Articles of associationOutsider rightsCourt of Appeal

Eley v Positive Government Security Life Assurance Co

(1876) 1 Exchequer D 8818761 min read
The case in brief30-second read
Facts
Eley drafted the company's articles which contained a clause that he should be appointed as the company's solicitor for life. Eley later became a shareholder (member) of the company.
Issue
Whether a provision in the articles naming a specific person for a professional role creates an enforceable contractual right, even if that person subsequently becomes a member.
Held
The court held that Eley could not enforce the article. The articles do not create a contract between the company and third parties, nor between the company and members in a capacity other than as members. Eley's claim was in his capacity as solicitor (an outsider right), not as a member. The fact that he later became a member did not convert an outsider right into a membership right.
Principle
The articles of association do not confer enforceable rights on outsiders or on members in a non-member capacity
Cite this

Facts

  • Eley drafted the company's articles which contained a clause that he should be appointed as the company's solicitor for life
  • Eley later became a shareholder (member) of the company
  • The company ceased to employ him as solicitor
  • Eley sued the company for breach of the alleged contract contained in the articles

Issue

  1. Whether a provision in the articles naming a specific person for a professional role creates an enforceable contractual right, even if that person subsequently becomes a member.

Held

  • The court held that Eley could not enforce the article. The articles do not create a contract between the company and third parties, nor between the company and members in a capacity other than as members. Eley's claim was in his capacity as solicitor (an outsider right), not as a member. The fact that he later became a member did not convert an outsider right into a membership right.

Ratio decidendi

The statutory contract created by the articles of association operates exclusively in relation to membership rights and obligations. A provision conferring rights on a person in a capacity other than that of member, such as a director, solicitor, or employee, is not enforceable under the articles even if that person is also a member. The articles bind members qua members and nothing more.

Exam use

How to use it in an answer

  • Always pair this case with Hickman v Kent to show the limitation on the contractual effect of articles. Use it to answer questions about whether directors, solicitors, or other professionals named in the articles can enforce those provisions.
  • Key quotable line: "The articles do not create rights enforceable by outsiders or by members in a capacity other than that of members."

Cite this

Citation

Eley v Positive Government Security Life Assurance Co (1876) 1 Exchequer D 88

Reported: Exchequer Division Reports. This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.