Ashbury Railway Carriage & Iron Co. Ltd. v. Riche
An act beyond the objects stated in the memorandum is void ab initio and cannot be ratified, even by the unanimous assent of all the shareholders.
Citation
Ashbury Railway Carriage & Iron Co. Ltd. v. Riche
(1875) LR 7 HL 653
- Court
- House of Lords
- Statute
- Company law — doctrine of ultra vires
Facts, issue and held
Facts
The company's memorandum stated its objects as making, selling and lending on hire railway carriages and wagons, and carrying on the business of mechanical engineers and general contractors. The directors entered into a contract with Riche to finance the construction of a railway line in Belgium. The contract was later purportedly ratified by the shareholders in general meeting, but the company subsequently repudiated it. Riche sued for breach of contract.
Issue
Whether a contract outside the objects clause of the memorandum was binding on the company, and whether shareholder ratification could validate it.
Held
The House of Lords held that financing railway construction was not within the objects clause, properly construed, and that the contract was therefore ultra vires the company. Being ultra vires, it was void from the outset — not merely voidable — and could not be ratified even by the assent of every shareholder. Riche's action failed.
- A company incorporated under statute has only the capacity conferred by its memorandum.
- An act outside that capacity is not merely irregular but is something the company was never legally capable of doing.
- Ratification can validate an act the company had power to do but did irregularly; it cannot confer a capacity the company never possessed.
- The expression 'general contractors' had to be read in the context of the specific objects preceding it, and could not be construed so widely as to render the objects clause meaningless.
Ratio decidendi
Ratio decidendi
An act which is ultra vires the memorandum is void ab initio and is incapable of ratification by the shareholders, however unanimous.
Why it matters
Ashbury is the classical statement of the ultra vires doctrine and remains the case cited whenever the scope of a company's objects is in question. It also explains why the distinction between acts ultra vires the company and acts merely ultra vires the directors matters so much: the latter can be ratified, the former cannot.
Current standing
The practical severity of the doctrine has been reduced in modern law. Under the Companies Act, 2013 the object clause requirements were restructured and a company may alter its objects by special resolution, while third parties are also protected by the doctrine of indoor management. The core principle — that a company cannot validly do what its constitution does not permit — remains examinable and important.
Using it in an answer
In Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875) LR 7 HL 653, the House of Lords held that a contract outside the objects clause of the memorandum is ultra vires the company, void ab initio, and incapable of ratification even by the unanimous assent of the shareholders.
In the present case, the transaction falls outside the objects stated in the memorandum, and is therefore void rather than voidable.
It follows that the purported ratification in general meeting is of no effect, and the company is not bound by the contract.
In the exam
The authority for ultra vires questions. The distinction the examiner is testing is almost always between an act ultra vires the company, which is void and unratifiable, and an act merely ultra vires the directors, which the company may ratify. State that distinction explicitly.
Related cases
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Talk to usWhat is the difference between ultra vires the company and ultra vires the directors?
An act ultra vires the company is outside its constitutional capacity and is void from the outset; no ratification can cure it. An act ultra vires the directors is within the company's capacity but exceeds the authority delegated to the board, and the company may ratify it. Identifying which one the facts present is usually the whole question.
Is the ultra vires doctrine still relevant under the Companies Act, 2013?
Its practical bite is reduced, because objects may be altered by special resolution and third parties enjoy protection under the indoor management rule. But the underlying principle — that a company acts validly only within its constitution — remains part of the syllabus and continues to be examined.
Please note
These summaries are prepared for CA exam preparation and are not legal advice. Case law develops — a decision may be distinguished, read down or superseded by later judgments or by legislative amendment. Verify the current position against ICAI's study material for your attempt and against the reported judgment before relying on any principle stated here.
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