PEKING FUR STORE LTD. V. BANK OF COMMUNICATIONS

1993, No.M.P.2083

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is a vendor and purchaser summons. The purchaser has raised an objection to the title in relation to the execution of an assignment dated 3rd February 1988 and made between Hillo Fur Co. Ltd ("Hillo") and Lihao Investments Limited. This assignment was executed on behalf of Hillo in a manner which, it is now alleged, was defective. It was sealed with Hillo's common seal and signed "by Du Ya Bin, it Director" in the presence of a solicitor. But Article 79 of the Hillo's Articles of Association provides as follows:-

"79. The seal of the company shall not be affixed to any instrument except by the authority of a resolution of the board of directors, and in the presence of a director and the secretary or such other person as the directors may appoint for the purpose, and that director and the secretary or other person as aforesaid shall sign every instrument to which the seal of the company is so affixed in their presence. Whenever a body corporate is a director of the company, the company's common seal may be affixed in the presence of any person appointed by that director to countersign the company's common seal." [emphasis added]

2. Since this assignment was apparently signed in the presence only of a director and of no other person, the provisions of Article 79 were not been complied with and the execution of the assignment was, therefore, formally defective.

3. Article 79 requires: first, the authority of a resolution of the board of directors (that creates no difficulty since evidence has in fact been provided that there was such a resolution here); and secondly, that the seal be affixed in the presence of a director and some other person. Such other person may be the secretary; or, failing the secretary, such other person as the directors may appoint for the purpose. In either case, both persons are required to sign the instrument to which the seal of the company is so affixed in their presence.

4. The suggestion advanced in argument that the board of directors is entitled, as a matter of interpretation of this Article, to authorise some single person to sign the instrument involves an interpretation that I would have thought quite impossible but for the fact that on an article (Article 77) expressed in precisely similar words, Jones J. appears to have accepted it: see Chan Fu Wa and Cheung Kwok Wan (Plaintiffs) v Chu Bon Mok and Chu Ki Wah (Defendants) [1993] MP280, 25th March 1993, unreported.

5. In his judgment, the judge refers to this point in the following way:-

"The fourth ground was that the assignment dated the 6th June 1987 was defective as the deed was executed only by Zhu Tiecheng purportedly appointed by the Bord of Directors of Ng Fung Hong Limited whereas clause 77 of the Articles of Association of the company provides that the seal of the company shall be affixed inter alia only in the presence of a director and the secretary or such other person as the directors may appoint for the purpose, and be signed by both persons. It was therefore contended that the deed was not properly executed and could not pass a legal estate in the property. However, I accept Mr Cheung's interpretation of article 77 that in the alternative either a director and the secretary are entitled to sign or any other person who may be authorised by the board of directors who can authorise a single director to do so."

6. I differ with regret from the judge. It seems to me that his interpretation of the Article in effect involves holding that the Article gives the board of directors a power to dispense with the express requirements of the Article; something which I cannot believe it was intended to do. Accordingly, I find myself unable to follow that decision.

7. But the matter does not end there. The vendor has produced, as I have already said, a copy of a resolution of the board of directors of Hillo, which not only authorised the transaction carried into effect by the assignment, but expressly authorised the signature of the assignment by one director only. That being so, there is no risk that Hillo might succeed in proceedings to have the assignment declared invalid. Any such a claim would be laughed out of court. The transaction was duly authorised and there is nothing to suggest that it was not carried into effect in accordance with the terms on which it was so authorised. The company's seal was affixed to the assignment and the legal estate passed accordingly, despite the formal defect in execution. The general rule is that a corporation is bound by an instrument under its seal, unless it can be shown that its execution was obtained by fraud, or there is some illegality in the transaction: see Agar v. Athenaeum Life Assurance Society (1858) 3 CB(NS) 725, per Willes J. at p.756.

8. The only question left for me to consider is whether the vendor has made a title to the property in accordance with its contract of sale with the purchaser.

9. I look at the contract and I find that, unusually, the vendor is to be required only to give a "marketable" title to the property, see Clause 9(a). It was suggested to me that a "marketable" title is something less than a good title, and that, whether or not this title could be considered a good title, having regard to the formal defect in execution of the assignment of 3rd February 1988, it must at least be considered to be a "marketable" title. This argument suggests that a "marketable" title is something less good than a good title. I am far from convinced that is so. The authorities are remarkably confused in their references to a "marketable" title. It is plain that some judges regard a "marketable" title as the same as a good title; others regard a "marketable" title as one even better than a good title. However, for the purposes of this contract, in which it is made clear that the vendor is "only" to be required to give a "marketable" title to the property, it is, I think, clear that here the parties were thinking of a title which might be something less than a good title. However that may be I have no hesitation in concluding that this title is both good and "marketable". No sensible purchaser would be advised, or should be advised, on the facts as I have outlined them that any substantial objection to the title exists by virtue of this want of formality in execution. It is said that the legal title cannot pass under an instrument which is not duly executed; but I do not accept this. The company's seal was affixed to the assignment; the equitable title clearly has passed; and the purchaser is entitled anyway to any necessary further assurance required to perfect its title, having regard to the covenant for further assurance which by virtue of the Conveyancing and Property Ordinance, Cap.219 would be held to be implied in the assignment, which contains an express provision in this form:-

"6. It is hereby agreed and declared by the parties hereto that the respective covenants by the vendor and purchaser implied by the Conveyancing and Property Ordinance, Cap.219 of the Laws of Hong Kong and herein contained shall be construed and shall take effect so far as the effect or relate to the property only but not further or otherwise."

(A reference to the Ordinance shows that a covenant for further assurance such as I have described is to be implied in the assignment by virtue of s.35 and Part II of the First Schedule to the said Ordinance.)

10. For all these reasons, I am satisfied that I ought to declare that the requisition raised in relation to the execution of this assignment was satisfactorily answered by the vendor (even though in fact it did no more than somewhat indirectly reject it). I will accordingly make a declaration that the requisition has been satisfactorily answered. I understand that the parties have reached an agreement on the matter of costs and in those circumstances it is not necessary for me to make any order as to costs. I shall, therefore, refrain from doing so.