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Commercial Law Essay

2717 words - 11 pages




12.What are the effects of the memorandum and the article after they are registered

The Contractual Powers of a Company
A Company or a Corporation is an artificial person created by law. It is a legal person capable of suing and of being sued. But the contractual powers of a company are limited in two ways :
(i) natural possibility and
(ii) legal possibility.
(i) Natural Possibility
The fact that a company is an artificial person leads to the result that a company must ...view middle of the document...

“It (the Memo) states affirmatively the ambit and extent of vitality and power which by law are given to the corporation, and it states, if it is necessary so to state, negatively that nothing shall be done beyond that ambit, and that no attempt shall be made to use the corporation life for any other purpose than that which is so specified.” It was also observed in the judgment that, “The directors and shareholders, even if they are unanimous, cannot do things which are not authorised by the memorandum.”
The important rules concerning the legal effects of the memorandum can be summed up as follows :
1. The terms of the memorandum constitute a binding contract between the Company and the members.Sec 36.           
 2. All acts done by the directors or members beyond the powers given in the memo, are ultra vires and not binding on the Company.
3. The members cannot ratify ultra vires acts, even by an unanimous resolution.
4. It an act is within the powers given by the memo (intra vires the memo) but contrary to some provision of the articles (ultra vires the articles) the, members can change the articles and ratify the act.
5. The object clause in the memorandum is construed like other documents and the Company may do anything which is fairly incidental to and consequential upon the powers specified. Attorney-General v. Great Eastern Rly.
The following acts have been held to be valid even though i there were no provisions about them ii, the Memo or Articles. Grants to an University for research, Evans v. Brunner, Mond  & Co. Lid’ ; payment to widows of ex-employees, Handerson
v. Bank of Australia.2 Ex-gratia payments to workers for ~ incentives, Hempson v. Price’s Patent Co
The Board of directors decided to pay a pension to the widow of the former managing directors of the company. Held, such ~ a payment is not for the benefit of the company, nor can it be ;called incidental to the business of the company. The payment is ultra vires. Re Lee Behren & Co. Ltd.
6. If a director makes an ultra vires payment (e.g., paying interest out of capital) he can be compelled to refund the money to the Company.          .
7. Contracts which are ultra vires the Company are not binding on the Company. But -the aggrieved party can be given relief in certain cases.

Examples :
(i) If a Company takes an ultra vires loan and uses it to pay off a creditor, the second creditor is substituted in the position of the first creditor and can recover the money. In re Wrexham Rly Co.
(ii) If goods are obtained by a Company by an ultra vires contract and the goods can be traced in the hands of the Company, the Company can be ordered to return it. Sinclair v. Brortgham.6
(iii) If money is lent by a Company not having power to lend it, the money can be recovered because the debtor will be estopped from taking the plea that the company laid no power to lend. Cotman v. Brougham.
8. Directors entering into ultra vires contracts may be liable to the third...

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