Page 225 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes would, therefore, be altogether unmeaningful. Hence, the contract was entirely
beyond the objects in the memorandum of association. [Ashbury Railway Carriage
and Iron Co. vs. Riche (1875) LR 7 HL 653].
(ii) The objects clause of a company included making of costumes, gowns and similar
things within the clothing trade. However, it extended its activities to the manufacture
of veneered panels and became indebted to three parties: (a) builders of the veneered
panels factory; (b) suppliers of veneers; and (c) fuel merchants. In the meantime the
company went into liquidation and liquidator rejected the claim of the three creditors.
The creditors filed suits for the recovery of money.

Held: The contention of the liquidator was correct as all the three contracts were
clearly ultra vires.
4. In case a company is about to undertake an ultra vires act, the members of a company
(even a single member) can get an order of injunction from the court restraining the
company from going ahead with the ultra vires act.

5. If the directors have exceeded their authority and done something then such matter can be
ratified by the general body of the shareholders, provided the company has the capacity to
do so by its memorandum of association.

Example: A company has the power to borrow money, but the articles of the company
provide that in case the directors borrow more than ` 50,000, they should get prior approval by
the company in general meeting. The directors issue debentures to the extent of ` 75,000
without getting the approval from the shareholders. 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 of the company.
6. Any property acquired by a company under an ultra vires transaction may be protected by
the company against damage by third persons.
7. The directors and other officers can be held liable to compensate the company for any loss
occasioned to it by an ultra vires act.
8. The directors and other officers shall be personally accountable to the third parties.
9. The money or property gained through an ultra vires transaction if available in specie or
capable of being identified shall be restituted (restored) to the other party.

!
Caution In case, an ultra vires loan, taken by a company is used for payment of its intra
vires debts, the lender of the ultra vires loan is substituted in place of the creditor who has
been paid off and as such he (the lender) can recover the money.

Self Assessment

State whether the following statements are true or false:
4. Any act done outside the express or implied objects is ultra vires.

5. Any property acquired by a company under an ultra vires transaction may be protected by
the company against damage by third persons.
6. If the directors of a company have exceeded their authority and done something then such
matter cannot be ratified by the general body of the shareholders, even if the memorandum
of association of company provided the company has the capacity to do it.

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