Re Introductions, Ltd.Introductions, Ltd. v. National Provincial Bank Ltd.[1969] 1 All E.R. 887

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HARMAN, L.J. – This is an appeal from BUCKLEY, J.’s decision, on a summons in the
liquidation of this company raising the question whether the debentures held by the defendant
bank are valid against the liquidator or are void as being tainted by the doctrine of ultra vires.
The judge decided two questions. First, whether the activity in question was within the
powers of the company: that he answered in the negative, and there is no appeal from that.
The second question, which is the subject of the appeal, was whether in borrowing the money
in question the company was acting within its powers and could give the bank a valid
security.
This company started its career in 1951 in connection with the Festival of Britain and
facilities to be afforded to visitors from abroad in connection with that event. It had an issued
capital of £400. Subsequently for some years after 1953 it carried on a business connected
with deck chairs at a seaside resort. From 1958 to 1960 it carried on no business but in the
latter year there was a transfer of shares and a new board was elected which decided to make
use of the company for a venture connected with pigs. It has always been the ambition
apparently of the commercial community to stretch the objects clause, thus getting the
advantage of limited liability with as little fetter on the activities of the company as possible.
As LORD DAVEY said, the little man starting a grocery business usually combined groceries
with power to bridge the mighty Zambesi; but still one cannot have an object to do every
mortal thing one wants, because that is to have no object at all. There was one thing that this
company could not do and that was to breed pigs. The venture of pig-breeding is the type of
adventure which has always drawn money from the pockets of the British public, who
apparently much prefer to regard themselves as owners of an apple or an apple tree or a pig
rather than a mere share in a company. Anyhow this venture, like other similar ventures, has
been a disastrous failure, and the company was ordered to be wound up in 1965.
In 1960 the then new directors approached the defendant bank with a view to opening an
account. This account became in due course of time heavily overdrawn, and the defendant
bank, requiring security, were offered two debentures secured on the company’s assets. It is
common ground that before the security was given the defendant bank was furnished with a
copy of the memorandum and articles of association and also became aware, and expressly
aware, that the company was carrying on as its sole business the business of pig-breeding,
which it has now acknowledged was ultra vires its memorandum. The bank has however
relied on the fact that there is in the memorandum a sub-cl. (N) [(Sub-clause (N) was in these
terms: “To borrow or raise money in such manner as the company shall think fit and in
particular by the issue of debentures or debenture stock perpetual or otherwise and to secure
the repayment of any money borrowed or raised by mortgage charge or lien upon the
undertaking and the whole or any part of the company’s property or assets whether present
or future including its uncalled capital and also by a similar mortgage charge or lien to
secure and guarantee the performance by the company of any obligation or liability it may
undertake] empowering the company in general terms to borrow, in particular by the issue of

debentures, and to secure the loan by charge. There is also in this memorandum a form of
words which is common enough and has been for many years; and the words are these:
“It is hereby expressly declared that each of the preceding sub-clauses shall be
construed independently of and shall be in no way limited by reference to any other
sub-clause and that the objects set out in each sub-clause are independent objects of
the company.”
Of course the original idea of that form of words was to avoid the old difficulty, which
was that there was a main objects clause and all the others were ancillary to the main objects;
and many questions of ultra vires arose out of that.
It was argued that the only obligation of the defendant bank was to satisfy itself that there
was an express power to borrow money and that this power was converted into an object by
the concluding words which I have read. It was said that if this was so not only need the
defendant bank enquire no further but they were unaffected by knowledge that they had that
the activity on which the money was to be spent was one beyond the company’s powers.
The judge rejected this view, and I agree with him. He based his judgment, I think, on the
view that a power or an object conferred on a company to borrow cannot mean something in
the air: borrowing is not an end in itself and must be for some purpose of the company; and as
this borrowing was for an ultra vires purpose that is an end of the matter.
Counsel for the defendant bank I think agreed that if sub-cl. (N) must in truth be
construed as a power, such a power must be for a purpose within the company’s
memorandum. He says that it is “elevated into an object” (to use his own phrase) by the
concluding words of the memorandum and this object, being an independent object of the
company, will protect the lender and that that is its purpose. I answer that by saying that you
cannot convert a power into an object merely by saying so. Sub-clause (N) cannot in truth
stand by itself any more than certain other of the clauses of this memorandum, for instance
sub-cl. (D), which states
“To carry on any other trade or business… which can in the opinion of the board…be
advantageously carried on… in connection with or as ancillary to any of the above
businesses…”
Then there is sub-cl. (I), which is, to promote any other company for the purpose of
acquiring any property or rights or converting any of the liabilities of this company or of its
undertaking. And there are other similar sub-clauses which are clearly ancillary powers
although under the concluding words they are stated to be independent objects.
Counsel for the defendant bank relied on the well-known case, Cotman v. Brougham
[(1918) AC 514] and, in particular, the speech of Lord Parker of Waddington, where one finds
this passage:
“A person who deals with a company is entitled to assume that a company can do
everything which it is expressly authorised to do by its memorandum of association,
and need not investigate the equities between the company and its shareholders.”

I would agree that if the defendant bank did not know what the purpose of the borrowing
was it need not enquire, but it did know, and I can find nothing in Cotman v. Brougham to
protect it notwithstanding that knowledge.
An earlier case, Re David Payne & Co. Ltd., Young v. David Payne Co., Ltd. [(1904) 2
Ch. 608] shows the limit to which this particular doctrine can go. The first words of the
headnote are as follows:
“Where a company has a general power to borrow money for the purpose of its
business, a lender is not bound to enquire into the purpose for which the money is
intended to be applied, and the misapplication of the money by the company does not
avoid the loan in the absence of knowledge on the part of the lender that the money
was intended to be misapplied.”
I do not think I need read the passage of BUCKLEY, J.’s judgment [(1904) 2 Ch. at p. 612]
in the case on which I rely.
I agree with the judge [(1968) 2 All E.R. at p. 1227] that it is a necessarily implied
addition to a power to borrow, whether express or implied, that one should add “for the
purposes of the …. company.” This borrowing was not for a legitimate purpose of the
company; the bank knew it and therefore cannot rely on its debenture. I would dismiss the
appeal.