Professional Documents
Culture Documents
Doctrine of Ultra Vires
Doctrine of Ultra Vires
This essay has been submitted by a law student. This is not an example of the work written by
our professional essay writers.
In Ashbury Railway Carriage and Iron Company Ltd v. Riche, (1875) L.R. 7 H.L. 653., In this case, the
objects of the company as stated in the objects clause of its memorandum, were ‘to make and sell,
or lend on hire railway carriages and wagons, and all kinds of railway plaint, fittings, machinery and
rolling stock to carry on the business of mechanical engineers and general contractors to purchase
and sell as merchants timber, coal, metal or other materials; and to buy and sell any materials on
commissions or as agents.’ The directors of the company entered into a contract with Riches for
financing a construction of a railway line in Belgium. All the members of the company ratified the
contract, but later on the company repudiated it. Riche sued the company for breach of contract.
Issue:
Whether the contract was valid and if not, whether it could be ratified by the members of the
company?
The House of Lords held unanimously that:
The contract was beyond the objects as defined in the objects clause of its memorandum and
therefore it was void.
Decision:
The House of Lords has held that an ultra vires act or contract is void in it inception and it is void
because the company had not the capacity to make it and since the company lacks the capacity to
make such contract, how it can have capacity to ratify it. If the shareholders are permitted to ratify
an ultra vires act or contract, it will be nothing but permitting them to do the very thing which, by
the Act of Parliament, they are prohibited from doing.
The House of Lords has expressed the view that a company incorporated under the Companies Act
has power to do only those things, which are authorized by its objects clause of its memorandum,
and anything not so authorized is ultra vires the company and cannot be ratified or made effective
even by the unanimous agreement of the members.
In Evans v. Brunner Mond & Company, (1921) Ch 359., In this case, a company was incorporated for
carrying on business of manufacturing chemicals. The objects clause in the memorandum of the
company authorized the company to do “all such business and things as maybe incidental or
conductive to the attainment of the above objects or any of them" by a resolution the directors were
authorized to distribute £ 100,000 out of surplus reserve account to such universities in U.K. as they
might select for the furtherance of scientific research and education.
The resolution was challenged on the ground that it was beyond the objects clause of the
memorandum and therefore it was ultra vires the power of the company. The directors proved that
the company had great difficulty in finding trained men and the purpose of the resolution was to
encourage scientific training of more men to enable the company to recruit staff and continue its
progress.
Decision:
The court held that the expenditure authorized by the resolution was necessary for the continued
progress of the company as chemical manufacturers and thus the resolution was incidental or
conductive to the attainment of the main object of the company and consequently it was not ultra
vires. “Acts incidental or ancillary" are those acts, which have a reasonable proximate connection
with the objects stated in the objects clause of the memorandum.
incidental to or consequential upon the main purpose and a thing reasonably done for Effecting.
In Attorney General v. Mersey Railway Co, (1907) 1 Ch. 81, There was a company and it was
incorporated for carrying on a hotel business. It entered into a contract with some third party for
purchasing furniture, hiring servants and for maintaining omnibus. The purpose or object of the
company was only to carry on a hotel business and it was not expressly mentioned in the objects
clause of the memorandum of the company that they can purchase furniture or hire servants. This
deal was challenged and was sought from the court that this act of the directors be held as ultra
vires.
Decision: The court held that a company incorporated for carrying on a hotel could purchase
furniture, hire servants and maintain omnibus to attend at the railway station to take or receive the
intending guests to the hotel because these are reasonably necessary to effectuate the purpose for
which the company has been incorporated and consequently these are within the powers of the
company, although these are not expressly mentioned in the objects clause of the memorandum of
the company, or the statute creating it.
Thus a company which has been authorized to deal with its property has implied power to pledge or
Mortgage the property for its debts. It is to be noted that if the act of the company is neither within
the objects clause in its memorandum or the statute creating it, nor necessary for or incidental to or
consequential upon the attainment of the objects stated in the objects clause of the memorandum.
Section 20 (2) (a) – a member of the company or in which the company has issued debentures are
available with a floating charge, then the debenture / debenture trustee referred to the holders
above may be claimed from the company to take any action outside the company. Name that
mentioned above maybe request for restrictions or injuksi to stop an ultra vires action. This can be
seen in the case of Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd ( 1969 ) 2 NSWR
786. In this case, H holds all of the shares in the LF. LF has issued two debentures of United
Dominion Corp. ( UDC ). H requested from the court to declare the both debentures was invalid
because it is a Company Object Ultra Vires. H also requested to the court to issues ‘ tegahan’ to UDC
by enforcing the debentures. The question is, can H ask the court issued prohibiting to the UDC. The
court has decided even thought this action was Ultra Vires. In this case, UDC is the third party while
section 20 (2) (a) may only be used to sue company only.
Section 20 (2) (b) provides, “ … any action by company or any action by company members toward
the current or the pass company officer ". This means that the company or members of the company
can sue any pass or current officer that who have committed Ultra Vires. Ultra Vires action must be
completed and realised. This is difference with Section 20 (2) (a).
Section 20 (2) (c) provides that minister may conduct petition to the court to wind up the company
that has committed ultra vires action.
COPY TO CLIPBOARD