corporate obligations and documents with the character and incidents of commercial paper, so as to render them, in the hands of bona fide holders, absolute obligations to pay, is an abuse of their true character and purpose, and places the corporation under no more obligation with respect to them than in the case of counterfeit coin or money of the government.1

§ 746. A different rule when shares actually signed.— Where, however, certificates of shares actually signed and issued by the proper officers of a corporation are assigned to a bona fide purchaser, the latter before the surrender of old certificates in lieu of which they purport to be issued through the fraud of corporate

company was not liable for the fraudulent issue. Moores v. Citizens' Nat. B'k of Piquod, 111 U. S. 156; 5 Am. & Eng. Cor. Cas. 138. In Dist. Columb. v. Connell, 130 U. S. 655, negotiable certificates of indebtedness had been redeemed according to law and cancelled by stamping in ink across the face words stating the fact, and they were afterwards stolen by a clerk who had no duty or authority connected with the care of such certificates, who fraudulently effaced the marks of cancellation, and put the certificates in circulation. It was held that the obligor in such certificates, the District of Columbia, incurred no liability by reason of such acts of the agent, even in favor of a purchaser in good faith and for value before maturity. In Burbridge v. Manners, 3 Comp. 193, Lord ELLENBOROUGH, said:-" It is the duty of bankers to make some memorandum on bills and notes which have been paid." Since this expression is clearly indicative of his opinion, that the making of such memorandum upon the securities would be sufficient to protect the bankers from being afterwards held liable to any holders thereof, the decisions have been uniform in agreement with his view. But in State v. Wells, 15 Cal. 336, treasury warrants of the State of California had been once lawfully issued, presented and paid, but never cancelled in any way before they were stolen and again put in circulation. The suit was not upon the warrants, but was brought by the state against bona fide holders who had presented them a second time, and to recover back the value of the bonds which the state had delivered to them in good faith; and it was held that the state was not entitled to recover. So in Cooke v. U. S., 61 U. S. 389, plaintiff who was a bona fide holder of interest-bearing treasury notes which had been stolen from treasury after being completed, ready for circulation, was allowed to recover. See also, Copper v. Jersey City (N. J.), 2 Am. & Eng. Corp. Cas. 260; Baxendale v. Bennett, 3 Q. B. 525, 532.

1 Mayor v. Ray, 19 Wall. 468, 477; Hill v. C. F. Jewett Pub. Co. (Mass.), 28 N. E. 142; Powers v. Same (Mass.), 28 N. E. 142, (Aug., 1891.) Wall v. Monroe County, 103 U. S. 74, 78; Claiborne County v. Brooks, 111 U. S. 400, 408.

agents, the principle applies that where one of two innocent persons must suffer from the fraud of a third, the loss must be borne by him whose negligence enabled the third person to commit the fraud.

The purchaser, in such case, owes no duty to the corporation to see that the seller surrenders any old certificates and transfers them on the books of the corporation; and although the corporation cannot be compelled to issue valid shares in place of those fraudulently issued for the reason that this would cause an over-issue of its capital stock, yet the corporation may be held liable to him in damages for the fraud.1

But it is otherwise where the stock is purchased or taken in pledge by accepting a certificate newly issued in a dealing on the private account of an officer who alone or with others has exclusive power to issue the certificates. In that case, the purchaser or pledgee is required to investigate the title to the stock, and cannot be protected as an innocent holder if the stock was fraudulently issued.2

§747. When act of agent beyond powers of corporation binds the latter.-The rule that an agent of a corporation cannot bind it in matters wherein he exceeds the corporate powers, is subject to important exceptions founded upon a sense of justice which modifies all law. Without reflection there is a glaring inconsistency in holding that an agent may, in any case, bind a corpo

716; 22 N. E. 917. Titus v. Gt. West. S. 156; West. Un.

