Eley v Positive Government Life Assurance Co Ltd (1876) 1 Ex D 88

Facts

  • Mr. Eley drafted the articles of association for the Positive Government Security Life Assurance Company.
  • Article 118 of the articles stated that Mr. Eley would be the company's solicitor.
  • Despite this, the company later appointed a different solicitor.
  • Mr. Eley, who was also a shareholder, sought to enforce Article 118, claiming its breach constituted a contractual infringement.

Issues

  1. Whether the articles of association create a contract enforceable by a person in a role other than as a member of the company.
  2. Whether Mr. Eley could enforce a purported right to be the company’s solicitor by virtue of being named in the articles.

Decision

  • The Court of Appeal held that Mr. Eley could not enforce Article 118 for his appointment as solicitor.
  • The articles of association constitute a contract between the company and its members only in their capacity as members.
  • Rights or benefits conferred by the articles in an external capacity (such as solicitor) cannot be enforced as contractual rights under the articles.
  • Appointment provisions concerning officers in the articles do not create enforceable contracts of employment or service with individuals named therein; a separate agreement is necessary.

Legal Principles

  • Articles of association form a contract between the company and its members strictly in their capacity as members.
  • Rights or obligations described in the articles relating to external roles, even if the individual is named, do not create enforceable contractual rights in that outside capacity.
  • The enforcement of the articles cannot be extended to third-party contracts or roles distinct from membership without a separate agreement.
  • This principle delineates internal regulation (member relations) from external contractual arrangements, which require independent contracts.
  • The distinction is reaffirmed by contrasting Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 881, which permitted enforcement where rights or disputes arose between members qua members.

Conclusion

The Court of Appeal clarified that the articles of association bind the company and its members only in their capacity as members, and rights for external positions, even if set out in the articles and naming an individual, cannot be enforced under that contract; separate agreements are required for such external roles.

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