A corporation has only the powers expressly conferred upon it by law and its articles of incorporation, those implied from the express powers, and those incidental to its existence. An ultra vires act is one that is beyond the powers of the corporation, that is, outside the scope of its express, implied, and incidental powers. It is important to distinguish an ultra vires act from an illegal act: an illegal act is one that is contrary to law, morals, or public policy, and is void and cannot be ratified; an ultra vires act, by contrast, is not necessarily illegal in itself, but merely beyond the corporation's authorized purposes. Because of this, the effect of a purely ultra vires (but not illegal) act is not automatic nullity. The Corporation Code (now the Revised Corporation Code) provides that no act of a corporation shall be invalidated on the ground that it is beyond the corporate powers, but such ultra vires act may be the basis of certain consequences. In particular, an ultra vires act that is not illegal may be ratified by the stockholders, and the doctrine of estoppel often applies: where a contract that is merely ultra vires has been fully or partially performed, and one party has benefited, the courts will generally not allow that party to escape liability by pleading ultra vires, to prevent unjust enrichment. The remedies against ultra vires acts include a suit by the State (through quo warranto) to revoke the franchise for a serious or continued violation, a suit by stockholders to enjoin the act, and a suit against the directors or officers who caused the act. So an ultra vires act is one beyond the corporation's powers; if not illegal, it is not automatically void and may be ratified or made binding by estoppel.
What Ultra Vires Means
A corporation has only the powers conferred by law and its articles, plus implied and incidental ones. An ultra vires act is beyond those powers.
Not the Same as Illegal
An illegal act (contrary to law/morals/policy) is void and cannot be ratified. A merely ultra vires act is not necessarily illegal — just beyond the authorized purposes — so it is not automatically void.
Ratification and Estoppel
A non-illegal ultra vires act may be ratified by the stockholders. By estoppel, a party who benefited from a performed ultra vires contract generally cannot escape liability by pleading ultra vires. Remedies include quo warranto by the State and suits by stockholders.
Practical Takeaways
- Ultra vires = beyond the corporation's powers;
- It is not the same as illegal and is not automatically void;
- It may be ratified or enforced by estoppel to prevent unjust enrichment.
Frequently Asked Questions
What is an ultra vires act? An act beyond the powers of a corporation, that is, outside the scope of its express, implied, and incidental powers under the law and its articles of incorporation.
Is an ultra vires act the same as an illegal act? No. An illegal act is contrary to law, morals, or public policy and is void and cannot be ratified. A merely ultra vires act is beyond the corporation's authorized purposes but is not necessarily illegal, so it is not automatically void.
Can an ultra vires act be ratified? Yes, if it is not illegal. A purely ultra vires act may be ratified by the stockholders, and the doctrine of estoppel may bind a party who benefited from a performed ultra vires contract.
What are the remedies against ultra vires acts? A suit by the State through quo warranto to revoke the franchise for a serious or continued violation, a suit by stockholders to enjoin the act, and a suit against the directors or officers who caused it.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
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