Ultra vires

[Law Latin, from L. prep. ultra beyond + vires, pl. of. vis strength.]
Beyond power; transcending authority; -- a phrase used frequently in relation to acts or enactments by corporations in excess of their chartered or statutory rights.

Latin phrase meaning "beyond power or authority" describing an act by a corporation that exceeds its legal powers. For example, corporations do not have the authority to engage in the insurance business without a charter. A corporation offering insurance without authority would be acting ultra vires. Similarly, an insurance company chartered to engage in a single line of business would be operating ultra vires by offering some other line.

Literally, ‘beyond powers’. Ultra vires has two meanings: (1) substantive ultra vires where a decision has been reached outside the powers conferred on the decision taker; and (2) procedural ultra vires where the prescribed procedures have not been properly complied with. The doctrine of ultra vires gives courts considerable powers of oversight over decision-making. The range and variety of bodies amenable to the doctrine is large. Ministers, or any public body with statutory powers, may be included. The doctrine also applies to companies and corporations that are amenable to the remedies of declaration or injunction.

A local authority that enters an agreement or contract that is outside its statutory powers is said to be acting ultra vires. In Hazel v. Hammersmith [1991] 1 All ER 545, the House of Lords held that various speculative investments undertaken by local authorities lacked express statutory authorization and were void with severe consequences for those who had invested in local authority activities declared illegal by the courts.

The grounds for claiming ultra vires range from abuse of power, acting unreasonably (Padfield v. Minister of Agriculture, Fisheries and Food [1968] AC 997), or acting not in accordance with the rules of natural justice. Ultra vires is a formidable doctrine for the courts to intervene and challenge the legality of decisions. Ultra vires may result in significant consequences for the body exercising legal powers. In many cases the decision that is ultra vires may be said, in law, never to have taken place, with often severe consequences from such a finding on the parties to any agreement.

— John McEldowney

[Latin, Beyond the powers.] The doctrine in the law of corporations that holds that if a corporation enters into a contract that is beyond the scope of its corporate powers, the contract is illegal.

The doctrine of ultra vires played an important role in the development of corporate powers. Though largely obsolete in modern private corporation law, the doctrine remains in full force for government entities. An ultra vires act is one beyond the purposes or powers of a corporation. The earliest legal view was that such acts were void. Under this approach a corporation was formed only for limited purposes and could do only what it was authorized to do in its corporate charter.

This early view proved unworkable and unfair. It permitted a corporation to accept the benefits of a contract and then refuse to perform its obligations on the ground that the contract was ultra vires. The doctrine also impaired the security of title to property in fully executed transactions in which a corporation participated. Therefore, the courts adopted the view that such acts were voidable rather than void and that the facts should dictate whether a corporate act should have effect.

Over time a body of principles developed that prevented the application of the ultra vires doctrine. These principles included the ability of shareholders to ratify an ultra vires transaction; the application of the doctrine of estoppel, which prevented the defense of ultra vires when the transaction was fully performed by one party; and the prohibition against asserting ultra vires when both parties had fully performed the contract. The law also held that if an agent of a corporation committed a tort within the scope of the agent's employment, the corporation could not defend on the ground that the act was ultra vires.

Despite these principles the ultra vires doctrine was applied inconsistently and erratically. Accordingly, modern corporation law has sought to remove the possibility that ultra vires acts may occur. Most importantly, multiple purposes clauses and general clauses that permit corporations to engage in any lawful business are now included in the articles of incorporation. In addition, purposes clauses can now be easily amended if the corporation seeks to do business in new areas. For example, under traditional ultra vires doctrine, a corporation that had as its purpose the manufacturing of shoes could not, under its charter, manufacture motorcycles. Under modern corporate law, the purposes clause would either be so general as to allow the corporation to go into the motorcycle business, or the corporation would amend its purposes clause to reflect the new venture.

