What is ultra vires?

BY: The Mirror
How to Pronounce Ultra Vires
How to Pronounce Ultra Vires

Dear Asamoah, Both the 1992 Constitution and Acts of Parliament such as the  Companies Act deals with the doctrine of ultra vires.

At common law, in order   to protect the shareholders and third parties dealing with the company, the courts have held  that a company incorporated under the Companies Act is incorporated by Parliament for the objects stated in its  Regulation. Thus it has power only to carry out such objects    and anything else which is reasonably incidental thereto.

If an act is performed or a transaction carried out, which though legal in itself, is not authorised by the objects clause in the regulations, it is ultra vires, i.e. beyond the powers of the  company and void, so that it cannot be ratified even if all the  members wish to ratify.

For example, a company formed to manufacture cars is expected to do just that and cannot go and enter   into contract or borrow money for another purpose.

Ultra vires is a Latin phrase that means beyond the powers.

  When used in law, it refers to an activity which exceeds the authority or power of the person engaging in that activity.

When an officer or body is acting within its powers he is said to be acting Intra Vires.

This implies the act requires legal     authority and it is done with such authority.

As used by lawyers and judges, acts that are intra vires may equivalently be termed "valid" and those that are ultra   vires "invalid".

The doctrine of ultra vires has been criticised in a number of   reports as an   "illusory protection of the shareholders and yet may be a pitfall for third parties dealing with the company".   

Thus, although Ghana Law by section 25 of the    Companies Act prohibits ultra vires actions just like English Law, to lessen the  unfair treatment suffered by third parties who may not   know the objects of a  company before a particular transaction with the company.

The whole purpose  of Section 25 (3) is to    protect such third parties. It says an act of the company  shall not be invalid by reason of the fact that such act was not done   for the  furtherance of any of the authorised businesses of the company or that the company was exceeding its objects or powers.

The advantage of this statutory  modification of the  ultra vires rule on third parties is that if, a person enters into a  contract with a company which although lawful, is ultra vires   the company,  and he does not actually know that it is ultra vires, provided that it has been   decided on by the Directors, he can assume that it is intra vires and he will be   able to enforce the  contract against the company (i.e. the company will be  unable to plead ultra vires).

In the case of ASHBURY RAILWAY CARRIAGE CO. LTD. VRS. RICHE [1875] a company was formed with the object of carrying on business as   mechanical engineers and general contractors.

The Directors, however,  purchased the right to construct a railway in Belgium and entered into a contract with Riche whereby he would build the railway.

This agreement was ratified by all the shareholders. The company then ran into difficulties and terminated the   contract.

Riche sued for breach of contract. It was held by the House of Lords  that the contract was ultra vires  and void, so that not even the subsequent assent by the whole body of shareholders could  ratify it.

Similarly, under the 1992 Constitution, there are certain acts  such as declaring   a one party state or retroactive legislation   which are prohibited.

Any attempt by   Parliament or any other person or body that  undertakes  such prohibited acts shall be   ultra   vires of  their powers and will be  declared by the court as null and void.

Ghana Law also protects and provides remedies to shareholders and debenture  holders in cases where a company acts beyond  the powers provided under its  objects. Thus, by section 25 (4) and (5), any member or debenture holder may   apply to the   court for an injunction to restrain or stop the company from the  ultra vires act.

Directors may also be sued under section 210 of the Code for breach of their duties and may be liable to   compensate the company for loss sustained as a result of  breach of their duty in engaging in the ultra vires act.