In which cases the doctrine of ultra-vires may not apply

The company entered into a contract with Riche for the financing of the construction of a railway line in Belgium. The question raised was whether that contract was covered within the meaning of general contractors. The house of lords held that the contract was ultra virus the company and void so that not even the subsequent assent of the whole body of share­holders could ratify it.

However, the doctrine of ultra-vires does not apply in the following cases :-1. If an act is ultra-vires of powers the directors but intra-vires of company, the company is liable.

2. If an act is ultra-vires the articles of the company but it is intra-vires of the memorandum, the articles can be altered to rectify the error.

3. If an act is within the powers of the company but is irregualarly done, consent of the shareholders will validate it.

4. Where there is ultra-vires borrowing by the company or it obtains deliver of the property under an ultra-vires contract, then the third party has no claim against the company on the basis of the loan but he has right to follow his money or property if it exist as it is and obtain an injunction from the Court restraining the company from parting with it provided that he intervenes before is money spent on or the identity of the property is lost.

5. The lender of the money to a company under the ultra-vires contract has a right to make director personally liable.

Liability clause A declaration that the liability of the members is limited in case of the company limited by the shares or guarantee must be given. The MA of a company limited by guarantee must also state that each member undertakes to contribute to the assets of the company such amount not exceeding specified amounts as may be required in the event of the liquidation of the company. A declaration that the liability of the members is unlimited in case of the unlimted compa­nies must be given. The effect of this clause is that in a company limited by shares, no member can be called upon to pay more than the uncalled amount on his shares. If his shares are already fully paid up, he has no liabilty towards the company.
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