Northern Bank Finance Corporation Ltd v Quinn

• Jurisdiction: Ireland
• Judge: Justice Keane
• Judgment Date: 08 November 1979
• Neutral Citation: [1979] IEHC 2
• Docket Number: No. 102 Sp. Ct. 6/1979
• Court: High Court
• Date: 08 November 1979

[1979] IEHC 2

THE HIGH COURT

No. 102 Sp. Ct. 6/1979

NORTHERN BANK FINANCE v. QUINN

BETWEEN/

NORTHERN BANK FINANCE CORPORATION LIMITED

PLAINTIFFS

AND

BERNARD FURSEY QUINN

AND

ACHATES INVESTMENT COMMPANY

DEFENDANTS

1 Judgment of Mr. Justice Keane delivered the 8th day of November, 1979.

2 On the 15th November, 1973, the Plaintiffs (whom I shall call "the Bank") wrote to the first-named Defendant (whom I shall call "Mr. Quinn") informing him that they would make loan facilities available to him on the terms and conditions set out in the letter. The letter went on to state that the amount of the loan was £145,000.00 and that the rate of interest thereon would be 3% per annum over the average cost to the Bank of raising funds on the Inter Bank Market. It was also stated that the loan would be repayable on demand, but that if no demand were made, it would be the Bank's understanding that, with effect from November 1st 1974, monthly payments of £3,000.00 each would be made by Mr. Quinn towards the payment of principal and interest.

3 The letter also stated that the loan was to be secured inter alia by the unconditional and continuing guarantee of the second-named Defendant (whom I shall call "the Company") of the loan, interest and repayment arrangements, supported by a first legal mortgage on the title deeds and documents relating to 54 acres of land at Ratoath, County Meath and 56 acres at Jamestown, County Meath.

4 The Bank's Solicitor, Mr. T.F. 0'Connell, was asked by the Bank to attend to the legal formalities necessary to complete the transaction; and on November 29th, 1973, he sent to Mr. Quinn's Solicitors a number of documents, including Requisitions on Title relating to the properties which were to be the subject of the mortgage, a drift Mortgage, a draft Guarantee by the Comp my and a draft Resolution to be passed by the Directors of the Company empowering the Company to guarantee the sum of £145,000.00 and the interest thereon. On the 30th November, 1973, the necessary Resolution was passed by the Directors of the Company; and on the same day a Guarantee was also executed by them in respect of the sum of £145,000.00 and interest thereon. The Mortgage supporting the Guarantee was executed by the Company on the 13th December, 1973, the delay being due to the necessity to discharge a prior incumbrance on the land.

5 Mr. 0'Connell also received from Mr. Quinn's Solicitors a copy of the Memorandum and Articles of Association of the Company. It will be necessary to refer to these documents in more detail at a later stage.

6 Mr. Quinn having failed to pay certain of the instalments of £3,000.00 as they fell due, the Bank called in the balance of the loan and commenced these proceedings by way of Special Summons claiming as against Mr. Quinn payment of the sum of £50,829.38 as due and owing by him on foot of a covenant in the Mortgage; and as against the Company an Order declaring the same sum well charged upon the two properties already referred to together with the usual consequential relief.

7 The liability in principle of Mr. Quinn on foot of the covenant in the Mortgage was not disputed. Evidence was adduced on behalf of the Bank that the amount due in respect of principal and interest calculated in accordance with paragraph 1 (1) (c) of the Mortgage at the date of the hearing was £56,524.60 Counsel for Mr. Quinn submitted that the Bank had not properly proved the amount of interest properly payable having regard to the terms of paragraph 1 (1) (c) and that accordingly the Summons should be dismissed against him. I rejected this submission and gave judgment against Mr. Quinn for the sum of £56,524.60 and costs.

8 It was submitted on behalf of the Company that the execution of the guarantee was ultra vires the Memorandum and Articles of Association and that, accordingly, both the guarantee and the mortgage (insofar as it comprised the Company's property) were void. Counsel for the Bank submitted that the guarantee was intra vires the Memorandum and Articles of Association; but, that even if it were not, the Bank were protected by the modification of the ultra viresrule effected by S. 8 of the Companies Act, 1963. He further submitted that since the Memorandum had been subsequently altered by a Resolution of the 18th May, 1974, so as to put beyond doubt the power of the Company to execute, guarantees, the Guarantee of 30th November, 1973, was retrospectively validated and he relied in this connection on S. 10 (1) of the Act. Counsel for the Bank finally submitted that, in any event, the Company were estopped from relying on the alleged lack of vires.

