In one case we find this language: "Again in numerous cases, it has been held that a contract made by a corporation which is not authorized by its charter is not to be held void, and that a defendant sued thereon cannot refuse payment; but the legislature may inquire into any violation of the charter, or the government may institute suit for that purpose. The investigation must be in a direct proceeding instituted by the government for that purpose, and it cannot be had in a collateral way by individuals.”1

If this doctrine were applied in practice and the excess or misuse of corporate powers is the business of the state only, and never to be made available to a party litigant in an ordinary civil action, it follows that the charter or articles are no measure of a corporation's duty, power, right or privilege with reference either to its members or the general business public with which it deals; but such charter or articles perform no other duty than to circumscribe the scope of its immunity from quo warranto proceedings. The application of a well-known principle of estoppel prevents a party to a transaction with a corporation from attacking the corporate existence collaterally; but it would be a serious innovation to extend it generally to cases involving the validity of corporate acts in connection with the exercise of corporate powers alleged to be illegal because not authorized by the charter where the legal existence of the corporation was not involved.

Nevertheless, it must be conceded that the courts so uniformly give effect to ultra vires contracts, partly ex

Un. Water Co. v. Murphy's Flat, etc., Co., 22 Cal. 620. To support this view a number of cases are cited, and among them Natoma W. & C. M. Co. v. Clarkin, 14 Cal. 552; in which case the purchase sought to be impeached was within the exercise of its potential powers and the case was an application of the recognized rule, although the statement of the ground of the decision by the learned Chief Justice was very general and somewhat misleading.

ecuted, that the duty of construction to determine whether a corporation has acted within or has exceeded its powers is seldom exercised except where public policy is contravened or some public interest is threatened. But in few, if any, instances have courts refused, at the suit of a non-assenting stockholder, to restrain unauthorized diversions of corporate funds, where the interests of third parties were not at stake;1 and courts will never compel specific performance of unexecuted ultra vires contracts.

§ 767. Contracts executed by one of the parties.—Although there may be a defect of power in a corporation to make a contract, yet if the contract is not in violation of the charter of the corporation, or of any statutes prohibiting it, and the corporation has by its promise induced a party relying upon it, and in execution of such contract, to expend money and perform part of the contract, the corporation is liable on the contract. In all cases holding corporations and individuals liable in such cases, there is an application of the equitable doctrine which prevails where transactions are already consummated and benefits derived from them by one of the parties.

his

1 Supra, § 625 et seq.

2 In State Board of Agr. v. Citizens' Street Ry. Co., 47 Ind. 407, followed and approved in Hitchcock v. Galveston, 96 U. S. 351, as an inducement to the plaintiff to locate the annual state fair ground near the terminus of the company's line the company agreed to pay plaintiff $1,000. The fair was located according to the contract at a heavy expense to the plaintiff, and to an action by it to recover $1,000 defendant pleaded the absence of power in its charter to expend money for the purpose forming the consideration for the contract.

But the court stated a clear distinction between contracts to which corporations are a party and are executed by one of the parties and those that are executory purely where no harm will be done if the parties be left in their previous situations, and held the corporation liable. See also, Steam Nay. Co. v. Weed,

17 Barb. 378.

In Sedgw. Stat. & Const. Law, 73, 2d Ed., it is said: "It must be further borne in mind that the invalidity of contracts made in violation of statutes is

In New York, the courts have gone very far in enforcing contracts partly executed, though not justified by corporate charters.1

§ 768. A strong case required to defeat a recovery of borrowed money.-The circumstances of a transaction must

subject to the equitable exception that, although a corporation in making a contract acts in disagreement with its charter, where it is a simple question of capacity or authority to contract, arising either on a question of regularity of organization or of power conferred by the charter, a party who has had the benefit of the agreement cannot be permitted in an action founded on it to question its validity. It would be in the highest degree inequitable and unjust to permit the defendant to repudiate a contract the fruits of which he retains."

