Ultra Vires & Agency (Cases) Flashcards
If the transaction was outside the company’s powers it would be void and unenforceable (ultra vires) against the company- This is because the company was not incorporated with the requisite capacity
Ashbury v Riche 1875
Doctrines of Ultra Vires-
the company’s object was to acquire and exploit a German patent for producing coffee from dates. The company failed to get the German patent but managed to get a Swedish patent and had a
profitable date coffee business. However, the company was wound up by the court since it could not achieve its stated object
Re German Date Coffee Co (1882)
the court accepted as valid an objects clause which concluded with the statement: ‘to carry on any other trade or business whatsoever which can, in the opinion of the board of directors, be advantageously carried on by the company in connection with or as ancillary to any of the above businesses or the general business of the company.’
Bell Houses Ltd v City Wall Properties Ltd (1996)
in this case the company, which was incorporated in 1951 at the time of the Festival of Britain, had an object of providing foreign visitors with accommodation and entertainment.
The company later diversified into pig breeding, which was (understandably) not covered by the objects clause. The bank was unable to enforce a debenture as a secured creditor or claim as an unsecured creditor in the company’s liquidation since the company was held to have acted ultra vires.
Re Introductions Ltd v National Provincial Bank (1970)
The court had to determine whether a managing director had implied power to suspend the company’s executive chairman without express authorisation by the board. It was held that the implied powers of a managing director are those that would ordinarily be exercisable by a managing director in his position, subject to the company’s articles and anything that the parties expressly agreed. The court considered that this did not include the suspension of the chairman
Smith v Butler (2012)
Mr Richards was the chairman and chief executive of the defendant company. He had agreed with the claimant that the defendant company would guarantee repayment of loans and indemnify the claimant against losses. The defendant company argued that Richards did not have authority to do this and therefore the company was not bound. Despite having no express authority, the Court of Appeal held that he had implied actual authority from a course of dealing due to his conduct over many months of entering into similar contracts and later notifying the board, who never objected.
Hely-Hutchinson v Brayhead Ltd (1968)
Kapoor (K) and Hoon (H) had formed
Buckhurst Ltd to buy and resell a large estate. There were four directors, including K and H, and the articles of the company required all four directors to constitute a quorum. Although not appointed as the managing director, K acted as such and engaged the claimants, a firm of architects and surveyors, to apply for planning permission to develop the estate. Buckhurst Ltd later refused to pay the claimants’ fees, arguing that K had no authority to engage them. The Court of Appeal upheld the claim on the basis of ostensible authority. Although K had no actual authority, the board had held K out as the managing director, allowing him to act in this way, and therefore K had ostensible authority to bind the company.
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964)
The bank brought a claim for the return of money owed by the company. The company argued that the manager who negotiated the loan should have been authorised by a resolution of the shareholders to enter into the loan, and as he had not obtained this authorisation, the loan was void and the company not required to pay back the money. The doctrine of constructive notice would mean that the bank was deemed to know of the requirement for authorisation in the company’s constitution. The court held that as the public documents would only reveal that a resolution was required and not whether such a resolution had been passed, the loan was valid
Royal British Bank v Turquand (1856)
3rd party has notice of the irregularity or is not acting in good faith
Rolled Steel Ltd v British Steel Corpn (1986)
3rd party is an insider, such as a director who enters into a contract with the company
Morris v Kanssen (1946)
Before then, it is not a legal person and therefore
has no capacity to enter into contracts
Rover International Ltd v Cannon Film Sales (No. 3)(1987)
it is necessary to look at the facts to determine whether there was an express agreement that the signatory would not be personally bound by the contract (as per Denning LJ)
Phonogram Ltd v Lane (1982)
The appellant had agreed to provide consultancy services to a company though the medium of a limited company which at the time of the agreement had not yet been incorporated. The consultancy services were performed and the fees were paid to solicitors who held the monies on behalf of the limited company until it was incorporated. The question on appeal was whether the fees should be taxed as the appellant’s personal income rather than the company’s income. The court held that the ‘subject to any agreement to the contrary’ proviso applied here as there was never any intention on anyone’s part that the appellant should become personally entitled to the fees.
Hepburn v Revenue and Customs Commissioners [2013] UKFTT 445:
in this case, the court applied Denning LJ’s reasoning in the Phonogram v Lane case. The contract concerned the sale of property in London and contained a clause which stated: ‘The benefit of this contract is personal to the buyer’. The judge did not consider this wording to exclude the effect of s 51, as it did not expressly indicate an intention to exclude the effect of s 51 and at the time the contract was formed, neither of the parties was aware that the company had not been incorporated.
Royal Mail Estates Ltd v Teesdale (2015)
Since the company did not exist at the time the contract was formed, it could not have authorised an agent to
act on its behalf and so is not able to retrospectively authorise purported agents
Kelner v Baxter (1866)
