NAME : Nimisha Darak

ROLL NO. HSBC0312

DIV : C

TOPIC : DOCTRINE OF ULTRA VIRES

Ashbury Railway Carriage and Iron Co. Ltd. v. Riche

FACT OF THE CASE :

Incorporated under the Companies Act 1862, the Ashbury Railway Carriage and Iron Company
Ltd’s memorandum, clause 3, stated that its objects were "to make or sell, or lend, or hire,
railway carriages and waggons, and all kinds of railway plants, fittings, machinery and rolling
stock; to carry on the business of the mechanical engineers and the general contractors; to
purchase and sell, as merchants, timber, coal, metals, or other materials; and to buy and sell any
such materials on commission, or as agents.’

The directors of the company entered into a contract with Riches, wherein a railway line was to
be constructed in Belgium, and the contract was for the financing of the construction.

The Clause 4 of the object clause specifically mentioned that beyond the scope of the above-
mentioned clause, there was a need of a special resolution to indulge in any activity which was
beyond the scope of this clause of the object clause in the MOA. However, the company
superseded this requirement and agreed to give Riches the loan and financing they needed to
build the railway line. The contract which was thus entered into by the company was ratified by
all the members of the company. However, later on, the company reneged on their side of the
deal repudiating the contract that was entered into by the company and Riches. Riches sued the
company for the breach of the contract and claimed damages.

PROVISIONS :

The meaning of the term 'ultra vires' is 'beyond the powers of’. Anything which is outside the
specified objects and powers or not reasonably incidental to or necessary for the attainment of
objects of the company is ultra vires the company and therefore is void.

An act, which is ultra vires the company, does not bind the company and neither the company
nor the other contracting party can sue on it.

An act which is ultra vires the company being void, cannot be ratified by the shareholders of the
company.

Sometimes, act which is ultra vires can be regularised by ratifying it subsequently.

For instance, if the act is ultra vires the power of the directors, the shareholders can ratify it; if it
is ultra vires the articles of the company, the company can alter the articles; if the act is within
the power of the company but is done irregularly, shareholder can validate it.
JUDGEMENT :

The House of Lords held that the objectives of the company as mentioned in the object clause of
the company’s MOA were absolute.
House of Lords, in this case, applied this same principle and held that the contract which had
been entered into by the company was beyond the scope of the object clause of the MOA of the
company.
The House of Lords also held that by entering into the concerned contract with Riches, the
company was in breach of the clauses that had been included in the constitution of the Company.
The clauses that were included in the MOA did not allow the company to make a contract.
Keeping this in mind, the House of Lords held that the transaction concerned here was invalid,
and thus, consequentially held that the contract shall have no legal effect for the company or the
Riches.
The judgment resulted in a defeat for Riches to have the contract enforced since there could not
be any breach.
This was due to the fact that there could not have been any contract to be breached in the first
place.

CITATION :

Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) LR 7 HL 653