December 23, 2024
Company LawDU LLBSemester 3

Ashbury Railway Carriage and Iron Company Limited v. Riche[1874-80] All E.R. Rep. 2219 (HL)

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Case Summary

CitationAshbury Railway Carriage and Iron Company Limited v. Riche[1874-80] All E.R. Rep. 2219 (HL)
Keywordsdoctrine of ultra vires
FactsThe directors of the appellant company (Ashbury Railway Carriage) had contracted to obtain a concession from Gillon and Poeters Baerston, who obtained this right from the Belgian Government, to make a railway. 
For this purpose, the directors of the appellant company again entered into a contract with Riche, a contractor, the purpose of which was
to establish a société anonyme, 
and as the plaintiff went on with the work, the appellant company had to pay into the hands of société anonyme, 
Earlier the shareholders permitted the accounts to pass.
Later money difficulties arose in the appellant company, and the shareholders, becoming aware of the contract, appointed a committee of investigation, which reported that it was ultra vires altogether. 
The company repudiated the agreement and compelled the directors of the company to take the burden of the contract.
IssuesWhether the contract was valid? If not whether it could be ratified by the members of the
company?
Whether the company was competent to make an agreement beyond its MOA?
ContentionsAppellants contention:
The contract was ultra vires hence the Contract is “void ab initio”.
There was no such special resolution to amend the MOA had ever been passed

Respondent contention:
The company is liable to compensate him as they did not fulfill the contract.
Though the directors made the agreement, it was ratified by all the shareholders.
The term “general contractors” in the agreement is within the MOA of the appellant company.
The company can go beyond the memorandum after a special resolution. 
Law PointsThe House of Lords, agreeing with the three dissentient judges in the Exchequer Chamber, pronounced the effect of the Companies Act to be the opposite of that indicated by Mr. Justice Blackburn. It held that if a company pursues objects beyond the scope of the memorandum of association, the company’s actions are ultra vires and void. Lord Cains LC said,
It was the intention of the legislature, not implied, but actually expressed, that the corporations, should not enter, having regard to this memorandum of association, into a contract of this description. The contract in my judgment could not have been ratified by the unanimous assent of the whole corporation.
The company was not competent to make a contract beyond its objectives, hence it was void.
A contract of this kind is not within the MOA.
Carrying on the business of mechanical engineers and general contractors clearly doesn’t include the making of these contracts.
Where there could be no mandate there cannot be any ratification, and the assent of all the shareholders can make no difference.
Contracts for objects and purposes foreign to, or inconsistent with the memorandum of association are ultra vires of the corporation itself.
JudgementThe House of Lords held that the contract was ultra-vires the memorandum of the
company, and, thus, null and void and cannot be ratified by the members. Appeal Allowed. And the company is not liable to compensate the respondent. 
Ratio Decidendi & Case Authority

