Who Can Plead That A Contract Is Ultra Vires?
| Date | 01 November 1961 |
| DOI | http://doi.org/10.1111/j.1468-2230.1961.tb00667.x |
| Published date | 01 November 1961 |
| Author | M. P. Furmston |
WHO CAN PLEAD THAT A CONTRACT
IS
ULTRA
VIRES?
AT
first sight the significance of the decision in
Anglo Overseas
Agencies, Ltd.
v.
Green
lies in the applicability of the decision in
Cotman
v.
Brougham.2
The plaintiff company’s memorandum of
association contained in paragraph
(E)
of the objects clause a wide
residuary provision.
A
contract between the plaintiff company and
the defendants fell within the widest meaning of this provision but
the defendants contended that the contract was
ultra vires
the
company on the ground that paragraph
(E)
should read as only
ancillary to the
“
main objects
”
as set out in paragraphs
(A)
and
(B).
The draftsman of the memorandum must have foreseen such
an argument, for the concluding words of the objects clause were
‘‘
the objects specified in any paragraph of this clause shall, except
whe:e otherwise specified in such paragraph, be in no wise limited
or
restricted by reference to
or
inference from the terms of any other
paragraph
or
the name‘of the company.” Salmon
J.
held, following
Cotman
v.
Brougham,
that this provision was apt to exclude the
main objects rule and therefore that the contract was
intra vires.
This decision seems inevitable but
it
is surprising that the impor-
tant question of whether the defendant could set up the defence
that the contract was
ultra vires
the plaintiff company was allowed
to go by default. Counsel for the plaintiff company does not seem
to have argued the point and Salmon
J.
simply said
cc
whatever
the merits may be,
if
the
‘
main objects
’
rule does in law apply
in this case then the piece of business in respect of which the
plaintiff company purported to engage the defendants was
ultra
vires
the company, and the defendants would in law clearly be
entitled to succeed in the action.”
It
is doubtful however whether the matter is really self-evident.
The books, where they are not completely silent, speak with a
divided voice on this subject.
Dr.
Pennington says that an
ultra
vires
contract cannot be enforced by the company.‘ Professor
Gower
is
less dogmatic. He says
5:
It
is not clear whether the
other party when sued by a company can plead as a defence that
the contract was
ultra vires.
On normal principles
of
the law of
contract he should not be able to set up the incapacity of the
1
[I9611 1
Q.B.
1; [1960]
3
All
E.R.
244.
2
[1918]
A.C.
514.
3
[196l]
1
Q.B.
at
8;
[1960]
3
All
E.R.
at
245.
Profesaor Goodhart
in his
comment
st
77
L.Q.R.
11
does
not
discuss
this
point.
Cf.
Treitel
77
L.Q.R.
83
at
86,
note
20.
4
Principles
of
Company Law,
let ed.,
p.
70.
The only
authority
cited
is
Ashbury Railway Carriage and Iron
Co.
v.
Riche
(1876)
L.R.
7
H.L.
663.
5
Modern Comvany Law,
2nd
ed.,
pp.
90-91.
715
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