UNIT 6

ULTRA VIRES DOCTRINE

The ultra vires doctrine is a fundamental principle in company law that restricts a company from acting beyond the powers conferred upon it by its memorandum of association. "Ultra vires" is a Latin term meaning "beyond the powers." This doctrine ensures that companies operate within the scope of their designated activities as specified in their constitutional documents.
The ultra vires doctrine originated in English common law and was adopted into Nigerian company law. Its primary aim was to protect shareholders and creditors by ensuring that a company does not engage in activities outside its stated objectives. See section 39 of The Companies and Allied Matters Act (CAMA) 2020 which addresses the ultra vires doctrine in Nigeria. This section outlines that a company shall not carry on any business not authorized by its memorandum, and it shall not exceed the powers conferred upon it by the memorandum under subsection 1 and an act of the company which is ultra vires shall not be invalid only by reason of the fact that it is ultra vires, but such an act may be ratified by the company in general meeting under subsection 2. See the case of Adefarasin v. Dayekh (1958) 3 FSC 34 where the court held that a company acted ultra vires when it engaged in activities beyond its stated objects in the memorandum of association. The court emphasized that the company must adhere strictly to its designated activities, the case of Cotco v. Aremu (1981) 1 NCLR 250 where the court ruled that transactions outside the company's objects are ultra vires and therefore void. The decision reinforced the necessity for companies to operate within the scope of their constitutional documents, and the case of Akin-Taylor v. Securities and Exchange Commission (1989) 4 NWLR (Pt. 118) 42 which highlighted the importance of adhering to the objects clause in the company's memorandum. The court declared that any act beyond the company's powers as stated in its memorandum is ultra vires and cannot be enforced.

EFFECTS OF ULTRA VIRES ACTS

1. Legal invalidity: this is where acts performed by a company that are ultra vires are generally considered void and unenforceable. This principle ensures that the company remains within the boundaries set by its memorandum of association.
2. Ratification: See section 39(2) of CAMA 2020 that allows for the ratification of ultra vires acts by the company in a general meeting. However, this ratification must be done in accordance with the provisions of the company's memorandum and articles of association.
3. Protection of third parties: this is where the ultra vires doctrine also protects third parties who deal with the company. If a third party enters into a contract with a company, believing that the company has the authority to do so, the third party may seek relief if the contract is later deemed ultra vires.

EXCEPTIONS TO THE ULTRA VIRES DOCTRINE

Certain exceptions have been recognized to mitigate the strict application of the ultra vires doctrine and they include the following:

1. Statutory exceptions: this is where CAMA 2020 provides certain statutory exceptions where ultra vires acts may be ratified by the company.
2. Estoppel: this is where in some cases, a company may be estopped from denying the validity of an ultra vires act if the act has been ratified or if the company has benefited from it.
3. Incidental or Ancillary Activities: this is where activities that are incidental or ancillary to the main objects of the company may not be considered ultra vires if they are necessary for achieving the company's primary objectives.

CONCLUSION

The ultra vires doctrine remains a critical aspect of company law in Nigeria, ensuring that companies operate within the boundaries set by their constitutional documents. While the doctrine serves to protect shareholders and creditors, it also provides mechanisms for ratification and certain exceptions to prevent undue hardship. Understanding the application and implications of the ultra vires doctrine is essential for ensuring compliance with company law and safeguarding the interests of all stakeholders.