1 Allen v. S. Boston R. Co., 150 Mass. 200; 5 L. R. An. See N. Y. & N. H. R. Co. v. Schuyler, 34 N. Y. 30, 64. Turnp. Co., 61 N. Y. 237; Moores v. Cit. Nat. B'k, 111 U. Tel. Co. v. Davenport, 97 U. S. 369, 371; Boston & A. R. Co. v. Richardson, 135 Mass. 473; Machinists' Nat. B'k v. Field, 126 Mass. 345; Holbrook v. N. J. Zinc. Co., 57 N. Y. 616; Shaw v. Port Phillip, etc., G. M. Co., L. R. 13 Q. B. D. 103.

2 Farmington v. South Boston R. Co. (Mass.), 5 L. R. An. 816; Moores v. Cit. Nat. B'k, 111 U. S. 156.

ration by entering into a contract in its name which the corporation itself has not power to make under its charter. But it should be borne in mind that such cases present a conflict between the principles of the general law of agency which are not impaired where justice requires their application and the prohibition against unauthorized corporate action. The former being founded upon elementary justice, the practical science of jurisprudence is not promoted by substituting in their stead a purely arbitrary rule.

Nevertheless, there is considerable divergence, not to say conflict, between the decisions wherein it has been sought to establish fixed rules on this important subject.1

§ 748. Reason of the rule of liability.—The true reason upon which cases of this kind rests is, that the knowledge upon which the authority of the agent depends is peculiarly within his own knowledge and is not open to the party with whom he contracts. If the corpo

ration or its managing agents with full knowledge that the charter provisions have been disregarded or violated acquiesce in the act or contract of the agent, it becomes as to a third party who has altered his condition or parted with his property as if the act had been done strictly in pursuance of the objects and purposes of the corporate enterprise.2

The distinction lies between acts done ultra vires as to the charter, and those within the scope of the fran

1 Infra, § 765.

2 In Moss v. Rossio Min. Co., 5 Hill, 137, CowEN, J., said: "I am not aware that a corporation more than another can purchase and convert an article to its own use and then object that it acted beyond the statute power. It is itself a sort of agent and must be the judge as between itself and the vendor whether the article be wanted or not.

The vendor cannot pronounce on the question."

chise granted and yet beyond the authority conferred upon the particular officer performing them.

If the officers of a banking corporation, for instance, should employ a contractor to build a railroad which would be beyond the legitimate scope and province of the franchise granted, such a contract would be absolutely void; and no amount or degree of acquiescence by the stockholders could legalize it or make it binding on the corporation. If, by consent, the stockholders could give validity to contracts based upon such acts, they could in effect grasp new franchises from the public at their pleasure.

§ 749. Evidence of ratification.-Acts of officers and agents in excess of their authority may, however, be within the franchises granted in the charter, and therefore subject to ratification by the shareholders or managing board.1 What amounts to a ratification of an unauthorized act is a question of evidence. Express assent by the shareholders or directors is not necessary. Conduct on their part from which assent may reasonably be inferred is sufficient to work an equitable estoppel. If, having the opportunity, they neglect to promptly condemn the unauthorized act, or to seek judicial redress, if that is necessary, after knowledge of the facts, this will be deemed an acquiescence in it.2

1 Hazelhurst v. The Savannah, etc., R. R. Co., 43 Ga. 53, 54; 4 Johns. Chan. 570; Pierce on Ry. Law, 401.

2 Ratification was held to be sufficiently shown to support verdicts in the following instances; a contract executed and sealed in the name of the corporation by its president and secretary, though without the express assent of the directors, when it has received the benefits under the contract and conducted its business in such a manner that the directors must have known of it; Jourdan v. L. I. R. Co., 115 N. Y. 380, where on an appeal in an action to which the corporation was a party, the president of the company executed for it an appeal bond without attaching the corporate seal, and the corporation acquiescing in such execution during the pendency of the appeal and until suit on the bond; Campbell v. Pope, 96 Mo. 468, where the president of a railway company executed

