4. What Is the Contractual Capacity of a Public Limited Company

As this can be a very technical problem, it is advisable to seek legal advice whenever one is confronted with the validity of the decision or the contractual obligations of the company. With the amendments to the Companies Act 2004, the requirement that objects be specified in a corporation`s memorandum was repealed. Article 23(1) provided that an undertaking `shall be fully capable of carrying out or carrying out activities, performing acts or concluding transactions`. Clearly, this provision is intended to exclude the applicability of the ultra vires doctrine. However, the exclusion is incomplete, since Article 23 (1A) retains the possibility of including objects. The founders of a company can therefore choose to include an object clause in the memorandum. In addition, § 23 Abs. 1B the inclusion in the memorandum of provisions restricting the performance and powers of the company. Since the application of Article 23(1) is expressly limited, inter alia, by the provisions of the company`s statutes, the doctrine of ultra vires seems to remain relevant for companies making use of the possibility of limiting their capacity. How should an act be treated if it fell within the powers of society but was entered into in order to promote a purpose that was not within the meaning of the purpose of the corporation? In Rolled Steel Products (Holdings) Ltd v.

British Steel Corp, the courts held that, as long as the company had the power lawfully exercised, the fact that the object for which that power was exercised was outside the purpose of the company or used for inappropriate purposes did not render the exercise of the power ultra vires. This “illegal” exercise of the corporation`s power had nothing to do with the corporation`s capacity, but everything to do with the authority of the agents (usually directors) who exercised power on behalf of the corporation. Therefore, the resulting transaction was not void, but at the choice of the company and can only be contested if the other contractual partner was aware of the fault or breach of an obligation. The question that must be asked is whether the power of enterprise to be examined could have been exercised in order to pursue the objectives of the undertaking. If the answer is yes, the exercise of power is not ultra vires. The facts of the laminated steel case provide a useful illustration of this. Rolled Steel`s memorandum authorized them to provide guarantees. The board of directors led him to guarantee the obligations of a company controlled by a majority shareholder and director of Rolled Steel. As to whether the guarantee was void since it was ultra vires, the English Court of Appeal held that that was not the case. It was clear that the company was able to provide guarantees. The fact that the guarantee constituted an abuse of power does not mean that the operation was ultra vires.

This view of ultra vires transactions (often referred to as the “narrow point of view”) was endorsed by the Singapore Court of Appeal in Banque Bruxelles Lambert v. Puvaria Packaging Industries (Pte) Ltd (see footnote 7) and contributes, in some way, to undermining the applicability of the ultra vires rule. In addition, section 25 of the Companies Act means that the consequences of the common law doctrine are further enhanced as follows: “No alleged act or act of a corporation. is void only because the company has not been able or authorized to perform such an act or to perform or effect such a transfer or transfer. If it is a party dealing with a company, the sting of the ultra vires doctrine has been virtually eliminated, since the transaction can no longer be void for this reason alone. It should be noted that the doctrine of constructive communication, which has so far worked hand in hand with the ultra-vires doctrine to the detriment of those who conclude contracts with undertakings, has been abolished by Article 25A. Therefore, it is not presumed that a person has knowledge of the contents of the company`s memorandum simply because it is a recommended document available for inspection. Although the doctrine is weakened, it is not entirely dead and buried, as subsection 25(2) retains a member`s right to apply to the court for an order of non-compliance with the ultra vires law. Unlike the common law, an ultra-vires transaction is not automatically null. Whether the so-called ultra-vires law is restricted (and thus avoided to that extent) depends on the court`s belief that it would be just and just if the law were restricted. Factors such as the possible injury or loss suffered by the alien, the alien`s level of knowledge and whether other rights of third parties are affected could be taken into account by the court when deciding whether or not to issue the order. The fact that an act exceeds the capacity of the company may also be invoked or invoked in proceedings against the directors of the company who, by inducing the company to engage in an ultra-vires transaction, would likely violate the obligations of its own directors. Limited liability company: This is a separate legal entity from its owners.

Shareholders have limited liability and are not held personally liable for the company`s debts, the maximum that shareholders can lose is the value of their investment. Courts generally do not find a lack of contractual capacity for people who are voluntarily drunk. The justification for this decision lies in the argument that individuals should not be allowed to circumvent their contractual obligations because of their self-induced conditions. However, for another reason, the courts also try to avoid the undesirable outcome, allowing the sober party to take advantage of the other person`s condition. Therefore, if a party is so drunk that they cannot understand the nature and consequences of the agreement, the contract can be declared null and void by the drunken party.