Doctrines of Ultra vires/Constructive Notice/Indoor Management: Jaiib Paper 3 (Module D)

Doctrines of Ultra vires/Constructive Notice/Indoor Management: Jaiib Paper 3 (Module D), Unit 19

♦Doctrines of Ultra vires

  • When a company exercises its powers to promote and/or realise any of its objectives stated in the memorandum of association, it is intra;vires (i.e. within the powers of) the company. However, any other act of the company which is outside the scope of the objects clause of the memorandum of association is known as ultra vires (i.e. beyond the powers of) the company.

♦Constructive Notice

  • It is the duty of every person who deals with a company to inspect its public documents, i.e. its memorandum of association and articles of association and make sure that his contract is in accordance with their provisions.
  • However, whether a person has actually read them or not he shall be in the same position as if he had read them.
  • In other words, he will be presumed to have knowledge of the contents of these documents and to have understood them according to their proper meaning. This kind of presumed notice is known as constructive notice. This is known as the doctrine of constructive notice.

♦Effect of the Doctrine of Constrictive Notice

  • He who deals with company is deemed to have notice of the public documents whether he has actually seen them or not.
  • Another effect is that a person dealing with the company is not only deemed to have notice but is also presumed to have read those documents and to have understood not only the company’s powers but also of its officers.
  • The Doctrine of constrictive notice is of a negative nature in the sense the it stops a person from contending that he had no notice of the contents of the documents.

♦Indoor Management

  • A person who deals with the company is deemed to have read and understood the registered public documents such as the memorandum of association and articles of association, etc., to see that his contract with the company is not inconsistent with them.
  • But he is not bound to inquire into the regularity of the company’s internal functioning or the internal management of the company. Hence if his contract is consistent with the public documents, the company is bound. He will not be affected by any irregularity in the internal management of the company. This is known as the doctrine of indoor management.

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