- When MOA and AOA registered it became public document.
- It can be inspected by anyone upon payment of nominal fees.
- So it is pre assumed that every person who enter into a contract with company has already know the exect power of company.
- In other words, every person dealing with company deemed to be have 'constructive notice' of the contents of MOA and AOA of company.
- In fact it is deemed that they not only read that document but they understood them in their proper meaning.
- As per this doctrine if a person enter into a contract which is beyond the power of a company or beyond the limit set by AOA than person not have any right under contact against company.
- Case Law - Jhones V/s Smith.
- Example - If article provide that "Bill of Exchange" required signature of two director then person dealing with co. need to check it is signed or not, if he don't check it than co. is not liable.
- Exception of doctrine of constructive notice - Doctrine of Indoor management.
Doctrine OF Indoor Management
- Doctrine of constructive notice protect the company against outsiders, while Doctrine Of Indoor Management protect outsiders against company.
- Case law - Royal British Bank V/s Turquand
( In this case court held that outsiders are bound to know the external position of company not bound to know it's indoor management.)
- Exception of Doctrine Of Indoor Management -
(i) Where outsiders has knowledge of irregularity.
(ii) No knowledge of MOA and AOA.
(iii) In case of Forgery.
(iv) In case of Negligence.
Doctrine Of Ultra Vires
- The word ultra vires means " beyond the power".
- An act which is ultra vires is void and it is not bind upon company and also other party cant sue to it.
- An act which is ultra vires the company is incapable of ratification by members of company.
- But, An act which is intra vires the company but outside the authority of the directors may be ratified by the members of the company.
- Case law - Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, ( In this case The House of Lords held that the contract was ultra vires the company and, therefore, null and void.)
Effects of ultra vires transactions -
- Ultra vires act are void.
- It is duty of director to ensure that investment of fund are only used for purposes mentioned in MOA, If not than such director is personally liable.
- If company funds are used to acquire any ultra vires property than company has right over such property.
- Ultra vires borrowings does not create any relationship of debtor and creditor.