Full Case Details

This was a proceeding in error from a judgment of the Court of Exchequer Chamber,
affirming a judgment of the Court of Exchequer upon a special case stated by an arbitrator in
an action brought by the respondent under the following circumstances:–
The company was incorporated under the Companies Act 1862. Clause 3 of the
memorandum of association was as follows:
“3. The objects for which the company is established are, to make, or sell, or
lend on hire railway carriages and waggons, and all kinds of railway plant, fittings,
machinery, and rolling stock; to carry on the business of mechanical engineers and
general contractors; to purchase, lease, work, and sell mines, minerals, land and
buildings; to purchase and sell, as merchants, timber, coal, metals or other materials,
and to buy and sell any such materials on commission or as agents.”
By the articles of association the business of the company might be extended to objects
beyond those expressed or implied in the memorandum of association by a special resolution,
but no such resolution was ever passed. Riche had obtained a concession from the Belgian
Government to make a railway from Antwerp to Tournay, and the directors of the company
entered into a contract with him, the purport of which was to take over the concession, to
establish a société anonyme, to raise money for constructing the railway, to pay towards the
funds of the société, and to take bonds or shares in exchange and to give to Riche the business
of supplying the iron and the rolling stock. Money difficulties arose, and the shareholders,
becoming aware of the contract, appointed a committee of investigation, which reported that
it was ultra vires altogether. The shareholders, however, permitted the accounts to pass,
amicable arrangements were recommended, and a deed, dated 24 December 1867, was
executed, by which the directors were, as between themselves and the shareholders,
compelled to take upon themselves the burden of the contract with Riche, the company
consenting to allow their name to be used in legal proceedings. Afterwards Riche, finding
that the contract was not duly performed commenced this action, insisting that whatever
arrangements might have been made between the directors and the shareholders, the company
was liable to him. The Court of Exchequer held that the contract was ultra vires, but Martin
and Channel, BB., thought that it could be, and had been ratified by the shareholders, and
gave judgment for the plaintiff, Bramwell, B., dissenting. Error was brought, and the Court of
Exchequer Chamber was equally divided, Blackburn Brett, and Grove, JJ., being of the same
opinion as the majority of the Court of Exchequer, Keating, Archibald, and Quain, JJ., taking
the opposite view. The judgment accordingly stood affirmed, and error was brought to the
House of Lords.

THE LORD CHANCELLOR (CAIRNS) – The history and progress of the action out
of which the present appeal arises, is not, I must say, creditable to our legal system. There
was not in the case any fact in dispute, and the only questions which arose were questions of
law, or questions perhaps as to the proper inference to be drawn from facts as to which there
was no dispute.
The action was commenced in the month of May, 1868. The litigation appears to have
been active and continuing, and yet seven years have been consumed, and the result up to the
present time is this; that, in the Court of Exchequer, two out of three Judges were of opinion
that the plaintiff should have judgment; and when the case came before the Exchequer
Chamber it was heard before six Judges, three of whom were of opinion that the plaintiff was
entitled to judgment, the other three thinking the defendant was entitled to judgment. The
result, therefore, was that the judgment of the Court of Exchequer was affirmed. But for this
difference of opinion amongst the learned Judges, I should have said that the real questions of
law which arise in the case, questions which appears to me to be sufficient altogether to
dispose of the case, were of an extremely simple character.
The action was brought by the plaintiffs, who are contractors in Belgium, to recover
damages for the breach of an agreement entered into between the plaintiff and the appellants,
the Ashbury Railway Carriage and Iron Company, limited. This company was established
under the Joint-Stock Company’s Act of 1862, and I think it will be therefore necessary to
consider, with some minuteness, some of the leading provisions of that Act of Parliament.
But in the first place it may be convenient to ascertain the purposes for which this company
was formed, and also the nature of the contract for breach of which the action was brought.
The purposes for which a company established under the Act of 1862 is formed, are always to
be looked for in the memorandum of association of the company. The memorandum of
association of this Ashbury Railway Carriage and Iron Company, limited, declares that it was
formed for these objects. Part of the argument at your Lordship’s bar was as to the meaning of
two of the words used in this part of the agreement, the words “general contractors.” As it
appears to me, upon all ordinary principles of construction, those words must be referred to
the part of the sentence which immediately precedes them. The sentence which I have read is
divided into four classes of words. First, the selling, or lending railway carriages, waggons,
and all kinds of railway plant, fittings, machinery, and rolling stock. That is an object sui
generis and complete in the specification which I have read. Secondly, to carry on the
business of mechanical engineers and general contractors. That, again, is the specification of
an object complete in itself, and according to the principles of construction, the term “general
contractors” would be referred to that which goes immediately before, and would indicate the
making generally of contracts connected with the business of mechanical engineers, such
contracts as mechanical engineers are in the habit of making and are in their business
required, or find it convenient to make for the purpose of carrying on their business. The third
is to make purchase, lease, work and sell mines, minerals, land, and buildings. That is an
object pointing to the working and acquiring of mineral property, and the generality of the
two last words “land and buildings,” is limited by the purpose for which land and buildings
are to be acquired. “Leasing, working and selling of mines and minerals.” The fourth head is
purchasing and selling timber, coal, or metals, or other materials; buying and selling any such

