Corporate Contracting Flashcards
What is the ultra vires doctrine in company law?
It is the principle that a company can only act within the powers and objectives stated in its constitutional documents. Actions beyond these powers are considered void.
Which case first established the ultra vires doctrine?
Ashbury Carriage Company v Riche (1875) – The House of Lords held that a contract beyond the company’s stated objects was void.
What were the three main problems with the ultra vires doctrine?
- Rigid Objects Clause
- Lack of Business Flexibility
- Constructive Notice Rule
How did A-G v Great Eastern Rly (1880) modify the ultra vires doctrine?
It introduced the incidental or consequential powers test, allowing companies to perform actions necessary to achieve their stated objects.
How was the ultra vires doctrine abolished under the Companies Act 2006?
- S.31: Companies have unrestricted objects unless stated otherwise.
- S.39: A company’s capacity cannot be challenged based on constitutional limitations.
How can a company enter into contracts under Companies Act 2006, s.43?
- Directly under its common seal.
- Through agents acting with express or implied authority.
What are the three types of authority an agent may have?
- Express actual authority
- Implied actual authority
- Apparent (ostensible) authority
What was decided in Freeman & Lockyer v Buckhurst Park Properties (1964) regarding apparent authority?
If a company holds out an agent as having authority, it is bound by that agent’s contracts with third parties.
What was the key ruling in Hely-Hutchinson v Brayhead Ltd (1968) about implied authority?
A chairman acting as a de facto managing director had implied authority based on the board’s acquiescence.
How did Panorama Developments v Fidelis Furnishing (1971) define a company secretary’s authority?
A company secretary has implied authority to enter into contracts relating to administrative matters.
What is the doctrine of constructive notice?
The presumption that anyone dealing with a company is aware of its publicly available constitutional documents.
What is the indoor management rule, and which case established it?
The rule in Turquand’s case (Royal British Bank v Turquand (1856)) protects outsiders dealing with a company by assuming internal formalities have been followed.
When can’t a third party rely on the indoor management rule?
If they had actual knowledge of irregularities or acted in bad faith (Rolled Steel Products v British Steel (1986)).
What protection does s.40 of the Companies Act 2006 provide?
- Third parties dealing with a company in good faith can assume directors’ powers are free of limitations.
- Third parties do not need to investigate company internal rules.
What does s.41 say about transactions involving directors?
If a director is involved in a transaction that exceeds their authority, the transaction is voidable at the company’s discretion.
In Smith v Henniker-Major (2002), why couldn’t the director rely on s.40?
A director cannot use s.40 to justify their own procedural mistake.
Under which provision can shareholders challenge directors exceeding their authority?
- S.40(4): Shareholders can seek an injunction to prevent ultra vires acts.
- S.171(a): Directors must act in accordance with the company’s constitution.
What does s.239 say about director liability?
Directors acting outside their authority can be personally liable unless their actions are ratified by shareholders.
