i) Explain the doctrine of ultra vires with regard to the objects of a company
ii) State the effects of ultra vires transactions
iii) What are the purpose of the rule?
ANSWER
i) The doctrine of ultra vires with regard to the objects of a company
• Ultra Viresliterally means beyond the powers. It is a rule of capacity whichdelimits the contractual capacity of a company.
• A company’s memorandum must set out the objects of the company. This delimits the doctrine of ultra vires.
• At common law, a company’s capacity is restricted to the objects in the memorandum and those other transactions that are reasonably incidental to the pursuit or attainment of those objects. Other transactions are ultra vires the company.
• The doctrine of ultra vires in relation to the company‟s objects was formulated in Ashbury Railway Carraige and Iron Co. v Riche and Attorney General v Great Easter Railway Co.
ii) Effects of ultra vires transactions
• An ultra vires transaction is void since the company had no capacity to enter into it. Such a transaction is generally unenforceable. It cannot rendered intra vires estoppel acquiescence, lapse of time, delay or ratification. It was sold held in the Rolled Steel Products (Holdings) Ltd v British Steel Corporation and Others (1986).
• Once ultra vires always ultra vires. It was sold held in Brady v Brady (1987).
iii) The purpose of the rule?
In the words of Lord Parker of Waddington in Cotman v Broughman the doctrine of ultra vires serves a double purpose.
• It protects subscribers who learn from it the purpose to which their investment can be applied the company.
• It protects persons who deal with the company’s who appreciate its contractual capacity.