materials on commission as agents. That requires no commentary. If the term “general
contractors” is not to be interpreted as I have stated, the consequence would be this, that it
would stand absolutely without any limit of any kind. It would authorize the making,
therefore, of contracts of any and every description, and the memorandum in place of
specifying the particular kind of business, would virtually point to the carrying on of business
of any kind whatsoever, and would therefore be altogether unmeaning.
That being the object for which the company professes, by the memorandum of
association, to be incorporated, I now turn to examine the contract upon which the present
action is brought. I may relieve your Lordships from any lengthened exposition of the nature
of that contract by referring you to the description given of it by Bramwell, B., in the Court of
Exchequer, which appears to me accurately to describe the general nature of the agreement.
Bramwell, B., states this: “The substance of those contracts,” that is the contract upon which
the action is brought, and two other contracts which are inseparably connected with them –
“the substance of those contracts was this, Gillon and Poeters Baertson had obtained a right to
make a railway in Belgium. This right the defendants’ directors supposed to be valuable to its
owners. That is to say the line could be constructed for such a certain sum, and a société
anonyme could be constituted, with shareholders to take its shares to such an amount as
would give a large sum over the cost of construction. The benefit of this the directors wished
to obtain for the defendant company, and to do so they purchased the concession. This was
their main object. But the plaintiff had a contract with the concessionaires to construct the
line, and to accomplish the object of the directors it was necessary or desirable, or they
thought it was, that they should agree with the plaintiff that they, the defendant company,
would constitute a société anonyme, and, as the plaintiff went on with the work, that they
would pay into the hands of the société anonyme proportionate funds. The directors
accordingly entered into two contracts in the name of the defendant company; one with the
concessionaires to purchase the concession; the other with the plaintiff to furnish the sociétié
anonyme with funds, the latter being auxillary to the former; and they paid the
concessionnaires £26,000, part of the price. Now whatever may be the meaning of “carrying
on the business of mechanical engineers and general contractors,” to my mind it clearly does
not include the making of either of these contracts. It could only do so by holding that the
words ‘general contractors’ authorized generally the making of any contract, and this they
certainly do not do.”
I agree entirely both with the description given by Bramwell, B., of the nature of the
contract upon which the present action is brought, and with the conclusion at which he
arrives, that a contract of this kind was not within the memorandum of association. In point of
fact it was not a contract in which, as the memorandum of association implies, the limited
company were to be employed; they were the employers. They purchased the concession of a
railway, an object not at all within the memorandum of association, and having purchased that
they employed, or they contracted to pay as a person employed, the plaintiff in the present
action. That was reversing entirely the old hypothesis of the memorandum of association, and
was the making of a contract foreign to, and not included within its compass. Now those
being the results of the documents to which I have referred, I will ask your Lordships to
consider the effect of the Joint Stock Companies Act of 1862 upon this state of things; and

