Ultra Vires Case Study

But later the directors of the company decided to carry on the business of manufacturing veneered panels, which was admittedly ultra vires the objects of the company. For this purpose the company erected a factory. A firm of builders who constructed the factory had brought an action claiming 2078 pounds. Another firm supplied veneer to the company and had a claim of 1011 pounds. A firm sought to prove for a simple contract debt of 107 pounds in respect of fuel supplied to the factory. The builders of the factory had obtained a consent judgment in the nature of compromise, but it was obviously arrived at on the footing that the contract was ultra vires.

ULTRA VIRES ACQUISATION OF PROPERTY

When money of a company is spent ultra vires in acquiring

For, that asset, though wrongly acquired, represents the corporate capital. Thus for example, the Madras High Court allowed a company to sue on a mortgage to recover the money lent in spite of the fact that the transaction was beyond powers of the company. The court relied upon the following observation of Brice on doctrine of ultra vires: “Property legally and by formal transfer or conveyance transferred to a corporation is in law duly vested in such corporation even though the corporation was not empowered to acquire such property. Where the funds of a company are applied in purchasing some property, the company’s right over that property will be protected even though the expenditure on such purchasing has been ultra vires. Properly and legally and by formal transfer or conveyance transferred to a corporation is in law duly vested in such corporation even though the corporation was not empowered to acquire such property Similarly in Selangor United Rubber Estates V Crackdock (NO.) , it was held that “the fact that the company‟s Act makes it unlawful for a company to give any financial assistance for anyone to purchase any of its shares does not prevent such a person from being held a constructive trustee for the company such of its money as is unlawfully provided for such purpose”. A Canadian court allowed recovery of ultra vires

But nothing prevents the company from repaying that money. The lender is also entitled to a tracing order, and if the money lent is traced in specie or into any investment held by the company, the lender can recover it from the company.

Further, if that money is used by the company in discharging any debts or liabilities of the company, the lender will, on accounts of principle of subrogation, step into the shoes of the creditors whose claims have been paid off by the company and acquire their rights against the company.

ULTRA VIRES LENDINGS

If the money has been lent by the company and the lending is ultra-vires, the contract void. No action can be brought on it, but the company can sue for recovery of its money. This is because the borrower who has made a promise to repay that money cannot be allowed to refrain from paying it back on the ground that it is without