Assessment Task Answers

Running head: ASSESSMENT TASK ANSWERS 1
Assessment Task Answers
Name
Institution

ASSESSMENT TASK ANSWERS 2
Question 1
Part A
A company’s object clause states the range of activities and the purpose for which it is founded.
As provided in the company statutory legislations, an object clause dictates the capacity of a
company to act. These clauses determine the extent of the powers which the company can
exercise in order to achieve the objects. Thus stating the object of a company in the company’s
constitution is not a mere legal technicality but rather a necessity of great practical importance.
As a result, any contract entered into beyond the company powers set in the object clause would
be deemed void ab initio.1
Relating this to the case in question, Ted included an ‘objects clause’ in the constitution of OW
which restricted the activities of the corporation to the organic framing of grapes, the production
of organic wines and any related and incidental activities. When Priya opted to get into a contract
with Seedy Vineyards for the supply of chemically engineered grapes, she was placing the
company in a position of ultra vires action. The company was acting ultra vires as it was in
contravention of the object clause of the company policy. A company has no power to act on
anything which is beyond the purview of the objects clause.2 In fact, this rule is put in place to
ensure that the rights and interests of the shareholders are protected from the risk of being subject
to unauthorized businesses.
Additionally, Priya was acting ultra vires with regard to her role in the company. She could only
get into agreements worth $100,000 or less without the scrutiny of the board. Making a
contractual agreement worth $500,000 was procedural ultra vires on her part. She was acting
beyond her power and authority and could not undertake such a transaction on behalf of the
company. Furthermore, the acts by Priya took place out of her contractual timeframe. There was
a fixed contract between her and the company which ran between February 2016 and February
2018. In fixed contracts, no notice need to be given after the contract duration comes to an end
and the contract is terminated by default. The employee ceases to be a member of the company
and can no longer represent the company in its dealings. Therefore, the legal position is that the
1Sarah Worthington. Sealy & worthington's cases and materials in company law. (Oxford University Press, 11th ed,
2013)
2 John Charlesowrth. Charlesworth company law. (Sweet & Maxwell, 17th ed, 2005).

ASSESSMENT TASK ANSWERS 3
agreement between Priya and Seedy Vineyards was unenforceable as such an act was null and
void in the face of it.
Likely Defense by Seedy Vineyards
The contract may be prima facie void and the members of Seedy Vineyards might have just been
protected by the object clause. However, the fact that Priya exceeded her authority by entering
into such agreements might not offload the company from being obligated to perform its duty in
the contract. Additionally, it may be immaterial that the agreement is in breach of the objects
clause in OW’s constitution. The enforceability of the contract could solely be up to Seedy
Vineyards since the contract was founded on mistake which is the misapprehension of a fact or
factual situation. Ordinarily, parties are not expected to know the arrangements within a
company and thus acts of procedural ultra vires can bind the companies to the contract. There
was an erroneous assumption on the part of Seedy Vineyards with regard to identity. The
presumption here is that when getting into the contract, Priya was acting on behalf of the
company, as an agent of OW. A mistake as to the identity of one of the parties to the contract is
termed as a unilateral mistake. The effect of mistakes in a contract is that they make such a
contract voidable on the part of the mistaken party.3 In this case, Seedy Vineyards might just
have the option of either repudiating the contract or keeping up with it.
However, as it was held in the case of Ashbury Railway carriage and Iron Co, v. Riche, a
contract founded on ultra vires motives cannot be ratified by shareholders and is void.4 In the
case, the company was incorporated with the object of making, and lending upon hire, railway
carriages and wagons plus carrying on the task on the business of general contractors and
mechanical engineers. The company directors contracted a company of railway contractors
called Riche to finance the construction of a rail in Belgium. However, the company later
repudiated the contract stating that it was being ultra vires. Riche instituted a suit on grounds of
contractual breach and it was ruled that the fact that the contract was ultra vires to the object
clause meant the contract was void. Finally, the company can also bring an action against Priya
for breach of duty for the failure to observe the limits of her constitutional powers.
Part B
3 Chris Turner. Unlocking Contract Law. (Routledge, 4th ed, 2014).
4 LR 7 HL 653