Company Law

Ferguson v. Wilson

(1866) LR 2 Ch App 77

Facts

Ferguson was involved in promoting the Washoe United Consolidated Gold and Silver Mining Company.
He made financial advances connected with the company’s formation and operations.
A company resolution contemplated that certain advances could be repaid either in cash or through the issue of shares.
Ferguson claimed that he was entitled to receive shares.
The company instead repaid or offered to repay the relevant amount in cash.
The remaining shares were allotted to other persons.
Ferguson sought specific performance compelling the directors to allot shares to him, or alternatively damages.
His claim was framed as though the directors personally controlled the company’s contractual obligations.
The Court of Appeal had to determine the legal position of directors when carrying out corporate acts.

Whether directors are personally the company or merely agents through whom it acts.
Whether a court could compel directors personally to allot shares where the obligation, if any, belonged to the company.
Whether directors incurred personal liability for the company’s alleged failure to issue shares.

A company is a legal person separate from its directors.
Because an artificial person cannot act physically, it acts through directors and other human agents.
Directors are ordinarily agents of the company.
When directors act within their authority:
their acts are treated as acts of the company;
the company acquires the rights and liabilities; and
directors do not become personally liable merely because they made the decision.
Personal liability may arise where directors:
contract in their own names;
exceed authority while warranting that authority;
commit fraud or another personal wrong; or
assume an independent obligation.

The Court rejected the idea that the directors and company could be treated as the same legal person.
Any promise relating to repayment or allotment had to be identified as an obligation of the company.
The directors’ role was to exercise the company’s powers through the board.
They did not personally own the unissued shares.
Nor could they transfer shares independently of the company’s constitution and proper corporate procedure.
An order directing directors personally to perform the company’s obligation would confuse agency with principal liability.
Ferguson had not shown that the directors:
personally promised him shares;
acted fraudulently;
contracted without authority while claiming authority; or
undertook to indemnify him.
Therefore, even if the company had breached an agreement, the appropriate defendant and source of liability was the company.
The case illustrates that directors possess substantial managerial power but exercise it on behalf of another legal person.
Their position is therefore unlike that of partners, who may themselves be principals in the business.
The Court’s explanation became a foundational statement of the agency character of directors.

The claim for personal relief against the directors failed.
The Court held that directors are not the company itself; they are agents through whom the company acts.
Liability for an authorised corporate contract belongs to the company unless the directors separately assume liability or commit a personal wrong.
Use this case for: directors act as agents of the company, and authorised board acts bind the company rather than making directors personally liable.