9 The company is an unlimited company having a share capital. Its objects are set out in paragraph 2 of the Memorandum of Association. The first of them, in truncated form, reads as follows:-

"To acquire and hold...shares and stocks of any class or description, debentures, debenture stock, bonds, bills, mortgages, obligations, investments and securities of all descriptions and of any kind issued or guaranteed by any company, corporation or undertaking ... and investments, securities and property of all descriptions and of any kind..."

10 This, coupled with the fact that the Company is an unlimited company, would suggest, so fur as it is relevant, that the Company was not intended to be a trading company in the ordinary sense but rather an investment company. Clause 2 (f) empowers the Company

"Incidentally to the objects aforesaid, but not as a primary object, to sell, exchange, mortgage (with or without power of sale), assign, turn to account or otherwise dispose of and generally deal with the whole or any part of the property, shares, stocks, securities, estates, rights or undertakings of the company ..."

11 This clause was not relied on by Counsel for the Bank as empowering the transaction in question, but was relied on by Counsel for the Company as indicating that the Company was empowered to mortgage its property only where the execution of the mortgage was incidental to one of the objects of the Company set out in sub-paragraphs(a) to (e).

12 Sub-paragraph (k) empowers the Company

"to raise or borrow or secure the payment of money in such manner and on such terms as the directors may deem expedient and in particular by the issue of bonds, debentures or debenture stock, perpetual or redeemable, or by mortgage, charge, lien or pledge upon the whole or any part of the undertaking, property, assets and rights of the Company, present or future, including its uncalled capital and generally in any other manner as the Directors shall from time to time determine and to guarantee the liabilities of the Company and any debentures, debenture stock or other securities may be issued at a discount, premium or otherwise, and with any special privileges as to redemption, surrender, transfer, drawings, allotments of shares, attending and voting at general meetings of the Company, appointment of. Directors and otherwise."

13 This sub-paragraph - and in particular the words "secure the payment of money" - was relied on by Counsel for the Bank as authorising the execution of the Guarantee. It was accepted that the words "to guarantee the liabilities of the Company" in this clause were meaningless as they stood; but Counsel for the Bank submitted that the clear intention was to enable the Company to guarantee the liabilities of third parties and that these words in the sub-paragraph should be so read. Counsel for the Company submitted that, insofar as the words could be given any meaning, they should be read as empowering the Company to procure the guaranteeing of its own liabilities by third parties.

14 Sub-paragraph (t) empowered the Company

"to do and carry out all such other things as may be deemed by the Company to be incidental or conducive to the attainment of the above objects or any of them or calculated to enhance the value of or render profitable any of the Company's properties or rights".

15 It was submitted on behalf of the Bank that this sub-paragraph was sufficiently wide ranging in its terms to enable the Company to execute the Guarantee in question. It was submitted on behalf of the Company that the sub-paragraph merely authorised the doing of such things as were incidental to the attainment of any of the preceding objects and that since it could not be shown that the execution of a guarantee was incidental or conducive to the attainment of any of the objects referred to in the preceding sub-paragraphs, of itself it could not render the transaction in question intra vires.

16 It is clear that sub-paragraph (f) did not authorise the execution of the Guarantee in question and that, insofar as it authorised the Company to execute a Mortgage, this could only be done incidentally to the objects set out in sub-paragraphs (a) to (e). Counsel for the Bank did not indeed advance any submission to the contrary. He did, however, as I have already indicated rely on sub-paragraph (k). I have set out that sub-paragraph in full, because I think the wording used plainly indicates that it was essentially intended to confer a power of borrowing on the Company. Viewed in this context, the words "secure the payment of money" could not reasonably be read, in my opinion, as conferring a power to execute guarantees. The words "secure the payment of" are used disjunctively in apposition to "raise" and "borrow", clearly indicating that it was intended to confer on the Company a power of obtaining money for its own purposes and not a power to guarantee advances made to other persons. Counsel also relied on the words "to guarantee the liabilities of the Company" and submitted that, as this phrase literally construed was meaningless, it should be construed to though in place of the words "the Company", there appear the words "other persons" or similar words. While I accept that the words,...