(i)

The issue in the question is whether the answer to (ii) above would differ if the company has already bought the shop lot. Apply S20 (1) if the contract is already entered, it is binding between the company and third party, even though it is an ultra vires. Both parties are bound by the contract. This is illustrated in the case of Pamaron Holdings Sdn.Bhd v Ganda Holdings Bhd. The plaintiff and the defendant had entered into a written agreement by which the plaintiff had agreed to sell and the defendant company had agreed to purchase 1,108,000 fully paid-up shares of RM1 each in a private limited company called Seasian Hotel Sdn Bhd for RM845, 970.91. The defendant defaulted in the payment of the purchase price and the plaintiff brought an action against the defendant seeking, inter alia, specific performance of the agreement. One of the points taken by the defendant was that the transaction was ultra vires the company. V.C. George J (as his Lordship then was) held that Section 20 did not allow an outsider, other than a member, a debenture holder or the Minister to raise the issue of ultra vires. Since the defendant was an outsider and not a member, a debenture holder or the Minister, it could not rely on Section 20. (Chan, Koh, 2006, p148). Section 20(1) was briefly considered by Lim Beng Choon J. in the case, namely Public Bank Bhd v Metro Construction Sdn Bhd. In the former, one Lee who claimed to be the director and the major shareholder of the defendant company alleged that two men,(the Yeohs) approached him under the pretext of acquiring the entire share capital of the defendant company. The Yeohs further persuaded him and other directors o resign from the office of the defendant company. The defendant had two pieces of land, and titles to the company to the land were also surrendered to the Yeohs as directors of the defendant company passed a resolution authorizing the defendant company called Tenaga Muhibbah Sdn Bhd by the plaintiff bank. Tenaga had no dealing whatsoever with the defendant company. The Yeohs on behalf of the defendant company had caused the two pieces of land to be charged to the plaintiff bank as security for the loan. Tenaga defendant in repayment of the loan and the plaintiff bank proceeded to foreclose on the land under the National Land Code (NLC). The court, having considered several provisions in the memorandum, held that the third party charges were not ultra vires the object clause of the defendant

company. On the facts, it was found that Yeohs had actual authority to execute the two charges. The court went on to hold that, even assuming that the third party charges were ultra vires the companys memorandum and articles of association, they could save by Section 20(1) of the Companies Act 1965. Having considered the wording of Section 20(1), the court held that Section 20(1) abolishes the otherwise rigorous effect of the ultra vires doctrine. His Lordship, of course, did not say that the doctrine of ultra vires had been abolished by Section 20(1);it was the rigorous effect of the doctrine that was abolished.