Doctrine of Ultra-Vires Memorandum of association is considered to be the constitution of the company. In a welfare state a government undertakes many ventures for the benefit of the people. The House of Lords held that the contract was ultra vires the company and, therefore, null and void. However, in this particular case, the directors were employed, and they had accepted office on the footing of the articles of association. These principles included the ability of shareholders to ratify an ultra vires transaction; the application of the doctrine of estoppel, which prevented the defense of ultra vires when the transaction was fully performed by one party; and the prohibition against asserting ultra vires when both parties had fully performed the contract. The objects under the object clause of this company were to supply and sell the materials required to construct railways.
Since Ultra Vires contracts are treated as invalid from the outset, it cannot become Intra Vires by reason of estoppel or ratification. All five Lords agreed that the Commissioner erred in interpreting the Article 4 but Lord Morris of Borth-y-Gest and Lord Pearson who gave the minority judgment held that interpreting the Articles of a Order in Council is necessarily incidental to the functioning of the Commission and therefore if the Commissioner has the power to interpret the Articles right he has the power to interpret it wrong as well and he is within his jurisdiction. If the sanction had been granted by passing a resolution before entering into the contract, that would have been sufficient to make the contract intra-vires. It does not cover construction of railway lines. Defendant should purchase the shares or debenture from the plaintiff in order for the defendant have the right to raise ultra vires.
The objects of this company, as stated in the Memorandum of Association, were to supply and sell the materials required to construct railways, but not to undertake their construction. The Courts, which is charged with achieving this difficult balance, carries out its task on the basis of the perceived intention of the Parliament by constructing the relevant statute granting the power to the body or authority. If company goes beyond its object then the act is Ultra Vires in eyes of law. In other words, ultra vires act is void and the contract cannot be ratified even if the company wishes to. The other party should have checked whether the company has the capacity to enter into contract with them or not.
. The doctrine of ultra-vires in Companies Act, 2013 Section 4 1 c of the Companies Act, 2013, states that all the objects for which incorporation of the company is proposed any other matter which is considered necessary in its furtherance should be stated in the memorandum of the company. Types of Ultra Vires Acts There are three types of ultra vires acts. For example, a company which has been authorized by its memorandum to purchaseland had implied authority to let it and if necessary, to sell it. It also has no strictly technical or legal meaning.
Under the article as thus embodied the directors obtain a contractual right to an annual sum of 1000l as remuneration. With recent changes in the form of the new Companies Act of 2008 new light has been brought to the continued evaluation of this doctrine. The only possible remedy in such case is in rem and not in personam. The outcome depends on the interrelation between X and Y, in terms of objectives, content and scope. An act of the company must not be beyond the objects clause, otherwise it will be ultravires and, therefore, void and cannot be ratified even if all the members wish to ratify it.
This is because, under common law, the act of ultra vires is null and void, so the company could avoid for not performing the contract which is outside from their capacity. In simple terms all what it says is that a public authority cannot act outside its powers and if it does so the act would be treated as null and void in law. The shareholders and debenture holders can sue the company for the taking any action outside the company and they can claimed the compensation from it. The parties cross-appealed, and the matter was brought before the Texas Supreme Court. During the middle of the 20th century many authors as well as judges of England and America started questioning the validity of the principle of ultra vires.
Later, the contract was repudiated by the company on the ground of its being ultra vires and Riche brought an action on the ground of breach of contract. Under modern corporate law, the purposes clause would either be so general as to allow the corporation to go into the motorcycle business, or the corporation would amend its purposes clause to reflect the new venture. Besides, the company could not sue or be sued by others party just because they did not perform the contract. Any activity done out of the purview of the memorandum is considered as an ultra vires activity. Just because a particular act is desirable or will benefit the body carrying it out ,is not sufficient grounds for such declaration. In recent times the principle of ultra vires has become toothless due to circumventing commercial practice. It was held by the House of Lords that the contract was ultra vires the company so void ab initio.
Finally the outcome of the 1973 Act was that a director could escape liability for entering into an ultra vires act if either the company was simply passive regarding the matter or if the shareholders decided to ratify the act. An ultra vires act will be wholly void and it will not bind the company; neither the company nor the outsider can enforce the contract. Case Laws on Doctrine of Ultra Virus The doctrine of ultra vires was first enunciated by the House of Lords in a classic case, Ashbury Railway Carriage and Iron Co. Ultra Vires borrowing does not create the relationship of debtor and creditor. From Ashbury Railway Carriage case, we can see that the company could not sue or be sued by the third party for not performing the contract.