Ultra Vires with an Emphasis on the Law in Georgia - Research Paper Example

Roll Number Ultra Vires When a company is formed, it puts together its object clause of the Memorandum. These objects mentioned in the Memorandum draw the boundary lines under which a firm can function and perform its tasks. If the company steps outside these self-created boundaries than its act will be considered as ultra vires and hence will be counted as void despite the efforts of its directors to ratify it (Singh and Vaidya, 2010). The expression Ultra Vires is made up of two separate words Ultra, which means beyond and Vires, which means power (Singh and Vaidya, 2010). In literal sense, Ultra Vires means beyond power however in corporate world, Ultra Vires is an act of a company, which it performs beyond its power conferred in Memorandum. Sometimes this term is used to signify the act of directors of a firm in which they exceed the power granted them. The cases of Ultra Vires, which include case of Rayfield v Hands, Ashbury Railway Carriage and Iron Company and Shuttleworth v Cox Brothers and Company drives attention towards the laws regarding ultra vires in many states, including Georgia, along with the conditions which decide whether an act is ultra vires or not. There are many cases registered under ultra vires. One of them is the case of Rayfield v Hands. Field-Davis Ltd. was a firm doing business as constructors. This company followed the Companies Act 1929 and had share capital of 4000 Euros. These 4000 Euros were further divided into shares of one Euro each out of which 2900 were issued (“DOCTRINE OF ULTRA VIRES-EFFECTS AND EXCEPTIONS"). Leslie Rayfield was the plaintiff (now called claimant) and had 725 shares as a shareholder in the company (“DOCTRINE OF ULTRA VIRES-EFFECTS AND EXCEPTIONS”). Moreover, Gordon Wyndham Hands, Alfred William Scales and Donald Davies were the defendants as well as the directors of the firm. According to the article 11 of the articles of the association of company, it was necessary that the directors of the company will take the shares at a fair value if the shareholder informs them regarding his transfer of shares in the company. To this, the defendants disagreed to take in and pay the fair price to the plaintiff. The claimant filed a complaint and later it was found that the articles were put together in such a way due to which directors were required to purchase the shares at a fair value (Cassidy, 2008). The objects of Ashbury Railway Carriage and Iron Company written in its Memorandum of Association were to only supply the material necessary for construction of railways and not to work on construction of them. However company entered into the contract of building railways. This was clearly in opposition with the provision of the Company Act of 1862(“DOCTRINE OF ULTRA VIRES-EFFECTS AND EXCEPTIONS”). Due to this contract, being against the Memorandum of Association was considered as ultra vires and not even the directors of the company could act against it even with their mutual consent. The shareholders could have passed a resolution to sanction the release or they could have changed the terms and conditions that were a part of company’s memorandum or articles. In the case of Shuttleworth v Cox Brothers and Company, it was decided that the contract decided on the basis of the articles present in the memorandum between the firm and the plaintiff could under goes change. If this new change is in the favor of the company then the contract will not be breached and this change will be considered as valid. Due to this, there was no doubt left that the alteration could be beneficial for the firm. Since there was dearth of evidence to prove the act of alteration of bad intentions, hence shareholders could not be questioned. Considering all this, the claimant was not granted the relief (“DOCTRINE OF ULTRA VIRES-EFFECTS AND EXCEPTIONS”). Georgia has its own laws when it comes to ultra vires. Rules and regulations that are posed on the firms working under Georgia’s laws are, 1. A corporation’s power under which it can act freely can be challenged: a. By a person who is against the company in a proceeding to enjoin the act; (“2010 Georgia Code TITLE 14 … Ultra Vires”). b. By the Attorney General during a proceeding, according the Code Section 14-3-1430; or (“2010 Georgia Code TITLE 14 … Ultra Vires”). c. In an arranged meeting by the corporation derivatively, or through a receiver, trustee, or other legal representative and directly, against a present or former director, official, worker, or representative of the company; or (“2010 Georgia Code TITLE 14 … Ultra Vires”). 2. Any corporation has legal power over its actions and this power cannot be challenged apart from the conditions that are mentioned above (Justia, 2010). These are the laws followed by all corporations working under the Georgian Law. In order to know whether an event or act is a case of ultra vires or not, firstly, it is necessary to know the main purpose behind that act (Singh and Vaidya, 2010, 8). Then it is important to ascertain the special powers that can affect that purpose. If the act does not lie within the domain of the two mentioned cases then the credibility of the act should be looked into and it should be inquired if the act was incidental at all. In other words, an act will not be considered as ultra vires if within the main purpose, or within the special powers expressly given by the statute to effectuate the main purposeor if the case is consequential upon or incidental to the main purpose (Singh and Vaidya, 2010, 8). However the basic principles remain the same which include that the all the shareholders cannot ratify ultra vires transaction despite having a mutual decision of ratifying it. An estoppel makes it impossible to rely on the defense of ultra vires because transaction is carried out by one partly only. On the other hand, a fortiori cannot be challenged because both parties perform transaction. In this case, since the contract was executory, both parties do have the power to rise as a defense of ultra vires (Singh and Vaidya, 2010, 8). Furthermore, if the contract is partially performed and the doctrine of estoppel cannot be considered due to its insufficiency then a suit for quasi contract is available to retain the benefits and services conferred. Moreover, if an agent of that particular firm committed an act of tort then the act cannot be considered as ultra vires and hence cannot be defended as an act of ultra vires (Singh and Vaidya, 2010, 8). In conclusion, it can be said that without the doctrine of ultra vires, it would have been difficult to develop the corporate powers (Craig, 1998). Ultra vires acts are those, which lie outside the domain, power, and purposes of a company. In the beginning, these acts were considered to be null and void. According to this approach, a firm was a limited entity, which could only perform those actions, which were a part of it charter. Ultra vires acts are considered as out dated in the modern private corporate law; however, this doctrine is still in full force for entities of government. Works Cited 2010 Georgia Code TITLE 14 - CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS CHAPTER 3 - NONPROFIT CORPORATIONS ARTICLE 3 - PURPOSES AND POWERS A§ 14-3-304 - Ultra Vires. Justia Law. N.p., n.d. Web. 03 July 2012. . Top of Form Cassidy, J A. Corporations Law: Text and Essential Cases. Annandale, N.S.W: Federation Press, 2008. Print. Bottom of Form Top of Form Craig, Paul. Ultra Vires and the Foundations of Judicial Review. The Cambridge Law Journal. 57.1 (1998): 63-90. Print.Bottom of Form DOCTRINE OF ULTRA VIRES-EFFECTS AND EXCEPTIONS. Caclubindia.N.p., July-Aug. 2011. Web. 3 July 2012. . Raghuvanshi, Raghvendra Singh, and NidhiVaidya.APPLICABILITY OF DOCTRINE OF ULTRA VIRES ON COMPANIES.N.p., n.d. Web. 3 July 2012. . "Ultra Vires." TheFreeDictionary.com. N.p., n.d. Web. 03 July 2012. . Read More