DOCTRINE OF ULTRA VIRES
Ultra Vires Doctrine (
Common Law )
Basically if a company enters into a contract that did not adhered to the object clause in the MOA ; this will led to ultra vires and the contract entered is VOID
So, Due Diligence is very important ( to be performed by the contracting party / 3rd party )
This can bee reflected in the case of Ashbury Railway Company v Riche where object clause of the company is ' to make , sell or lend on hire railway carriages and wagons.....' . A contract had been entered into and the object clause is to finance a construction of railway line , soon then the company repudiate the contact entered with the contracting party . Riche then sued the company .
The Court held that at the first place the contact is not valid ( void ab initio) as it had gone over the object clause if the company - this is the strict approach that had been interpreted by the court. The company had no capacity to ratify the contract
Evans v Brunner Mond & Company
Object clause of the company is that 'all such business and things as maybe incidental or conductive to the attainment of the above objects or any of them ' . Then by a resolution the directors were authorized to distribute $100,000.00 out of surplus reserve account to such universities in U.K. as they might select for the furtherance of scientific research and education. The resolution was challenged on the ground that it was beyond the object clause of the memorandum and therefore it was ultra vires the power of the company .
The directors proved that the company had great difficulty in finding trained men and the purpose of the resolution was to encourage scientific training of more men to enable the company to recruit staff and continue its progress.
The court then held that the expenditure authorized by the resolution was necessary for the continued progress of the company as chemical manufacturers and thus the resolution was incidental or conductive to the attainment of the main objects of the company and consequently it was not ultra vires . " Acts incidental or ancillary " are those acts, which have a reasonable proximate connection with the objects stated in the objects clause of the memorandum .