here I cannot but regret that in the Court of Exchequer the accurate and precise bearing of that
Act upon the present case appears to me to have been entirely overlooked or misapprehended,
and in the Court of Exchequer Chamber the weight which was given to the provisions of the
Act appears to me to have entirely fallen short of that which ought to have been given to it.
The Act of Parliament to which I am referring is the Act which put upon its present footing
the regulation of joint stock companies, and more especially of those joint stock companies
who were to be authorized to trade with a limit to their liability. The objects of the provision
under which that system of limiting a liability was incorporated were provisions not merely
for the benefit of the shareholders for the time being of the company, but were also intended
to provide for the interests of two other very important bodies, in the first place those who
might become shareholders in succession to the shareholders for the time being; and secondly
the outside public, and more particularly those who might be creditors of companies of this
kind. I shall now refer to some of the clauses of that Act, and as I do so I would observe that
there is a very marked and entire difference between the two documents which form the title
deeds of companies of this description, I mean the memorandum of association on the one
hand and the articles of association on the other. With regard to the memorandum, as has
often been pointed out, although it appears to have been somewhat overlooked in the present
case, the memorandum of association is, as it were, the charter and the limitation of the
powers of any company established under the Act. With regard to the articles of association,
these play a part subsidiary to the memorandum. They accept the memorandum as the charter
of incorporation of the company, and proceed to define the duties, rights, and powers of the
governing body as between themselves and the company at large, and the mode and form in
which the business of the company is to be carried on, and in which changes in the internal
regulations of the company must from time to time be made. With regard, therefore, to the
memorandum of association, if you find anything which goes beyond it, or is not warranted
by it, the question will arise whether that which is done is intra vires not of the directors of
the company, but of the company itself. With regard to the articles of association, if you find
anything which, still keeping within the memorandum is a violation of, or is in excess of the
articles, the question will arise whether that is anything more than an act extra vires of the
directors, but intra vires of the company. Now the clause of the Act to which it is necessary
to refer in the first place is the 6th clause. This is the first section which speaks of the
incorporation of company, but your Lordships will observe that it does not speak of that
incorporation as the creation of a corporation with inherent common law rights, such rights as
are by the common law possessed by every corporation, without any other limit than would,
by the common law be assigned; but it speaks of a company being incorporated with
reference to a memorandum of association, and you are referred thereby to the provisions
which subsequently are to be found on the subject of that memorandum. The next clause
which is material is the 8th. Thereby the memorandum which the persons are to sign as the
preliminary to the incorporation of the company must state the objects for which the proposed
company is to be established, and the company is to come into existence for those objects
alone. Then the 11th section provides “The memorandum of association shall bear the same
stamp as if it were a deed.” Your Lordships will observe, therefore, that it is to be a covenant
in which every member of the company is to covenant that he will observe the conditions of
the memorandum, one of which is that the objects for which the company is established are

those mentioned in the memorandum, and that he will not only observe that, but will observe
it subject to the provisions of this Act. Well, but the very next provision in the Act is that
contained in the 12th section. The covenant, therefore, is not merely that every member will
observe the conditions upon which the company is established, but that no change shall be
made by the company in those conditions; and if there is a covenant that no change shall be
made in the objects for which the company is established, I apprehend that that includes an
engagement that no object shall be pursued by the company or attempted to be obtained by
the company in practice, except the object which is mentioned in the memorandum of
association. Now, if that is so, if that is the condition upon which the corporation is
established, it is, I apprehend, a mode of incorporation which contains in it both that which is
affirmative and that which is negative. It states affirmatively the ambit and extent of vitality
and power which by law is given to the incorporation, and it states, if it were necessary to
state, negatively, that nothing shall be done beyond the ambit, and that no attempt shall be
made to use the corporate life for any other purpose than that which is so specified. Now,
with regard to the articles of association, I will ask your Lordships to observe how completely
the character of the legislation is altered. The 14th section deals with those articles. It
provides that the body of shareholders are to be masters of the regulations which, always
keeping within the outside limit allowed by law, they may deem expedient for the internal
management of the company. In connexion with that section must be taken the 50th section
of the Act. Of the internal regulations of the company, therefore, the company are absolute
masters; and, provided they pursue the course marked out in the Act, holding a general
meeting and obtaining the consent of the company, they may alter those regulations from time
to time. But all must be done subject to the conditions contained in the memorandum of
association. That is to override and overrule any provisions of the articles which may be at
variance with it. The memorandum of association is as it were the area beyond which the
action of the company cannot go, but inside that area they may make such regulations for
their own government as they think fit. That reference to the Act will enable me to dispose of
a provision in the articles of association in the present case which was hardly dwelt upon in
argument, but which I refer to that it may not be supposed to have been overlooked. I refer to
No. 4 of the articles of association of this company, which is in these words: “An extension of
the company’s business beyond or for other than the objects or purposes expressed or implied
in the memorandum of association, shall take place only in pursuance of a special resolution.”
In point of fact no resolution for the extension of the business of the company was come to in
this case; but even if it had been come to it would have been nugatory and inefficacious.
There was in this 4th article an attempt to do the very thing which by the Act of Parliament
was prohibited to be done, to claim and arrogate to the company a power, under the guise of
internal regulation, to go beyond the objects or purposes expressed or implied in the
memorandum. Now bearing in mind the difference which I thus take the liberty of pointing
out between the memorandum and the articles, we arrive at once at all which appears to me to
be necessary for the purpose of deciding this case. I have used the expression extra vires and
intra vires. I prefer that expression very much to one which occasionally has been used in the
judgments in the present case – the expression illegality. In a case such as your Lordships
have now to deal with, it is not a question whether the contract sued upon involves that which
is malum prohibitum or malum in se, or in a contract contrary to public policy, and illegal in

