Corporate Capacity and Authority

Question 1

3.1. Describe the ‘ultra vires’ doctrine

Answer 1

Co limited to act only under the ‘Objects clause’ found in its Memorandum of Association

Question 2

3.1. Importance of 2014 CA in relation to ‘ultra vires’ doctrine in an LTD

Answer 2

LTD no longer has an ‘Objects clause’ therefore it has unlimited capacity, as long as it’s acting within the law

Question 3

3.2. Impact of ‘ultra vires’ doctrine on DAC’s

Answer 3

• continue to have objects clause
• ‘ultra vires’ not relevant
• the validity of a contract done by them cannot be questioned on this basis
• but directors have duty to act within their powers
• directors responsible for losses

Question 4

3.3. Rule set out in Royal British Bank (1856) case

Answer 4

• ‘new way to enforce a contract’
• ‘protects third parties’
• ‘Indoor management rule’
  1) contract cannot be voided if co. didn’t comply with its own rules
  2) 3rd party can presume that co. is compliant with own rules
  3) If co’s internal rules (M&A) public docs, 3rd party deemed to have knowledge of them

Question 5

3.3. Limitations to the ‘Indoor Management Rule’ - Royal British Bank (1856) case

Answer 5

1) 3rd party must have read the M&A, cannot just presume they’re compliant

2) Matters of public records
- no access unless they are published

3) Act in good faith when relying on the rule - 3rd party

Question 6

3.3. Examples of the ‘Indoor Management Rule’ in action

Answer 6

• director entering in a contract, but not appt by Board
• AIB (1972) - loan cannot be invalidated if director not notified of the meeting
• Ulster Bank (1982) - txn could not be canceled because quorum was not present at meeting

Question 7

3.4. 3 ways in which a co. officer/ agent may bind the co./ enter into contracts on company’s behalf

Answer 7

Actual authority

Implied authority

Ostensible authority

Question 8

3.4. Actual authority (when entering into a contract on co’s behalf)

Answer 8

Expressed through:

• co’s Constitution
• resolutions of members/ board of dirs
• Expressly empowered to do so
• Board of dirs & registered persons have deemed authority

Question 9

3.4. Implied authority (when entering into a contract on co’s behalf)

Answer 9

• no expressed authority

- position gives them the authority automatically

Question 10

3.4. Implied authority (when entering into a contract on co’s behalf)

Brayhead Ltd (1968)

Answer 10

• 3rd party enforced contract entered into with Chairman of the co.(also MD) -implied authority

Question 11

3.4. Implied authority (when entering into a contract on co’s behalf)

Underwood Ltd (1924)

Answer 11

• 3rd party limited to rely on implied authority of a co. agent
• not aware of his position’s limitations or reasons to suspect lack of authority

Question 12

3.4. Ostensible authority - Representation (when entering into a contract on co’s behalf)

Answer 12

By way of representation made by the co. to the 3rd party that agent can act in their behalf

May also arise where 2 companies have dealt before (have a history of contracts)

Question 13

3.4. Ostensible authority - Representation - 4 step test

Freeman (1964)

Answer 13

4 step test (all met at once):

1) Representation made by the co. (express/tacit)
2) Representation made by someone with authority
3) Contract entered into only on foot of representation and 3rd party had reliance on it
4) Co. must have capacity to enter in such contract

Question 14

3.4. Ostensible authority - Representation (when entering into a contract on co’s behalf)

Ulster Factors Ltd (1997)

Answer 14

Failure to inform Plaintiff that director had no authority to authorise drawdown (tacit)

Question 15

3.4. Ostensible authority - Representation

Freeman (1964) facts

Answer 15

• director treated as MD for years

- 3rd party was induced to think he had authority