Doctrine of Ultra Vires
v Previously company was capable of engaging only in those activities for which it had been established which were identified in its objects clause.
v Ultra vires means going ‘beyond the powers’
v When a company goes beyond its object clause it is said to be acting ultra vires and therefore the actions were considered to be invalid.
v Case: Ashbury Railway Carriage & Iron Co v Riche
o Held: Since construction of railway was not within the objects of Ashbury, contract was UV for company and therefore void. Cannot be enforced against the company.
v Abolition : s124
o Company has all the powers of an individual that is a natural person
o Company can do anything it wants and not limited by its objects clause
o Company’s legal capacity not affected by the fact that the company’s best interests are not served by doing it – S124(2)
o S124 does not authorize the company to do acts prohibited by law
o Company constitution may limit company’s capacity by containing an express restriction or a prohibition of the company’s exercise of any of its powers
o However the exercise of a power by the company is not invalid merely because contrary to express restriction / prohibition in the company’s constitution – S125(1)
o Company may state objects of the company- but an act of the company not invalid merely because contrary to or beyond any objects – S125(2)
o S128(4) – if outsider dealing with company knows or suspects that the company has breached object clause – outsider is not allowed to assume that the company has complied with its objects.
Dealing with Companies
ü Company can only act through or be represented by individuals
ü The directing mind and will of the company
o Common Law: Concept of artificial legal person
§ Companies are regarded as artificial persons
§ However this is a legal myth as companies need to act through human agents
§ Where an agent of the company acts within the power conferred on them by the replaceable rules / constitution of that company, the acts of the agent are treated as if they were the acts of the company.
§ Organic Theory
· Directors are known as the directing mind and will of the company
· Only senior management will be considered as such
· Lennard’s Carrying Co v Asiatic Petroleum
How does a company make a contract?
ü Common Law Position
o Can enter into contracts in 2 ways
§ Directly – by affixing the company’s common seal to the contract in accordance to the constitution
· Company’s capacity to make contract on its own is limited to formal contracts under seal
§ Indirectly – individuals acting as agent on behalf of the company
ü Statutory Provision
o Section 126 and 127 - authority of a company’s agents
§ S126(1) – company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company. (indirectly)
§ Can exercise the power without using common seal
§ S127 – contract can be entered by the company itself (directly)
· If company has common seal can execute a document by affixing its seal to the document and witnesses either by 2 directors or by a director and company secretary
· Since common seal is optional, can execute document without it but must be signed by 2 directors of the company or 1 director and company secretary.
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