that sense. I assume the contract in itself to be perfectly legal; to have nothing in it obnoxious
to any of the powers involved in the expressions which I have used. The question is not the
illegality of the contract, but the competency and power of the company to make the contract.
I am of opinion that this contract was, as I have said, entirely beyond the objects of the
memorandum of association. If so it was thereby placed beyond the powers of the company
to make the contract. If so it is not a question whether the contract ever was ratified or not
ratified. If it was a contract void at its beginning it was void for this reason – because the
company could not make the contract. If every shareholder of the company had been in this
room, and every shareholder of the company had said, “That is contract which we desire to
make, which we authorize the directors to make, to which we sanction the placing the seal of
the company,” the case would not have stood in any different position to that in which it
stands now. The company would thereby by unanimous assent have been attempting to do
the very thing which by the Act they were prohibited from doing. But if the company ad ante
could not have authorized a contract of this sort being made, how could they subsequently
have sanctioned the contract after in point of fact it had been made? Mr. Benjamin
endeavoured to contend that when a company had found that something had been done by the
directors which ought not to have been done, they might be authorised to make the best they
could of a difficulty into which they had thus been led, and therefore might acquire a power to
sanction the contract being proceeded with. I am unable to sanction that suggestion. It
appears to me it would be perfectly fatal to the whole scheme of legislation to which I have
referred, if you were to hold, in the first place, that directors might do that which even the
company could not do, and that then the company, finding out what had been done, could
sanction subsequently what they could not have authorized antecedently. If this be the point
of view of the Act of Parliament, it reconciles, as it appears to me, the opinion of all the
judges of the Court of Exchequer Chamber, because I find that Blackburn, J., whose judgment
was concurred in by two other judges, says, “I do not entertain any doubt that if on the true
construction of the statute creating the corporation, it appears to be the intention of the
Legislature, expressed or implied, that the corporation shall not enter into a particular
contract, every court, whether of law or equity, is bound to treat a contract entered into
contrary to the enactment as illegal, and therefore wholly void, and to hold that a contract
wholly void cannot be ratified.” That sums up and exhausts the whole case. I am of opinion
beyond all doubt on the true construction of the statute of 1862 creating the corporation, that
it was the intention of the Legislature, not implied but actually expressed, that the corporation
should not enter, having regard to this memorandum of association, into a contract of this
description. If so, according to the words of Blackburn, J., every court whether of law or
equity, is bound to treat that contract, entered into contrary to the enactment, I will not say as
illegal, but as wholly void, and to hold also that a contract wholly void cannot be ratified.
That relieves me and if your Lordships agree with me, relieves your Lordships from any
question of ratification. I am bound to say that if ratification had to be considered, I have
found in this case no evidence which to my mind is at all sufficient to prove ratification, but I
desire to say that I do not wish to found my opinion upon any question of ratification. This
contract in my judgment could not have been ratified by the unanimous assent of the whole
corporation. For these reasons I submit to your Lordships and move that the judgment in the
present case should be reversed, and judgment be entered for the defendants.

