Eley v Positive Government Security Life Assurance Co Ltd [1876]

Eley v Positive Government Security Life Assurance Co Ltd [1876] 1 Ex D 88 is a notable UK company law case that deals with the interpretation and enforceability of a provision in a company's articles of association.

The relevant provision in the company's articles, Article 118, stated that Mr William Eley would be the solicitor to the company. Eley had actually drafted the articles himself. However, the company never employed him as its solicitor. Despite not being appointed as the solicitor, Eley, who was also a member of the company, brought an action to enforce the articles in his capacity as a solicitor.

The Exchequer Division initially held that the articles did not create any contract between Eley and the company. In the Court of Appeal, Lord Cairns LC affirmed this decision, stating that Mr Eley had the right to sue only in his capacity as a member, not as a solicitor.

Lord Cairns expressed his opinion that a contract of the kind suggested in this case (a bargain between a professional person and the company) should not receive any particular favour from the court. He highlighted that the arrangement between Eley and the company, wherein Eley would advance money for the formation of the company in exchange for being appointed permanent solicitor, was not effectively communicated to those invited to join the company.

Lord Cairns also raised concerns about the nature of the contract, questioning whether a contract under which a solicitor is not bound to provide any particular services, but the company is obliged to employ him for all their business, would be one that the courts should enforce. He reserved judgment on the validity of such an agreement.

The judgment emphasised that Article 118, even if considered a covenant between the parties, was a matter between the directors and shareholders, not between them and Mr Eley. It was either a stipulation binding the members or a mandate to the directors. Lord Cairns concluded that there was no evidence of a specific contract between Eley and the company, and his mere reliance on Article 118 did not alter the legal effect of the articles.

In summary, the court held that the article in question did not create a binding contract between Eley and the company, and Eley's remedy, if any, would be as a member seeking remuneration for work done, not as a solicitor enforcing a contractual obligation.
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