Eley v Positive Government Security Life Assurance Co
Rule established
The articles of association do not confer enforceable rights on outsiders or on members in a non-member capacity
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
- 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.
How to use it in an exam
- 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."
Source
Source: Exchequer Division Reports
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.
Cited in study notes
Articles of Association and Doctrine of Indoor ManagementOutsider rights not enforceable under AOA