Brownett v Newton - [1941] HCA 14

BROWNETT AND OTHERS

APPELLANTS; DEFENDANTS, NEWTON

RESPONDENT. PLAINTIFF, Company-Commencement of business-Statutory condition precedent unfulfilled-

Supply of goods to company-Directors-Warranty of authority-Companies Act 1936 (N.S.W.) (No. 33 of 1936), sec 77*.

An action for breach of warranty of authority may be maintained against directors of a company who enter on the company's behalf into contracts which are not binding on the company because of its failure to comply with sec. 77 (1) (c) of the Companies Act 1936 (N.S.W.), where the conduct of the directors has been such that an implied warranty of their authority to make McTiernan and contracts immediately binding on the company may properly be inferred

Decision of the Supreme Court of New South Wales (Full Court): Newton v. Brownett, (1940) 41 S.R. (N.S.W.) 1; 58 W.N. (N.S.W.) 15, affirmed. * Sec. 77 of the Companies Act 1936

to the proportion payable on applica- (N.S.W.) provides: (1) Where a com- pany having a share capital has issued

for public subscription and (c) there a prospectus inviting the public to

has been filed with the Registrar- subscribe for its shares, the company

General a statutory declaration by the shall not commence any business or

secretary or one of the directors, in the exercise any borrowing powers unless

prescribed form, that the conditions -(a) shares held subject to the pay-

mentioned in paragraphs (a) and (b) of this sub-section have been complied

(3) The Registrar-General not less in the whole than the minimum

shall, on the filing of the statutory subscription (b) every director of the

declaration, certify that the require- company has paid to the company, on each of the shares taken or contracted

been complied with, and that certificate to be taken by him and for which he is liable to pay in cash, a proportion equal

fact in favour of any person dealing

64 CLR 440

APPEAL from the Supreme Court of New South Wales.

A writ was issued out of the Supreme Court of New South Wales by Stanley Lipscombe Newton against Charles Alfred Brownett, Henry Michael Mullins, George Myer Hains, Edwin Percy Shelley and John Stuart Dunbar, who, at all material times, were the directors of Applied Concrete (Broken Hill) Ltd. His amended declaration contained five counts, of which only the fourth count was seriously pressed. This count alleged that, in consideration of Newton enter ing into certain contracts with the defendants as and assuming to be the agents of the company for the sale by Newton to the company of certain goods, the defendants promised Newton that they were authorized by the company to make immediately binding contracts for it as its agents that Newton did enter into the said contracts and was always. ready and willing to perform the same, yet the defendants were not authorized by the company to make immediately binding contracts for it, whereby Newton, inter alia, was not able to enforce the performance of the said contracts and lost the value of the materials supplied…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Brownett v Newton

Details

AGLC: Brownett v Newton [1941] HCA 14
Case: [1941] HCA 14
Decision Date: 1 May 1941

CaseChat Overview and Summary

This case involved an appeal to the High Court of Australia from a decision of the Supreme Court of New South Wales. The respondent, Mr. Newton, had supplied goods to a company, Applied Concrete (Broken Hill) Ltd., and sought to recover the outstanding balance from the appellants, who were the directors of the company. The core of the dispute was whether the directors had breached an implied warranty of authority when entering into contracts with Mr. Newton on behalf of the company.

The legal issues before the court were whether the directors of the company had provided an implied warranty that they were authorised to enter into immediately binding contracts on behalf of the company, and if so, whether this warranty had been breached. Specifically, the court had to determine if the directors' conduct, in light of the company's failure to comply with section 77 of the Companies Act 1936 (N.S.W.), gave rise to an inference of such a warranty, and if the respondent could maintain an action for breach of this warranty despite the statutory restrictions on the company's ability to commence business.

The court reasoned that directors, like other agents, can be held liable for breach of an implied warranty of authority if they induce another party to contract with them as agent for a principal by an unqualified assertion of their authority. The court found that there was evidence from which a jury could infer that the directors, through their actions and conduct in ordering and accepting goods from the respondent, had represented that they possessed the authority to make contracts that would be immediately binding on the company. This was despite the fact that the company had not complied with the statutory requirements of section 77 of the Companies Act 1936, which rendered contracts entered into before compliance provisional and not binding. The court held that the respondent was not presumed to know of the company's non-compliance with section 77 and was entitled to rely on the implied warranty of authority from the directors for the purpose of this collateral contract.

The High Court dismissed the appeal, affirming the decision of the Supreme Court. The court held that there was sufficient evidence to go to a jury on the question of whether the directors had provided an implied warranty of authority and that the respondent was entitled to pursue his claim for breach of this warranty.

Orders