State laws in almost every jurisdiction have also sharply reduced the importance of the ultra vires doctrine. For example, section 3.04(a) of the Revised Model Business Corporation Act, drafted in 1984, states that "the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act." There are three exceptions to this prohibition: it may be asserted by the corporation or its shareholders against the present or former officers or directors of the corporation for exceeding their authority, by the attorney general of the state in a proceeding to dissolve the corporation or to enjoin it from the transaction of unauthorized business, or by shareholders against the corporation to enjoin the commission of an ultra vires act or the ultra vires transfer of real or personal property.

Government entities created by a state are public corporations governed by municipal charters and other statutorily imposed grants of power. These grants of authority are analogous to a private corporation's articles of incorporation. Historically, the ultra vires concept has been used to construe the powers of a government entity narrowly. Failure to observe the statutory limits has been characterized as ultra vires.

In the case of a private business entity, the act of an employee who is not authorized to act on the entity's behalf may, nevertheless, bind the entity contractually if such an employee would normally be expected to have that authority. With a government entity, however, to prevent a contract from being voided as ultra vires, it is normally necessary to prove that the employee actually had authority to act. Where a government employee exceeds her authority, the government entity may seek to rescind the contract based on an ultra vires claim.

See: scope of employment.

Beyond the powers or legal authority

For other uses, see Ultra Vires (disambiguation).

Companies law

Company · Business Sole proprietorship Partnership (General · Limited · LLP) Corporation Cooperative

United States

S corporation · C corporation LLC · LLLP · Series LLC Delaware corporation Nevada corporation Massachusetts business trust

UK / Ireland / Commonwealth

Limited company (by shares · by guarantee Public · Proprietary) Unlimited company Community interest company

European Union / EEA

SE · SCE · SPE · EEIG

Related areas

Contract · Civil procedure

v • d • e

Ultra vires is a Latin phrase that literally means "beyond the powers". Its inverse is called intra vires, meaning "within the powers". It is used as a legal term in a number of common law contexts.

Contents 1 Corporate law 2 Constitutional law 3 Administrative law 4 See also 5 References 5.1 Footnotes 5.2 Notations

Corporate law

In corporate law, ultra vires describes acts attempted by a corporation that are beyond the scope of powers granted by the corporation's Articles of Incorporation or in a clause in its Bylaws; in the laws authorizing its formation, or similar founding documents. Acts attempted by a corporation that are beyond the scope of its charter are void or voidable.

Basic principles included the following:

1. An ultra vires transaction cannot be ratified by all the shareholders, even if they wish it to be ratified.
2. The doctrine of estoppel usually precluded reliance on the defense of ultra vires where the transaction was fully performed by one party
3. A fortiori, a transaction which was fully performed by both parties could not be attacked.
4. If the contract was fully executory, the defense of ultra vires might be raised by either party.
5. If the contract was partially performed, and the performance was held to be insufficient to bring the doctrine of estoppel into play, a suit for quasi contract for recovery of benefits conferred was available.
6. If an agent of the corporation committed a tort within the scope of his or her employment, the corporation could not defend on the ground the act was ultra vires.

Several modern developments relating to corporate formation have limited the probability that ultra vires acts will occur. Except in the case of non-profit corporations (including municipal corporations), this legal doctrine is obsolescent; within recent years, almost all business corporations are chartered to allow them to transact any lawful business. The Model Business Corporation Act of the United States says exactly The validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act. The doctrine still has some life among non-profit corporations or state-created corporate bodies established for a specific public purpose, like universities or charities. In many jurisdictions, such as Australia, legislation provides that a corporation has all the powers of a natural person plus others; also, the validity of acts which are made ultra vires is preserved.

However, certain other types of legal entity are not covered by such legislation. In the United Kingdom in Hammersmith and Fulham London Borough Council v Hazell [1992] 2 AC 1 the House of Lords held that interest rate swaps entered into by local authorities (a popular method of circumventing statutory restrictions on local authorities borrowing money at that time) were all ultra vires and void, sparking a raft of satellite litigation.

