of preferred stock is not released from his obligation to pay for his shares by such issue.1

§ 775. Executory ultra vires contracts not enforceable.— Contracts, the making of which are palpable assumptions of power not found in express terms, or by implication among those conferred upon the corporation, are voidable at the election of either party thereto, if wholly unperformed.2

Where, however, either party has received a benefit or the other an injury under the contract, or performance has proceeded so far that it cannot be held void without loss or great inconvenience, a controlling equity will refuse to allow the defence of ultra vires to prevail against its enforcement.

§ 776. Money paid for purpose which fails.—Money paid to a corporation upon an understanding that acts shall be done not authorized by the charter at the time of the payment and promise, in anticipation of the requisite power being subsequently conferred, may be recovered back if the attempt fail. The recovery is

1 Hoyt v. Quicksilver Mining Co., 17 Hun, 169; Kent v. Same, 78 N. Y. 159; Hazelhurst v. Savannah, etc., R. R. Co., 43 Ga. 13; Rutland, etc., R. R. Co. v. Thrall, 35 Vt. 536; White v. Franklin B'k, 22 Pick. 181; Parsons Contr. 746.

2 See Alexander v. Cauldwell, 83 N. Y. 480; Franklin Co. v. Lewiston Inst, for Savings, 68 Me. 43; Seligman v. Charlotteville Nat. B'k, 3 Hughes (C. C.) 647; Davis v. Old Colony R. R. Co., 131 Mass. 258; Mut. Sav. B'k v. Meriden Agency Co., 24 Conn. 159; Abbott v. Balt., etc., Steam Packet Co., 1 Md. Ch. 542; Nat. Trust Co. v. Miller, 33 N. J. Eq. 155; Gunn v. Cent. R. R. Co., 74 Ga. 509.

3 Argenti v. S. F. Co., 16 Cal. 255; Buffett v. Troy & Boston R. R. Co., 40 N. Y. 168; Darst v. Gale, 83 Ill. 136. See De Groff v. Am. Linen Thread Co., 21 N. Y. 124; s. c. 24 Barb. 375; Whitney Arms Co. v. Barlow, 63 N. Y. 62; Camden & Atl. R. R. Co. v. Mays' Landing, ete., R. R. Co., 48 N. J. 530; Parish v. Wheeler, 22 N. Y. 494; Hitchcock v. Galveston, 96 U. S. 341; State Board of Agr. v. Citizens Street Ry. Co., 471 Ind. 407; Gold Min. Co. v. Nat. B'k, 96 U. S. 640; Alleghany City v. McClurkan, 14 Pa. St. 81; City of Natchez v. Mallory, 54 Miss. 499; Underwood v. Newport Lyceum, 5 B. Monr. 129; Ry. Co. v. McCarthy, 96 U. S. 258; San Antonio v. Manaffy, Ibid. 312.

not upon the express contract, but upon an implied promise independent of it.1

§ 777. Executory contracts void for excess of power but not expressly prohibited. The right of the state to interfere and punish a corporation for abusing or exceeding its authority will not be anticipated, or that function. assumed by courts where the immediate equities of the parties and the plainest rules of good faith require that contracts partly executed shall be recognized and enforced. This principle does not extend to the enforcement of contracts clearly in excess of corporate authority, but not prohibited by law. When wholly unexecuted, such contracts are void by the common law prohibition, which will be regarded unless it becomes necessary to effect the ends of justice. But it does extend to the enforcement of contracts partly executed, for there is no public or private justice subserved by allowing one party to an invalid transaction to set up the unconscionable and unmeritorious defence that a corporation, or himself, has acted without authority or in a manner unwarranted by law.

To use the terms employed by a late case, there is an "irrepressible conflict" between the legal proposition that a corporation possesses those powers and those only which are conferred in its charters and the exercise of equitable jurisdiction to enforce contracts without regard to the legal limitation thus imposed. But it is one of the fundamental differences between the two jurisdictions, that the one is hampered by definite

1 Anthony v. Household S. M. Co. (R. I.), 5 L. R. An. 575; Dill v. Wareham, 7 Metc. 438; Congress & E. Spr. Co. v. Knowlton, 103 U. S. 49; Nashville v. Ray, 19 Wall. 468; Oneida B'k v. Ontario B'k, 21 N. Y. 490; Thomas v. West Jersey R. Co., 101 U. S. 71; New Castle N. R. Co. v. Simpson, 21 Fed. Rep.

unbending rules, while the other has always, except where prohibited by some positive rule of law, refused to draw the line on the one side of which it will, in a case of hardship and undue advantage, decline to grant relief, and on the other provide a remedy for the injured party.