LORD HATHERLEY – I am of the same opinion. I must confess it appears to me that the
case is really reduced to one of a very simple character, and the question amounts merely to
this: What is the true construction of the Act of Parliament with reference to the memorandum
of association, and the powers conferred upon companies associated upon the limited
principle, subject to that memorandum? As regards the first question of fact, namely, whether
or not the agreement in question upon which the suit has been actually commenced by
Messrs. Riche, be one within the memorandum of association, it appears to me to be scarcely
capable of argument. How it could possibly be brought within any of the terms contained in
that memorandum, even with the aid of the ingenious arguments that we have heard at the bar,
it is very difficult to conceive, because it was admitted by those upon whom the burden was
thrown of showing that the memorandum of association would cover it, that the words
“general contractors” must have some limit. It could not be contended that under those words
the company were at liberty to contract for anything in the world. The expression must be
limited, in some degree at least, by the words that precede it. I need say no more with
reference to whether or not the contract in question, which is a contract to furnish another
company altogether, the société anonyme of Brussels, with money, from time to time in order
to carry into effect the works of a railway, is to be considered a contract within the scope of
the memorandum of association of the Ashbury Company. The only other point in the case
independent of the Act of Parliament, is the question of ratification. I confess I concur with
the opinion which has already been expressed by your Lordships that there is not anything
amounting to confirmation, if it were necessary to decide that point. I do not dwell upon it
because I am of opinion that no amount of ratification or confirmation by individual
shareholders could give validity to the contract in question. That depends upon the Act of
Parliament, which is the real point in the case. When you consider that this Act was passed
with the view of enabling persons to carry on business on principles which were up to that
time wholly unknown in the general conduct of mercantile affairs in this country, when you
consider that the general principle of partnership was that every person entering into any
partnership whatsoever thereby subjected, before this description of legislation had been
entered upon, the whole of his property, whatever it might be, to the demands of his creditors,
it is impossible not to feel that when these legislative enactments, which gave power to depart
from that principle upon certain conditions to be expressed in the Act of Parliament by which
companies would be framed with that view, came to be made, it was necessary that the public,
that is the persons dealing with a limited company, should be protected, as well as the
shareholders themselves. Accordingly your Lordships will find throughout the whole of the
Act a plain and marked distinction drawn between the interest of the shareholders inter se,
and the interest which the public have in seeing that the terms of the Act are construed in such
a manner as to protect them in dealing with companies of this description. The mode of
protection adopted seems to have been this: the Legislature said, you may meet altogether,
and form yourselves into a company, but in doing that you must tell all who may be disposed
to deal with you the objects for which you have been associated. They will trust to that
memorandum of association, and they will see that you have the power of carrying on
business in such a manner as it specifies, to be limited, however, by the extent of the shares,
that is to say, the money you may contribute for the purpose of carrying on that business.
You must state the amount of the capital which you are about to invest in it, and you must

