Ultra Vires Doctrine

Topics: Ultra vires, Company, Corporation Pages: 18 (6975 words) Published: November 11, 2013
THE DOCTRINE OF ULTRA VIRES

TABLE OF CONTENTS

i. Introduction
ii. Origin Of Doctrine Of Ultra Vires
iii. Development of The Doctrine
iv. Establishment Of The Doctrine
v. Ascertainment Of The Ultra Vires
vi. Evasion By Businessmen And Principle Developed By The Courts To Prevent Such Evasion vii. Independent Objects Clause
viii. Effect Of Ultra ViresTransactions Ø Ultra vires contracts Ø Ultra vires borrowings Ø Ultra vires torts or crimes ix. Exceptions To The Doctrine Of Ultra Vires
x. Present Position Ø England Ø India
xi. Conclusion

Introduction
The object clause of the Memorandum of the company contains the object for which the company is formed. An act of the company must not be beyond the objects clause, otherwise it will be ultra vires and, therefore, void and cannot be ratified even if all the members wish to ratify it. This is called the doctrine of ultra vires, which has been firmly established in the case of Ashtray Railway Carriage and Iron Company Ltd v. Riche. The expression “ultra vires” consists of two words: ‘ultra’ and ‘vires’. ‘Ultra’ means beyond and ‘Vires’ means powers. Thus the expression ultra vires means an act beyond the powers. Here the expression ultra vires is used to indicate an act of the company which is beyond the powers conferred on the company by the objects clause of its memorandum. An ultra vires act is void and cannot be ratified even if all the directors wish to ratify it. Sometimes the expression ultra vires is used to describe the situation when the directors of a company have exceeded the powers delegated to them. Where a company exceeds its power as conferred on it by the objects clause of its memorandum, it is not bound by it because it lacks legal capacity to incur responsibility for the action, but when the directors of a company have exceeded the powers delegated to them. This use must be avoided for it is apt to cause confusion between two entirely distinct legal principles. Consequently, we restrict the meaning of ultra vires to objects clause of the company’s memorandum. Origin of the Doctrine

1The doctrine of ultra vires was first introduced in relation to the statutory companies. However, the doctrine was not paid due attention up to 1855. The reason appears to be this that doctrine was not felt necessary to protect the investors and creditors. The companies prior to 1855 were usually in the nature of an enlarged partnership and they were governed by the rules of partnership. Under the law of partnership the fundamental changes in the business of partnership cannot be made without the consent of all of the partners and also the act of one partner cannot be binding on the other partners if the act is found outside his actual or apparent authority, but it can always be ratified by all the partners. These rules of partnership were considered sufficient to protect the investors. On account of the unlimited liability of the members, the creditors also felt themselves protected and did not require any other device for their protection. Besides, during early days the doctrine had no philosophical support. The doctrine is based on the view that a company after incorporation is conferred on legal personality only for the purpose of the particular objects stated in the objects clause of its memorandum and transaction not authorized expressly or by necessary implication must be taken to have been forbidden, but this view was not followed during early days and contrary to it, the view that a company has all the powers of a natural person unless it has been taken away expressly or by necessary implication was given a big support.3 In 1855 some important developments took place. One of them was the introduction of the principle of limited liability. After the introduction of this principle, it was possible to make the liability of the members limited. So long as the liability of the members was unlimited, the creditors of the company...

Bibliography: 7. Cotman v. Brogham, (1918) A.C. 514
8
9. Jon Beaufore (London) Ltd ., (1953) Ch. 131
10
11. S. Sivashanmugham And Others v. Butterfly Marketing PrivateLtd., (2001) 105 Comp. Cas. Mad 763
12
13. Weeks v. Propert, (1873) L.R. 427
14
15. European Communities Act, 1972
16
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Company Contracts and Doctrine of Ultra Vires, a Comparison of Uk and Pakistani Company Lawa Essay
  • Doctrine of Ultra Vires-Effects and Exceptions Essay
  • Essay about Business Law Ultra Vires
  • Doctrine of Ultra Vires in Public Law Essay
  • Judicial Review: Ultra Vires Concept. Essay
  • Essay about Doctrine of Legitimate Expectations
  • The Doctine of Ultra Vires in Irish Company Law Research Paper
  • Doctrine of Confidentiality Essay

Become a StudyMode Member

Sign Up - It's Free