It has often been insisted that to enforce a contract not authorized by the charter into which a corporation and another party have deliberately entered is to totally defeat the policy and object of the law in requiring corporations to obtain a charter, or persons forming a corporation under general laws to place on record articles of incorporation, as notice to the public of the measure of their right and power in exercising the franchise of being a corporation. But it should be remembered that the very uncertainty of the extent to which courts of equity will go in the enforcement of ultra vires contracts is itself ample protection to the public against unbridled abuse and unwarranted exercise of corporate powers; and the fact that before contracts made in excess of corporate powers will be enforced it must appear that they are in all other respects free from fraud and collusion and are based on adequate consideration, would seem to afford sufficient protection to the stockholders. Besides, it may be said, that while the public laws and public records are constructive notice to every person dealing with a corporation, it may also be said that there is a reasonable presumption that the necessity and adaptability of any particular form and character of transaction to carry out the objects of a corporation are best known to the agents and stockholders themselves. The holding out of officers and agents as such is a continuing representation that they have, by consent of the members, selected the most appropriate means for transacting the business of the corporation. If the former by collusion with an outside party attempt to

deprive the latter of any substantial right, or to in any way divert the funds of the corporation into unauthorized channels, or in any case or by any means perform any ultra vires act, the courts will afford them a preventive remedy; and if any unauthorized transaction, the benefit of which is sought by action, is shown to have been entered into in pursuance of a fraudulent scheme in which the party dealing with the agent has participated, the corporation and the interests of the shareholders are protected from the success of such scheme through the machinery of a court to the same extent as if the injury were about to be done to outside. parties.

In the exercise of a free and unlimited discretion, courts have discriminated between cases as presented from time to time, where there was a mere defect of power to make the particular contract, sometimes enforcing it and at other times refusing to interfere.1

1 The defence that defendant was prohibited from trading in such goods was overruled upon equitable grounds in an action to recover for goods sold and delivered. Chester Glass Co. v. Dewey, 16 Mass. 94. This is an extreme case, and allowed in equity to be set up in opposition to positive law. In a case where suit was brought by a corporation for borrowed money the defence set up was, that the corporation had no power to loan money. But the court drew a distinction between the violation of an express statute and a mere want of power to make the contract and overruled the objection. Nav. Co. v. Weed, 17 Barb. 378. This principle has been repeatedly held applicable to individuals attempting to screen themselves from liability when contracting with a corporation, as well as in cases of corporations seeking to escape responsibility on the plea of ultra vires for acts deliberately done with all needful formalities and where they have received benefits under the contracts. Such defences are seldom tolerated in our courts. To deny a party in such cases the benefit of the contract where no guilty complicity can be charged upon the other party would be substantially to secure to him the fruits of an illegal transaction and to operate as a premium upon repudiation and fraud. See also, Bradley v. Ballard, 53 Ill. 403; Bissell v. The Mich. Southern, etc., R. R. Co., 22 N. Y. 262; Parrish v. Wheeler, 22 N. Y. 494; De Groff v. Am. L. Thread Co., 21 N. Y. 124; Palmer v. Lawrence, 3 Sandf. 161; The Sacketts Harbor B'k v. The Lewis County B'k, 11 Barb. 213; The San Francisco Gas Co. v. The City of San Francisco, 9 Cal. 453; Silver Lake B'k v. North, 4 Johns. Ch. 370; The State of Ind.

§ 778. Commercial paper. The plea of ultra vires is never allowed to defeat a recovery by the bona fide holder of negotiable paper. Authority to make commercial paper is incident to the corporate power of all business corporations, and the same general rules of law apply as in the case of natural persons. Bills of a bank, for instance, where properly signed, though issued without consideration, and even if stolen, are good in the hands of an innocent holder for value.1

The general rule here laid down has the support of numerous authorities.2

$779. Purchases of stock in other corporations.—It is well settled that a consolidation, or, what amounts to the same thing, the obtaining absolute control of one corporation by another, cannot be effected by indirect means as by the purchase of a controlling interest in its shares of stock. It has been held that a note given

v. Woram, 6 Hill N. Y. 33; Main v. Casserly, 67 Cal. 127; 7 P. 271; The Chester Glass Co. v. Dewey, 16 Mass. 94; Steamboat Co. v. McCutcheon, 13 Pa. St. 13; Potter v. The B'k of Ithaca, 5 Hill N. Y. 490; Suydam v. Morris Canal & Bk'g Co., 5 Hill N. Y. 491. See also, Mott v. The U. S. Trust Co., 19 Barb. 568; Bank v. Hammond, 1 Rich. 281; Southern, etc., Co. v. Lanier, 5 Fla. 110; Argenti v. The City of S. F., 16 Cal. 255; Little v. O'Brien, 9 Mass. 403. The case of the Union National B'k v. Mathews, 98 U. S. 621, was similar in many respects to that of Bradley v. Ballard, supra. See also Harris v. Runnels, 12 How. 79. In a suit against a corporation to restrain it from lowering the level of the water in a lake, it is proper to join the president of the company and his agent as defendants where it is alleged that the president owns a majority of the stock, and has for years managed the affairs of the corporation, and controlled the level of the water in the lake at his pleasure and for his own benefit. Cedar Lake Hotel Co. v. Cedar Lake Hydraulic Co. (Wis.), 48 N. W. 371.

1 Monumental Nat. B'k v. Globe Wks., 101 Mass. 57.

2 See Narragansett B'k v. Atl. Silk Co., 3 Metc. 282; Bird v. Daggett, 97 Mass. 494; Farmers' & Merchants' B'k v. Empire, etc., Co., 5 Bosw. 275; Moore v. Tanning Co., 60 Vt. 459; Holmes, etc., Mfg. Co. v. Holmes, etc., Metal Co., 53 Hun, 52, where it was held to be no defence to a note given for the price of stock of another company that the payee corporation had no right to acquire title to such stock.

8 Supra, §§ 9, 172.