• According to American laws, the concept of ultra vires can still arise in the following kinds of activities in some states:

1. Charitable or political contributions
2. Guaranty of indebtedness of another
3. Loans to officers or directors
4. Pensions, bonuses, stock option plans, job severance payments, and other fringe benefits
5. The power to acquire shares of other corporations
6. The power to enter into a partnership

In the United Kingdom, the Companies Act 2006 (S.31 and S.39) greatly reduced the applicability of ultra vires in corporate law, although it can still apply in relation to charities and a shareholder may apply for an injunction, in advance only, to prevent an act which is claimed to be ultra vires.

Constitutional law

Under constitutional law, particularly in Canada and the United States, constitutions give federal and provincial or state governments various powers. To go outside those powers would be ultra vires; for example, although the court did not use the term, in striking down a federal law in United States v. Lopez on the grounds that it exceeded the Constitutional authority of Congress, the Supreme Court effectively declared the law to be ultra vires.

According to Article 15.2 of the Irish Constitution, the Oireachtas is the sole lawmaking body in Ireland. In the case of CityView Press v AnCo however, the Irish Supreme Court held that the Oireachtas may delegate certain powers to subordinate bodies through primary legislation, so long as these delegated powers allow the delegatee only to further the principles and policies laid down by the Oireachtas in primary legislation and not craft new principles or policies themselves. Any piece of primary legislation which grants the power to make public policy to a body other than the Oireachtas is unconstitutional; however, as there is a presumption in Irish constitutional law that the Oireachtas acts within the confines of the Constitution, any legislation passed by the Oireachtas must be interpreted in such a way as to be constitutionally valid where possible. Thus, in a number of cases where bodies other than the Oireachtas were found to have used powers granted to them by primary legislation to make public policy, the impugned primary legislation was read in such a way that it would not have the effect of allowing a subordinate body to make public policy. In these cases, the primary legislation was held to be constitutional but the subordinate or secondary legislation, which amounted to creation of public policy, was held to be ultra vires the primary legislation and was therefore struck down.

In British constitutional law, ultra vires describes patents, ordinances and the like enacted under the prerogative powers of the Crown that contradict statutes enacted by the King-in-Parliament. Almost unheard of in modern times, ultra vires acts by the Crown or its servants were previously a major threat to the rule of law.

Boddington v British Transport Police is an example of an appeal heard by House of Lords which contested that a byelaw was beyond the powers conferred to it under section 67 of the Transport Act 1962. ^[1]

Administrative law

In administrative law, an act may be judicially reviewable ultra vires in a narrow or broad sense. Narrow ultra vires applies if an administrator did not have the substantive power to make a decision or it was wrought with procedural defects. Broad ultra vires applies if there is an abuse of power (e.g., Wednesbury unreasonableness or bad faith) or a failure to exercise an administrative discretion (e.g., acting at the behest of another or unlawfully applying a government policy). Either doctrine may entitle a claimant to various prerogative writs, equitable remedies or statutory orders if they are satisfied.

In the seminal case of Anisminic v Foreign Compensation Commission [1969] 2 WLR 163, Lord Reid is accredited with formulating the doctrine of ultra vires. Further cases such as Bromley LBC v Greater London Council [1983] AC 768 (see Lord Wilberforce's judgment) and Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374 (see Lord Diplock's judgment) have sought to refine the doctrine.

See also

• Judicial activism
• Judicial Review in English Law
• Mark Elliott (St. Catharine's College, Cambridge proposes the modified ultra vires doctrine for administrative law, placing it firmly in the correct constitutional setting. (The Ultra Vires Doctrine in a Constitutional Setting: Still the Central Principle of Administrative Law [1999] Cambridge Law Journal Vol. 58 129)
• Precedent

References

Footnotes

1. ^ Boddington v British Transport Police

Notations

• Robert W. Hamilton. The Law of Corporation 4th Edition, 1996 West Group

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