In theory, the classical ultra vires doctirne was applicable to two somewhat different questions presented below. In practice, the two questiosn tended to merge. For example, certificates of incorporation commonly contained clauess that descirbed each of the corporation's prupsoes adn powers as both purposes and power.
- 1) Whether a corporation had acted beyond its purposes, that is, had engaged in a type of business activity not permitted under its certificate. Ultra vires results when a corporation has acted beyond its purpose (the object of the incorporation)
- 2) Whether the corporation had exercised a power not specified in its certificate. .or powers by which the corporation carries out the object).
- A corporation established for fixing cars would have the poewr to enter contracts to fix cars; however, a contract to fix freeways might be ultra vires and beyond its purpose.
Recurring problems of ultra vires
- the power of a corporation to guarantee a third party's debts..
- the power of a corporation to be a general partner..
Its steady erosion
- the corporate pwoers could be implied as well as explicit
- ultra vires was not a defense to corporate tort or criminal liability
- non-performing parties
- unanimous shareholder approval barred the ultra vires defense...'
- statutes made thsi ... unnecessary by providing that the certificate could provide simply that the corporation could engagae in any lawful businesss ... even withou enumeration in the certificate...
Ultra vires is less significant now.
- Incorporation is much easier and there are no longer legislative restrictions so corporations can be formed with broad purposes and power to act in any lawful means and purpose.
- In addition, even if a corporate action is ultra vires, statutory provisions restrict the use of the ultra vires defnese in order to protect third parties.
Ultra vires may still be raised in some particular contexts.