Ultra Vires Case Study

The Doctrine Of Ultra Vires At Common Law The object clause is deemed requirement as to memorandum under Section 18 (1) (b) in the Companies Act 1965. The object clause specified in the Memorandum of Association of a company express the objectives and purposes for which the company should be running the business. Generally, company's power in exercising business activities are confined to the object clause. A company must not carry out any act that is outside of the object clauses stated in its Memorandum of Association, otherwise it will be considered 'ultra vires', i.e. beyond the powers. The doctrine of ultra vires at common law states that - an ultra vires contract or transaction is void and cannot be ratified by the company's members, even if all the members wish to ratify it. Doctrine of ultra vires was developed for two main reasons. Firstly, it is to secure the interests of the company's investors so that the investors are aware of the company's object and will not contract with company that carry out business activities that is beyond the company's powers. Secondly, it is to protect the interests of the creditors so that money lent to the company by the creditors only used for business activities within the scope of the company's objects. …show more content…
Riche (1875) LR 7 HL 653. In this case, the object clause allowed the company to "make and sell, or lend on hire, railway-carriages and wagons, and all kinds of railway plant, fittings, machinery and rolling stock..." However, the company's directors contracted with Riche for construction of a railway line in Belgium. The company then repudiated the contract as ultra vires. Riche sued the company for breach of contract but failed. The company was held that the contract was ultra vires and, thus was void, even though it was previously approved by the general