Money lent - effect of ultra vires transaction, Business Law and Ethics

Money Lent:

According to the decision in Re: David Payne & Co Ltd (23), a person lending money to a company is not bound to enquire as to why the company requires the money. He is entitled to assume that the money is being borrowed for the company's legitimate objects. His legal right to enforce the transaction will not be affected by the company's application of the borrowed funds to an ultra vires purpose. However, if the lender is told the purpose of the loan, he must read the company's memorandum of association to ascertain if the stated purpose is consistent with the company's objects, expressly or by implication. If he does not do so and the purpose turns out to be an ultra vires one, he will be deemed to have financed an ultra vires transaction knowingly: Re Introductions Ltd (25). He would not be entitled to sue the company for breach of contract.

Posted Date: 1/12/2013 2:37:40 AM | Location : United States

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