- This topic has 7 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
a company may have restricted objects and therefore it may not be permitted to enter into certain contracts
which of the following statements describes the position of third parties whose contract with a company is outside the scope of its objects
A the contract will not be a valid one
B the company is required to ratify the contract for it to be binding on it
C the contract will be binding on the company and the third party
D the contract is voidable at the instance of the company
mike cannot understand this question please explain question so i an solve it“The validity of a transaction carried out with a company shall not be called into question by anything in the company’s constitution.”
“Where a third party, in good faith, enters into a contract with a company it shall be deemed to be within the company’s powers to enter into that transaction validly”
Does that explain it?
In olden days (before Companies Act 2005 (?)) companies’ constitutions comprised a Memorandum of Association and the Articles of Association. The Memorandum was superior to the Articles and contained a clause called the Objects clause.
Within that objects clause were listed the permissable activities of the company and the company was not permitted to carry out activities outside those specified objects
CA 2005 got rid of that idea so, even though old companies may still have restrictive objects clauses within their constitution, they are ineffective so far as dealings with innocent third parties acting in good faith are concerned
OK?
mike so if its ineffective in case of third party then option c is correct one
That’s tricky. I think there’s a good argument for option b)
The company is REQUIRED to ratify – yes, there is no escape for the company if the third party wishes to push their claim
As for c) – well, no, the contract is voidable at the instance of the innocent third party
I’m going to go for b)
Did I get it right?
its c option in bpp the reason they give is that the company act protest the interest of third party when company is acting outside the scope of the company
- You must be logged in to reply to this topic.