Ashbury Railway Carriage and Iron Co Ltd v Riche

Facts

The company's objects clause permitted making and selling railway carriages and general mechanical engineering. Its directors entered a contract to finance the construction of a railway line in Belgium. When the company later repudiated the contract, Riche sued for breach.

Issues

• Was the contract to finance railway construction within the objects clause of the company's memorandum?
• If ultra vires, could the contract be validated by ratification of all the shareholders?

Arguments

Riche argued the contract was within the company's general engineering objects and, even if not, was ratified by the shareholders. The company argued the objects clause did not authorise financing a railway, so the contract was ultra vires and void ab initio.

Held

The House of Lords held the contract was ultra vires and void. The objects clause defined and limited the company's capacity; an act outside it was not merely beyond the directors' authority but beyond the company's powers entirely. Because the company never had capacity to make the contract, it was a nullity that subsequent shareholder ratification could not cure. The memorandum operated as notice to all the world of the company's permitted range of activity.

Ratio decidendi

A registered company has capacity only to do acts authorised, expressly or by reasonable implication, by its memorandum; acts beyond those objects are ultra vires, void, and not ratifiable.

Significance

The foundational authority establishing the doctrine of ultra vires in company law. It shaped the law for over a century and was adopted in India. Its rigour was later softened in the UK by reform (e.g., the European Communities Act 1972 and Companies Act 1985/2006), but it remains the conceptual starting point taught everywhere.

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