ultra vires rule and companies Where a person enters into a contract with a company in good faith, and where the transaction has been decided on by its directors, the contract will be deemed to be within the companys capacity, irrespective of any restrictions in the memorandum or articles. A third party entering a contract with the directors, need not enquire about the companys capacity to enter it and the third party will be deemed to have acted in good faith unless the contrary is proved.