1 See Parrish v. Wheeler, 22 N. Y. 494; Bissell v. Mich. Southern, etc., R. R. Co., Id. 24. The case of Bradley v. Ballard, 53 Ill. 413, extended the equitable doctrine of disregarding the excess of corporate power, and giving relief very far, and seems to be directly contrary to the conclusion reached in the East Anglian Ry. Co. v. The Eastern Counties Ry. Co., 7 E. L. & E. 505, and several other cases; but it should be observed that public policy, in the case of railroad and other quasi public and municipal corporations, supervenes the equitable considerations allowed to control in the case of the executed contracts with purely private corporations. In Bradley v. Ballard case it was held that even though the lender of money to a corporation knew that it was transacting a business beyond its chartered powers, and that his money would be used in such business, yet the corporation could not evade the payment of the money on that ground provided the business itself was free from any intrinsic immorality or legality. In Taylor v. North Star Gold Mining Co., 79 Cal. 285, the court said: "There having been no fraud the company could not refuse to pay the money which it had borrowed on the ground that it was borrowed for the purpose of being used and was used for the payment of expenses which were incidental to an act which was ultra vires." But where a corporation engaged in the manufacture of iron had subscribed for stock of a railroad company, and delivered property in part payment, in an action by the iron company to recover the price of the property so delivered, relief was refused. The court said: "The fron company was at liberty by its agents to accede to the demand of the railway company for the delivery of the goods on subscription, or to decline to do so. It chose with a full knowledge of the facts to deliver the goods, and there is no sound reason why, it should be aided in a law-suit made necessary by its own voluntary act, that would not apply with equal force to a natural person." Val. Ry. Co. v. Erie Iron Co., 46 Ohio St. 44; 26 Am. & Eng. Cor. Cas. 55.

In Suydam v. Morris Canal & Bkg. Co., 5 Hill, 491, the defendant was a corporation whose charter provided that its banking operations should be carried on in the city of Jersey. A loan had been made to an officer of defendant in the city of New York and a plea to an action for the recovery of the borrowed money which set up that the loan was not received by it at the place where by its charter it was authorized to do business was overruled.

show a clear intention of the lender of money to a corporation to aid in the consummation of an unlawful and prohibited act in order to warrant a court in entertaining the defence of ultra vires in an action for its recovery. A bill in equity is a proper remedy to have bonds of a corporation declared ultra vires and void, and to have the deed of trust given to secure them released, where the bonds are regular upon their face, and their invalidity depends upon the extrinsic evidence.2

§ 769. An extreme case.-In Sackett's Harbor Bank v. Lewis Co. B'k,3 the equitable principle of suppressing an unconscionable defence is extended beyond the limit of previous cases, and in total disregard of an unequivocal prohibition contained in the defendant's charter. The charter provided that it should not directly, or indirectly deal or trade in, or buy or sell any goods, wares or merchandise, or any commodities whatever, except to sell the same when truly pledged by way of security of debts due the corporation. The action was for the purchase price of a quantity of butter. The defendant in an action on the contract set up its incapacity to make the purchase; but the court disallowed it for the unique and decidedly original reason that it was "an isolated transaction."

These cases illustrate the difficulty attending the application of the doctrine in practice, and it is questionable if the doctrine should be applied at all to suits on contracts. In such cases, it would appear necessary for the vendor to take his chances on the verdict of a jury or the finding of a court, as to whether the article

1 Wright v. Hughes, 119 Ind. 324, and cases cited.

1 City of Chicago v. Cameron, 22 Ill. App. 91; aff'd, 11 N. E. 899. $ 11 Barb. 213.

sold was of sufficient utility to the corporation to enable him to escape the defence of ultra vires. The question is invariably one depending largely upon the existence of facts and circumstances. For instance, upon the reasoning in any of the cases above noticed, could a court say, as a matter of law, that any article which may be purchased is not within the scope of the powers of a corporation for manufacturing, mining, trading or commercial purposes to purchase?

§ 770. Illegal increase of capital stock and issue of stock thereon.-Another class of corporate acts which are void under any and all circumstances, and hence incapable of subsequent ratification and adoption, are those by which an increase of capital is attempted to be made without authority of law, and additional shares of stock created to represent the same authority may be conferred upon the majority or even upon the directors in the charter to alter the amount of share capital; and the weight of authority upholds the power of the legislature to confer such power upon the majority by an act subsequent to incorporation.' But without authority expressly conferred in some form by the state, a corporation has no power whatever to either increase or reduce the amount of its stock; and any attempt to do so, though sanctioned by the stockholders unanimously, is illegal and void.2 National banks can increase their capital stock only as provided by Rev. St. U. S., sec. 5142, and Act Cong. May 6, 1886; and where an in

Supra, § 594.

2 Scoville v. Thayer, 105 U. S. 143, 148; Sutherland v. Olcott, 95 N. Y. 83, 100; N. Y., etc., R. R. Co. v. Schuyler, 34 Id. 30. Granger, L. Ins. Co. v. Kamper, 73 Ala. 325; Moses v. Ocoer B'k, 1 Lea (Tenn.), 398; Ferris v. Ludlow, 7 Ind. 517; Lathrop v. Kneeland, 47 Barb. 432; Salem Mill Dam Co. v. Ropes, 6 Pick. 23; Droitwich Pat. Salt Co v. Curzon, L. R. 3 Exch. 35, 42; Seignouret, v. Home Ins. Co., 24 Fed. Rep. 332.