Major & Co. (Ghana) Ltd. to pay the rents if and as they became due to the plaintiff-bank. The former carried out this direction and paid some rents to the plaintiff-bank. I am satisfied that such sums as were paid were duly credited to the account of the defendant-company. The last payment of rent was made in September, 1960, and the tenancy with Major & Co. (Ghana) Ltd. has since [p.668] of [1961] GLR 665 determined. On the date I took evidence in this case, i.e. the 7th November, 1961, the defendant-company’s indebtedness to the plaintiff-bank stood at £G4,199 2s. 5d. This includes interest up to the 15th October, 1961, but interest continues to run at ten per cent per month from that date. Mr. G. B. Moukarzel who combined the office of manager and secretary of the defendant-company gave evidence and admitted this sum. As I have said, Mr. Reindorf argued strenuously that there is no evidence that the borrowing of a sum in excess of the issued capital was sanctioned by the company in a general meeting in accordance with the peremptory requirement of regulation 65 of Table A. He said the bank cannot plead ignorance of this regulation and ought to have been put on enquiry. He relied strongly on Pacific Coast Coal Mines Ltd. v. Arbuthnot & Ors.2(2) Naturally enough, he felt great difficulty about that famous rule-making case of Royal British Bank v. Turquand.3(3) He sought to distinguish it by contending that that case was decided before any legislation was passed regulating limited liability companies and that it modifies the rule in Turquand’s case. In my opinion, in so far as the defendant-company sought to say that the meeting of the 15th December, 1953, was not a meeting of the general company, the rule in Turquand’s case furnishes a complete answer. The defendant-company knew or ought to be deemed to know that it could not borrow beyond its issued capital without the sanction of a general meeting of its shareholders. It produced to the plaintiff-bank exhibit A as authority for borrowing such excess. In my judgment, the plaintiff-bank were entitled to assume that such a meeting was in fact held. In his second edition of the Principles of Company Law, Professor Gower dealing with the rule in Turquand’s case observed at page 143 as follows: “The rule was manifestly based on business convenience, for business could not be carried on if everybody who had dealings with a company had meticulously to examine its internal machinery in order to ensure that the officials with whom he dealt had actual authority”. This seems to me good sense and I respectfully agree with it. In my opinion, the Pacific Coal Mines case has no application to the facts of this case at least on the ground that in that case no question arose as to the rights of a third party vis-a-vis the company the dispute there being merely an internal one between the company and some of its shareholders. It is not without significance that although no less than eleven cases were cited in argument in that case no reference was made to the famous rule in

Turquand’s case. This able argument of counsel seems to have been conceived only in court since the company at no time claimed that the meeting of the 15th December which authorised the borrowing was not a general meeting of the company.

With regard to the I.D.C. arrangement the facts of which were testified to by Mr. Craig and which were wholly unchallenged, counsel contended that it amounted to a contract of novation. He said by that contract the defendant-company was released from its obligation to pay its [p.669] of [1961] GLR 665 debt to the plaintiff-bank who must only look to I.D.C. for payment. He said the I.D.C. were not entitled to resile from their contract to give the defendant-company a loan.

In Wilson v. Lloyd4(4) Sir James Bacon dealing with a defence of novation said as follows: “The Institutes – the oldest law upon the subject have been referred to and they say that two things must concur: there must be the animus novandi, and the substitution of some other thing for that original obligation out of which the debt arose”. In the Conquest’s case5(5) it was held that the conduct from which the animus is inferred must not be ambiguous. The plaintiff-bank had clearly no intention of releasing the defendant-company from its obligation to pay its debt and did nothing from which this intention could be inferred. The arrangement with the I.D.C. was a convenient and practical business one. It failed, through no fault of the plaintiff-bank which is, in my judgment, entitled to call upon the defendant-company to pay its just debt. In my opinion, there is nothing like novation in this case. In view of the conclusions to which I have come on the various matters raised by the defendant-company, I conceive it to be my plain duty to accede to the application of the plaintiff-bank and I propose therefore to make the declaration and orders sought.

I declare that the Barclays Bank are entitled to be considered as mortgagees of the lands and hereditaments more fully described in the schedule to the application by virtue of the memorandum and deposit of equitable charge admitted in evidence in these proceedings and marked as exhibit B. I find that the defendant-company are indebted to the plaintiff-bank in the sum of £G4,199 2s. 5d. and that the plaintiff-bank are entitled to interest on this sum at the rate of ten per cent per month. It is ordered that the defendant-company shall be entitled to redeem the said mortgage by paying the aforesaid sum together with interest to the plaintiff-bank at the said rate at any time from the date hereof up to and including the 15th May next. It is ordered that in the event of the defendant-company making default, the said land and hereditaments be sold by public auction by an auctioneer approved by the court and that the sale shall be subject to a reserve price to be fixed by the court. Proceeds of the aforesaid sale shall be paid into court.

The plaintiff-bank shall be entitled to apply to the court for the payment of so much of such sum as shall meet the payment of its debt and interest. Liberty is reserved to either party to apply for any directions consequential upon this order. The plaintiff-bank will have the costs of this application assessed at 75 guineas.

DECISION

Ruling in favour of the plaintiff.