Ultra vires
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- For other uses, see Ultra Vires (disambiguation).
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Ultra vires is a Latin phrase that literally means "beyond the power." Its inverse is called intra vires, meaning "within the power".
It is used as a legal term in a number of contexts:
- In corporate law, ultra vires describes acts attempted by a corporation that are beyond the scope of powers granted by the corporation's charter, 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. Even though dicta supporting the view that ultra vires acts were totally void appeared in many cases, most courts actually adopted the view that such acts were voidable rather than void. The doctrine continued to be fimly grounded on the notion that a corporation possessed only limited power, but rather a elaborate body of principles developed defining when the defense of ultra vires might be asserted. Basic principles included the following:
- An ultra vires transaction might be ratified by all the shareholders.
- The doctrine of estoppel usually precluded reliance on the defense of ultra vires where the transaction was fully performed by one party
- A fortiori, a transaction which was fully performed by both parties could not be attacked.
- If the contract was fully executory, the defense of ultra vires might be raised by either party.
- 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.
- 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 unltra 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 US says exactly in the following elegant language 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 Amercian laws, the concept of ultra vires can still arise in following kinds of activities in some states:
- Charitable or Political Contributions.
- Pensions, Bonuses, Stock Option Plans, Job Severance Payments, and Other Fringe Benefits.
- The Power to Enter Into a Partnership.
- The Power to Acquire Shares of Other Corporations.
- Guaranty of Indebtedness of Another.
- Loans to Officers or Directors.
- 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.
- 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.
- 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.
[edit] Reference
- Robert W. Hamilton. The Law of Corporation 4th Edition, 1996 West Group