state the objects for which you are associated, so that the person dealing with you will know
that they are dealing with persons who can only devote their means to a given class of objects,
and who are prohibited from devoting their means to any other purpose. Throughout the Act
that purpose is apparent. With regard to the amount of capital, which is one point that I have
referred to, the Act did give a special power of variation. But with regard to the
memorandum of association, that is carefully protected by the 12th section. It is provided that
whatever other things you may do in the way of variation, a certain limited power of
alteration being given to you, no such power shall you have as to the objects specified in the
memorandum of association. That being so, one turns to the views expressed by the learned
judges who have decided that the contract which has been entered into in this case is one by
which the company have been bound. Turning to the reasons upon which they have based
that opinion, one finds them very clearly expressed in the judgment of Blackburn, J. His view
appears to be this: True it is that the objects to which the common seal was applied in this
case by the corporation may not be such as the directors could justify to their corporators; but
then the corporation was called into being, and when the corporation was called into being
you had an entity which could act by its common seal, just as any physical entity might act
through his contract. Having created that entity you cannot say the contract is void, whatever
may be the consequence which may enure to the persons who are affected by the act of the
directors in affixing the common seal. Whatever acts they may have to complain of you
cannot say that the act is void as against the persons who claim the benefit of that common
seal, the power of affixing which you conferred upon them by making them a corporation.
Then he cites passages from Lord Coke and Plowden, to show that when once you have given
being to such a body as this, you must be taken to have given to it all the consequences of its
being called into existence, unless by express negative words you have restricted the
operation of the acts of the being you have so created. Now I think when this proposition is
applied to the objects of this present Act of Parliament it must be clearly seen, not only that
the entity which this corporation called into existence for the purpose of trading with limited
liability, has by affirmative words those objects which are specified in the memorandum of
association, as the objects for which it was called into being, but also that you find express
negative words providing that “save as aforesaid no alterations shall be made in the conditions
contained in the memorandum of association.” That is a distinct limitation by way of
negative of the powers and authorities which you have conferred upon this entity. You say,
we confer upon this corporate body the power of acting according to their memorandum, and
we also say that that memorandum shall never be changed. I think it is far too nice a
refinement to say that that is not equivalent to saying in so many words, the objects of the
memorandum are your objects, and no other ever shall or can be your objects. I think that the
Legislature had in view distinctly the object of protecting outside dealers and contractors with
this limited company from the funds of the company being applied, or from a contract being
entered into by the company for any other objects whatever than those mentioned in the
memorandum, which the Legislature thought should remain for ever unchanged. It is quite
true, as was said in the agreement, that those same gentlemen who signed the memorandum
might, the next hour, if they liked, go into another room, and frame a new object of business
besides those specified in the memorandum they had already agreed to. But it would be a
perfectly new company in that case, and neither as regards their shareholders, nor still more as

regards the general body of the public, have they the power or authority under the Act to
combine together, as a corporation with limited liability, to carry on business for any other
purpose whatever than that specified in the memorandum of association. Mr. Benjamin,
feeling the pressure of the case in reference to the act which has been done, endeavoured to
put this before us: Fieri non debuit, sed factum valet. He said, suppose I have to concede that
the original contract was invalid, still the subsequent arrangements by which the company
endeavoured to make the best they could of the difficult situation in which their directors have
placed them, might be taken to be valid. It may have been done, not for the purpose of
evading the Act of Parliament, but rather the contrary, to bring things back to such a state and
condition as the law would allow, and to make the best of what had been the misfortune of the
company. I apprehend that no such principle can be adopted as that the directors having
committed an unlawful act, and then having taken the proper course, as it appears to me, in
proposing, as they did by the instrument of 24 December 1867, to take the whole burden and
responsibility upon themselves, the very proper act which they then did could give any
validity whatever to that supposed contract. I apprehend that the true construction of that
deed is this, that the deed provides that whatever rights the company might have acquired in
consequence of the directors dealing with this property, or in consequence of strangers
dealing with them, and attempting to take advantage of the contract, knowing that the moneys
of the company had been employed in a manner which was ultra vires, that those rights
should not be enforced. When a stranger has taken money of a company which ought to have
been applied in one way, knowing that it ought to be so applied, and has applied it in another
way, that money is earmarked for the original purpose, and can be followed as against the
stranger, with any advantage that he may have derived in consequence of the improper
contract which has been made. That being the case, I should read the instrument as an
admission on the part of the company that, repudiating and rejecting altogether the contract, if
they had any rights whatever of the description that I have mentioned, they would not exercise
them. Perhaps, however, it is unnecessary for me to enter into that point, considering that I
hold upon this contract that it was one which no body of shareholders had power to ratify, it
being by the 12th section of the Act illegal and void, as being contrary to the purpose for
which, and for which only, power and authority was given by the Legislature, any other
purpose being, according to my view of the case, expressly and distinctly prohibited by the
clauses that I have referred to.
LORD SELBORNE – The action in this case is brought upon a contract not directly or
indirectly to execute any works, but to find capital for a foreign railway company in exchange
for shares and bonds of that company. Such a contract, in my opinion, was not authorized by
the memorandum of association of the Ashbury Company. All your Lordships, and all the
judges in the courts below, appear to be so far agreed. But this in my judgment is really
decisive of the whole case. I only repeat what Lord Cranworth stated to be settled law in
Hawkes v. Eastern Countries Railway Company [1855, 5 H.L. Cas. 331], when I say that a
statutory corporation, created by Act of Parliament, for a particular purpose, is limited as to
all its powers by the purpose of its incorporation as defined in that Act. The present and all
other companies incorporated by virtue of the Companies Act of 1862, appear to me to be
statutory corporation within this principle. The memorandum of association is, under that

