Ashbury Railway Carriage and Iron Co. Ltd V Riche
The rule of ultra vires was for the first time laid down by the House of Lords in Ashbury Railway Carriage Company case. In Ashbury Railway Carriage and Iron Company was incorporated and in its memorandum the objects of the company were as to make and sell or lend on hires railway carriage and wagons, to carry on the business of mechanical engineers and general contractors and to purchase, lease, work and sell mines, minerals, land and buildings. The company entered into the agreement for financing the construction of a railway line in Belgium with Riche and all the members ratified the agreement.
Later on the company repudiated the contract and subsequently stopped the funds on the ground that it was ultra vires the company and consequently Riche instituted a suit for damages for the breach of contract against the company. Contentions raised by Riche were that the contract was well within the meaning of words ‘general contractors’ and therefore within the power of the company and the contracts were ratified by the majority of the shareholders.
It was Held by the House of Lords that the contract was beyond the objects stated in the Memorandum of Association. The term general contractors indicate those contracts which are connected with the business of mechanical engineers. Even if all the shareholders or members agree or desire to make contract valid it would amount to go beyond the objects of the memorandum. Hence, the court held it to be ultra vires.