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THE ULTRA VIRES DOCTRINE

ULTRA VIRES & AGENCIES INTRODUCTION


The capasity and power of artificial person (Company) depend upon and are limited by the instrument (memorandum)which constitutes it. 2. When the company had acted beyond its capasity i.e. acted beyond the authority of the object of clauses of its memorandum. 3. An act of abuse of power by directors, agent and or ilegality (act against public policy) is not similar to an act of ultra virus. 4. H/ever s. 20(1) states that any transaction is otherwise valid and binding upon a company, the fact that it is ultra virus is irrelavant. Thus, s. 20(1) subject to s. 20(2) abolishes the absolute effects of the ultra vires doctrine . Bumiputra Merchan t Bak ers Bhd. V Supreme QBE Insurance Bhd.

WIDER AND NARROW VIEWS


(A) WIDER VIEW Re Introduction Ltd A company has only one main object i.e. to run a travel agency.It has power to borrow money. But it later borrow money for pig breeding. A transaction that was entered for the purpose of a business that was not authorised by the MOA is ultra vires. (B) NARROW VIEW Rolled Steel Products (Hol ding)Ltd v British Steal Corp. an act which is authorise by the object clause of the Company does not becomes ultra vires just because it is done for the purpose that were not authorised by MOA . In such a situation the transaction is not ultra vires but only a breach of the directors duties.It still binds the company. If the parties knew this breach of duty , they can ask for set aside the contract. (B) This narrow view is followed by Malaysian courts . Public Bank Bhd. V Metro Construction Sdn.Bd.

Whether an agent who acted ultra virus with the authority of the company is valid and binding. s. 20(1) an agent of the company may be expressly or impliedly authorised to enter into an ultra vires transaction We have to look into the type of authority the agent has. (a) actual authority a company by virtue of s. 20(1) may give actual authority to an agent to enter into an ultra vires act. Normally the general meeting by special resolution or ordinary resolution can confer actual authority to an agent enter into transaction which is ultra vires. H/ver board of directors does not have authority to give such becox they under MOA or AOA have limited power. But according Woon the best approach is the normal rule of agency were to apply. (b) apparent authority In apperent or oustensible authority there must be representation must be made by the company to contracting party and if he knew there was lacking of actual authority or he did not enguire about it he when he can do so cannot enter into a transaction with such agent. An agent could never have ostensible authority to enter into transaction that is clearly beyond the MOA unless and express representation as to his autority to do so has been made by an authorised person. In the absent of such representation a transaction wholly beyond the MOA would be binding on the company only if the agent had actual authority, whether express or implied, to enter into it.

EEFECT OF ULTRA VIRES ACT

Parctically the doctrine of ultra vires has less In England U/V cannot be ratified but in significant now.It is becox: Malaysia by virtue of s. 20(1) no need to (1) parties in drafting MOA they will list as manyratify be becox it is binding upon the objects as possible and the final object will be company. the catch all clause. (2) Third Schdule provides a wide discretionary power to a company to exercise in order toAPPLICATION TO FOREIGN obtain its object AND STATUTORY CORP . (3) S. 20(1) states that even the act is ultra vires it is still valid and binds the company s. 20(1) has no application to foreign However there are 3 effects of ultra vires act: companies and corporation incoporated (a) act of ultra vires may be restrained before it isunder statutes othe then CA. fully performed by a member debenture holder secured by a floating charge or his trustees: s.Foreign Co. is governed by the law of the 20(2) (a) place its is incorporated. (b) the issue of a company lack of capasity may beStatutory Corp. powers and capasity are raised in any action by the company or adefined by its incoproration statutes. member against the present or former officers of the company :s.20(2) (b) (c) The fact that a company has acted beyond its capasity may be relied upon in any petition by the Minister to have the company wound up: s. RESTRAINING ULTRA VIRES 20(2)(c) Act of application to restrain the company from acting upon an ultra vires contract does not affect the validity of that contract.It is still valid. :s. 20(1) A company may be in breach of contract if an injunction is issued to restrain it from performing it and to avoid this an application should be made by the co. to join the other contractting party as party to the action. By doing so the contract can be set aside and restrain the performance of the contract: s. 20(3) Where the court had order setting aside the contract the company is not in breach if it is restrained from performance. The other party may be compensated for any loss incurred but not includes anticipitated profits: s. 20(1) Transaction with third parties cannot be restrained on the gr that ther are ultra vires. Once an ultra vires transaction is completed it is beyond challenged.

RATIFICATION VIRES ACT

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