If innocent third persons have been led to alter their conditions or put in positions from which they cannot

for it an instrument referring to a conveyance of a right of way the benefits of which the company accepted and enjoyed; Mobile & M. R. Ry. Co. v. Gelmer, 85 Ala. 422, where the president of a company was permitted for several years to act and represent himself as the general manager and director of its business, also holding that under the circumstances, the company could not set up its by-laws as countervailing the president's authority; Marine B'k v. Butler Colliery Co., 52 Hun, 612; 5 N. Y. Supp. 291, where the corporation borrowed money which is applied to the improvement of its property and the stockholders, knowing of such improvement, and the loan to effect it, allowed the credi tors to advance the money and the money to be used without any indication of dissent on their part; Manhattan Hardw. Co. v. Phalan, 128 Pa. St. 110; 18 Atl. Rep. 428; Same v. Roland Id. 119, where by resolution of a board of directors, referred to mortgages previously executed by its president and secretary as being prior to another mortgage, which the resolution authorizes to be executed; Shaver v. Hardin (Ia.), 48 N. W. 68, where a sale was made by an insolvent corporation to one of its directors of its property to satisfy its debt and the company received and cancelled the notes in payment in which it was made; Beach v. Miller, 123 Ill. 151; 22 N. E. Rep. 464. For ratification by stockholders generally, see People v. N. Riv. Sugar Refin. Co., 121 N. Y. 691. Tuscaloosa CottonSeed Oil Co. v. Perry, 85 Ala. 158; Met. T. & T. Co. v. Telep. Co., 44 N. J. Eq. 568; Second Nat. Bank v. Mfg. Co., 56 N. Y. Sup. Ct. 216; Duke v. Markham, 105 N. C. 131; Getty v. Milling Co., 40 Kans. 281; Hull v. Glover, 126 Ill. 122. By corporation see Bohm v. Brewery Co., 30 N. Y. St. Rep. 424; 9 N. Y. S. 514; Ives v. Smith, 55 Hun, 606; 8 N. Y. S. 46; Williams v. Uncampahgre Canal Co., 13 Col. 469; Martin v. Victor M. & M. Co., 19 Nev. 180; Taylor v. Albemarle S. Nav. Co., 105 N. C. 484; Morrell v. L. I. R. Co., 1 N. Y. S. 65; Fitch v. Lewiston S. M. Co., 80 Me. 34; 12 A. 732; Met. T. & T. Co. v. Dom. T. & T. Co., 44 N. J. Eq. 568; 14 A. 907; Hoosac M. & M. Co. v. Donat, 10 Col. 529; 16 P. 157; Ala. G. S. R. Co. v. S. & N. A. R. Co., 84 Ala. 570; 3 So. 286; Kirkland v. Menasha W. W. Co., 68 Wis. 34; 31 N. W. 471; Battelle v. N. W. C. & C. P. Co., 37 Minn. 89; 33 N. W. 327, ratification of contract made by promoters previous to incorporation; Puxton Caule Co. v. First Nat. B'k, 21 Neb. 621; 33 N. W. 271; Hubbard v. Camperdown Mills, 26 S. C. 581; 2 S. E. 576; Ind. Ro. M. Co. v. St. L. Ft. S. & W. R. Co., 120 U. S. 256; 7 S. Ct. 542. A party relying upon a ratification by directors must show that they or a majority of them actually knew of the contract and its terms. Murray v. N. Lumber Co., 143 Mass. 250; 9 N. E. 634.

Certain promissory notes were issued by the treasurer of a corporation, with the seal of the corporation added, in settlement of a contract for building a railroad. It appeared that two of the directors of the company examined the notes after they were issued, and one of them pronounced them genuine, and a part of certain notes issued by vote of the stockholders, and that he, as treasurer of the company, paid interest upon them. The other director also pronounced the notes genuine. In the reports of the treasurer to the stockholders for five years, all of which were accepted by the stockholders, obligations of the company were sometimes spoken of as notes, and sometimes as bonds. Held, that it being a