Discuss the doctrine of ultra vires and state the exceptions to the doctrine
ANSWER
Doctrine of ultra vires and state the exceptions to the doctrine
Ultra Vires literally means beyond the powers. This is a rule of capacity of registered companies now embodied in the provisions of the Companies Act Cap
The provisions are emphatic that the memorandum of association of the company must state its objects. The objects clause of a company determines what is intra and ultra vires. It therefore delimits the doctrine of ultra vires. The doctrine of ultra vires was first incorporated into the statute books Iron Co. vs Riche where the Court of Appeal was emphatic that a company could only engage in transactions set forth in its objects clause other transactions being ultra vires the company.
The capacity of registered companies was expanded the court Attorney Generalvs Great Eastern Railway Co (1880) where the court held that in addition to the express objects a company had capacity to engage in transactions reasonably incidental to or consequential upon these objects. These are transactions reasonably incidental to the attainment or pursuit of the express objects.
At Common Law a company’s capacity is restricted to, transactions et forth in the objects and those that are reasonably incidental to the attainment or pursuit of such objects. The doctrine of ultra vires was developed to serve a double purpose. Cotman vs Brougham (1918)
• To protect investors who learn from it where their money will be invested.
• To protect third parties who deal with the company appreciating the Company’s capacity.
The doctrine of ultra vires has been modified so much that companies enjoy almost unrestricted capacity. Companies can engage in virtually any transaction.
Judicial Contribution
Courts ultra vires have been ready and willing to imply powers e.g. a transaction reasonably incidental to the attainment or pursuit of the express objects is intra vires the company.
Legislative intervention
Before 1890, a registered company could not alter it’s objects clause. In 1890, the English parliament amended the Companies Act to confer upon companies‟ power to alter their objects clause. The power is contained in the Companies Act and the company may within the confines of Section 8 (1) enhance it’s capacity.
Drafting techniques
These are techniques that have rendered the doctrine of ultra vires virtually useless e.g.:
• Inflated objects clauses, which entails the listing down of every conceivable object in the clause.
• Use of independent object clauses Cotman V. Brougham(1918)
• Use of subjective as was the case in Bell Houses Limited v City Wall Properties Ltd(1966)