Act, their fundamental law, and they are incorporated only for the objects and purposes
expressed in that memorandum. The object and policy of those provisions of the statute which
prescribe the conditions to be expressed in the memorandum, and make these conditions,
except in certain points, unalterable, would be liable to be defeated if a contract under the
common seal, which on the fact of it transgresses the fundamental law, were not held to be
void and ultra vires of the company, as well as beyond the power delegated to its directors or
administrators. It was so held in the case of the East Anglian Railway Company [1851, 21
L.J.C.P. 23] and in the other cases upon Railway Acts which were approved by this House in
Hawke case, and I am unable to see any distinction, for this purpose, between statutory
corporations under Railway Acts and statutory corporations under the Companies Act of

  1. I cannot agree with the view of the judges who were for affirming the judgment in the
    Court of Exchequer Chamber. I think that contracts for objects and purposes foreign to, or
    inconsistent with the memorandum of association are ultra vires of the corporation itself.
    And it seems to me far more accurate to say that the inability of such companies to make such
    contracts rests on an original limitation and circumscription of their powers by the law and for
    the purposes of their incorporation, than that it depends upon some express or implied
    prohibition, making acts unlawful which otherwise they would have had a legal capacity to
    do. This being so, it necessarily follows that where there could be no mandate there cannot be
    any ratification, and that the assent of all the shareholders can make no difference when a
    stranger to the corporation is suing the company itself in its corporate name upon a contract
    under the common seal. No agreement of shareholders can make that a contract of the
    corporation which the law says cannot and shall not be so. If, however, this contract could
    have been susceptible of confirmation or ratification by the universal consent of all the
    shareholders, I should have been of opinion that there was here no evidence whatever to go to
    a jury of any such confirmation or ratification. What was relied upon consists entirely of
    resolutions passed at certain general meetings of the shareholders and a deed executed
    pursuant to those resolutions. But there is no evidence whatever that they were communicated
    to any shareholder who was not present at those meetings, by notice, either beforehand or
    afterwards. The notices under which these meetings were convened contained nothing from
    which any shareholder could be led to suppose that it was in contemplation to enter into or
    adopt on the part of the company any contract or arrangement in excess of the ordinary
    powers of the company, as represented by the shareholders assembled at a duly constituted
    general meeting. There is no obligation upon any shareholder receiving such notices either to
    attend the meetings or to make inquiries as to what is proposed to be done at them, in order to
    protect himself from being bound by acts or contracts ultra vires of any general meeting. He
    will, of course, be bound by all that the general meeting can do as to the matters mentioned in
    the notices within their powers, but he cannot, in his absence and without his knowledge, be
    taken to consent that they shall bind him by any resolutions or acts in excess of those powers,
    whether such acts or resolutions do or do not relate to the particular business for the
    transaction of which those meetings were called together.

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