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'The rule in the case of Ashbury Railway Carriage Vs. Riche (1875)stated that an act has not been authorized by the objects clause of a...

      

'The rule in the case of Ashbury Railway Carriage Vs. Riche (1875)stated that an act has not been authorized by the objects clause of a company's Memorandum of Association in ultra vires to the company and the members cannot ratify it.'

Discuss.

b) Explain the various ways in which persons intending to form a company may avoid
personal liability on contracts they make on behalf of the proposed company.

c) It has been held that the memorandum and Articles of Association of a company shall, when registered, bind the company and the members to the same extent as if the documents has been signed and sealed by each member and contained covenants an the part of each member to observe all the provisions of the memorandum and the articles.

Explain the effect of this provision on the relationship between shareholders and their company and between shareholders themselves.

  

Answers


Martin
-This case is authorized for the proposition that a registered company's capacity is restricted to the transactions set forth in the objects clause of the memorandum other transactions are ultra vires and therefore null and void.
- In this case the transaction in question i.e. purchase of concession and construction of railways was not authorized by the objects and was therefore declared ultra vires.
- This case interpreted the doctrine of ultra vires very restrictively thereby limiting corporate capacity.
- However, in Attorney General V. Great Eastern Railway Co. it was held that a transaction reasonably incidental to the attainment or pursuit of the objects of the company was Ultra Viresthe company. In the words of Lord Selbourne 'whatever may be regarded as fairly incidental to or consequential upon'
-The second aspect of ruling relates to ratification of an ultra vires transaction. In Ashburys case although members in general meeting purported to ratify the transaction it was held that the ratification had no legal effect since the transaction was void. This ruling is correct in that a void transaction is incapable of ratification. This principle was upheld in Rolled Steel Products (Holdings) Ltd V. British Steel Corporation and Others(1986) where Slade L. J. was emphatic that an ultra vires transaction cannot be rendered intra vires by ratification, delay acquiescence estoppel or lapse of time.
(b)
- As a general rule a pre incorporation contract against the company did not exist and cannot ratify the transaction when incorporated, nor can directors of the company adopt or conform the contract (see Kelner V. Baxter) (Price V. Kelsal) (North SydneyInvestments and General Tramways V. Higgins & Another) (Natal Land Company V.Pauline Colliery Syndicate)
-However a person can escape liability on per incorporation contracts by:
- The company entering into a new contract to the same effect as the previous one (Mawagolas case). -Entering into a contract which expressly provides that the promoters liability shall cease when the company is formed.
- Entering into an agreement which expressly provides that it becomes legally binding upon the company when incorporated.

(c)
- This provision is to the effect that when the Articles are registered there comes into being a contract between the company on one hand and shareholders on the other to observe the provisions of the articles.
- Either party is free to sue the other for non compliance with the provisions of the articles. Welton V. Sattery.
- Hickman V. Kent or Romney Mash Sheep Breeders Association

marto answered the question on February 7, 2019 at 06:16


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