What were the facts about the case of Ashbury Railway Carriage v Riche?

Answer 1

Ashbury Railway Carriage & Iron Co. v. Riche , decided in the House of Lords in 1875 (Law Rep. 7 H. L. 653)

In this case the objects set out in the company's memorandum were "to make and sell, or lend on hire, railway carriages and wagons, and all kinds of railway plant, fittings, machinery and rolling stock; to carry on the business of mechanical engineers and general contractors; to purchase, lease, work and sell mines, minerals, land and buildings; to purchase and sell as merchants, timber, coal, metals, or other materials, and to buy any such materials on commission or as agents."

The directors purchased a concession for making a railway in Belgium and contracted with Riche to construct the line.

Was here a valid contract?

The construction of a railway, as distinct from rolling stock, was ultra vires. Therefore Riche's action for breach of the alleged contract failed as it was void.

This would have been the case even if every shareholder of the company had given approval - it was an act which the company had no lawful power to do.

The law has since changed through Section 108 of the Companies Act 1989, substituting a new section 35 of the Companies Act 1985. Under that new section it remains the duty of the directors to observe any limitations on their powers flowing from the company's memorandum (section 35(3)) and a member of a company may bring proceedings to restrain the doing of an act in excess of those powers (section 35(2)); but, by section 35(1): "The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's memorandum."

Thus by applying the modern law to the Ashbury case, the directors committed a breach of duty by making the contract and might have been restrained by action by a member; but once the contract was made its validity could not be questioned provided that the making of the contract was "an act done by the company."

Yet it might be objected that it was not such an act because the directors had no power to make the contract. This objection is met by section 35A(1):

"In favour of a person dealing with a company in good faith, the power of the board of directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company's constitution."

Answer 2

principal must have the capacity to do an act. an agent who does an act on behalf of the company cannot get it ratified as a company doesn't have the capacity to ratify a void act.