DOCTRINE OF ULTRA VIRES

By
Rumbidzaishe Munyanyi
181622
MEANING OF DOCTRINE
◦ Doctrine(Latin: doctrina):
A set of beliefs or principles held and taught by a religious,
political, or other group.
◦ Legal Usage:
A legal doctrine is a body of inter-related rules (usually of
common law and built over a long period of time) associated
with a legal concept or principle.
MEMORANDUM OF ASSOCIATION
(MOA)
◦ The MOA of a company is its Charter
◦ Contains fundamental conditions upon which alone the company can
be incorporated
◦ Tells the objects of the company
◦ Defines the utmost possible scope of the company’s operations
◦ It’s a document which defines and confines the powers of the company
◦ If anything is done beyond those powers, that will be ultra vires
ORIGIN OF DOCTRINE OF
ULTRA VIRES
◦ First introduced in relation to statutory companies
◦ Not paid due attention up to 1855
◦ Reason: Doctrine not felt necessary to protect the
investors and creditors
◦ Principle of limited liability introduced in 1855
MEANING AND PURPOSE
◦ Company cannot go beyond its objectives mentioned in its
memorandum
◦ If company goes beyond its objects, such acts will be ultra
vires
◦ Object of declaring an act ultra vires:
1.To protect the interests of the shareholders,
2. and all others who deal with the company.
IS IT ULTRA VIRES OR
ILLEGAL?
◦ Ultra vires act different from illegal act, although both are
void.
◦ An act of the company which is beyond its objects clause is
ultra vires, hence void even if it is legal.
◦ An illegal act is void even if it falls within the objects of the
company.
POINTS WORTH NOTING
◦ Company exists only for the objects which are
expressly stated or implied in its MOA
◦ Any act done outside the express or implied objects is
ultra vires.
◦ The ultra vires acts are void ab initio.
◦ Members of company can get an order of injunction
Cont..
◦ If directors exceed authority, such act can be ratified by the general body of the
shareholders, provided company has capacity to do so by its MOA.

Example: Company has the power to borrow money, but the Articles of the
company provide that in case the directors borrow more than $5000,they
should get prior approval by the company in general meeting. However, the
directors issue debentures to the extent of $7500 without getting the approval
from shareholders
Cont…
The company in general meeting may ratify the
act of directors as it is intra vires the company,
though ultra vires the powers of the directors.
◦ Any property aquired by a company under an ultra
vires transaction may be protected by the company
against damage by third persons.
Cont..
◦ Directors and other officers can be held liable to compensate the
company for any loss occasioned to it by an ultra vires act
◦ Directors and other officers shall be personally accountable to the third
parties
◦ Money and property gained through an ultra vires transaction available
in specie or capable of being identified shall be restituted(restored) to
the third party.
◦ In case an ultra vires loan taken by a company is used for payment of
an intra vires debt, the lender of the ultra vires loan is substituted in
place of the creditor who has been paid off and as such can recover the
money.
LANDMARK CASES
◦ Ashbury Railway Carriage and Iron company Ltd v. Riche, 1875
◦ Attorney General v. Great Eastern Railway Co.,1880
SHORT COMINGS OF THE
DOCTRINE

◦ Creates hardships for management

◦ Creates hardships for outsiders

STEPS TOWARDS IMPROVING
THE DOCTRINE
◦ European Communities Act,1972:
Has made many modifications to the Doctrine of Ultra Vires

◦ Principles Developed by Court:

1. Powers implied by statute
2. The principle of implied and incidental powers
PRESENT STATUS
ENGLAND:
◦ Doctrine restricted by European Communities Act, 1972
◦ U/S 9(1) of the act any act or transaction decided by the directors deemed
within capacity of the company.
THANK YOU