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NOTE.

In the first volume, and in the first two titles of the second volume, are considered the doctrines relating to the birth, life, powers, acts, obligations, and death of a corporation, effort being made to get a view of the general principles as a whole.

This second volume, with the exception of the first two titles, deals with the Corporation as a Subject and Source of Peculiar Rights and Obligations in its twofold aspect of Corporate Relations and Individual Relations.

The Corporate Relations comprise the relation of the Corporation to the State, including the Creating State, other States, and the National Government; to the promoters; to the officers; to the shareholders; to the creditors, and to others.

The Individual Relations comprise the relations of the various groups of persons-the promoters, the officers, the shareholders, and the creditors, and each member of each group to the other groups or members thereof, as well as the members of each group among themselves.

In most cases these several relations are developed by considering the rights of each as against the others; as, for example, in the Relation of the Corporation to its Shareholders are considered (1) the rights of the corporation as against the shareholders, and (2) the rights of the shareholders as against the corporation; and likewise with the rest, so far as possible; in the Relation of the Corporation to the State, however, it seemed better not to make such a separation.

TITLE III. THE DOCTRINE OF ULTRA VIRES.1

CHAPTER 14.

GENERAL THEORY OF ULTRA VIRES TRANSACTIONS.

ARTICLE I. MEANING OF THE TERM.

Sec. 357.

DEPUE, J., IN CAMDEN AND ATLANTIC R. R. CO. v. MAY'S LANDING, ETC., R. R. CO.

1886. IN THE COURT OF ERROR AND APPEALS OF New. JERSEY. 48 N. J. L. Rep. 530, on 574-575.

The expression ultra vires is used in different senses-to express either that the act of the directors or officers is in excess of their authority as agents of the corporation, or that the act of the majority of the stockholders is in violation of the rights of the minority, or that the act has not been done in conformity with requirements of the charter, or that the act is one that the corporation itself has not the capacity to do, as being in excess of its corporate powers.

The indiscriminate use of this expression, with respect to cases different in their nature and principles, has led to considerable confusion, if not misapprehension. Where the act done by directors or officers is simply beyond the powers of the executive department of the corporation as the agency by which the corporation exercises its functions, and not of the corporation itself, it may be made valid and binding by the action of the board of directors, or by the approval of the stockholders. Where the act done by stockholders is not in excess of the powers of the corporation itself, but is simply an infringement upon the rights of other stockholders, it may be made binding upon the latter by ratification or by consent implied from acquiescence. Where the infirmity of the act does not consist in a want of corporate power to do it, but in the disregard of formalities prescribed, it may

1 Note. See on the general subject of ultra vires: Abbott's Digest, p. 870; 27 Am. & Eng. Ency. 351; Angell & Ames, § 256; 2 Beach, §§ 421-439; Boone, §§ 98-104; 12 Century Digest, §§ 1545-1547; Clark, §§ 62-68; Cook, §§ 3, 667683; Elliott, §§ 200-230; 12 Ency. Laws of England, p. 360; Green's Brice's Ultra Vires; 2 Potter, $$ 540-561; 2 Morawetz, §§ 575-724; Reese Ultra Vires; 2 Spelling, $$ 758-769; Taylor, §§ 264-338; 4 Thompson, $$ 5638-5652; 5 Thompson, §§ 5967-6042; 7 Thompson, §§ 8308-8331; 1 Waterman, §§ 160-161. (1176)

or may not be valid as to third persons dealing bona fide with the corporation, according to the nature of the formality not observed, or the consequences the legislature has imposed upon non-observance. These are all cases depending upon legal principles, not peculiarly applicable to corporations, and the use of the phrase ultra vires tendsto confusion and misapprehension. In its legitimate use, the expres sion ultra vires should be applied only to such acts as are beyond the powers of the corporation itself. In this sense it is to be applied in this case.

In the discussion of this subject a distinction is sometimes taken between the acts of a corporation, which it is not expressly, or by necessary implication, empowered to do, and acts expressly forbidden it to do, treating the latter as incapable of being endowed with any validity, and the former as susceptible of ratification, and capable of obtaining validity from equitable estoppel.

See, also, 1869, Miner's Ditch Co. v. Zellerbach, 37 Cal. 543, 99 Am. Dec. 300, infra, p. 1200; 1899, National, etc., Loan Ass'n v. Home Sav. Bank, 181 Ill. 35, 72 Am. St. Rep. 245.

Also, note, 70 Am. St. Rep. 156.

ARTICLE II. THEORIES AS TO UNDERLYING PRINCIPLES.

Sec. 358. (1) Ultra vires acts void because of legal incapacity to make them.

MR. JUSTICE BREWER IN CHICAGO, R. I. & P. RY. CO. v. UNION PAC. RY. CO.

1891. IN THE UNITED STATES CIRCUIT COURT. 47 Fed. Rep. 15, on 20, 21.

The doctrine of ultra vires has been thoroughly sifted within the last thirty years-its extent and limitations clearly defined. Thomas v. Railroad Co., 101 U. S. 71; Branch v. Jesup, 106 U. S. 468, 1 Sup. Ct. Rep. 495; Pennsylvania R. Co. v. St. Louis, A. & T. H. R. Co., 118 U. S. 290, 6 Sup. Ct. Rep. 1094; Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., 130 U. S. 1, 9 Sup. Ct. Rep. 409; Central Transp. Co. v. Pullman's Palace Car Co., 139 U. S. 24, 11 Sup. Ct. Rep. 478. Two propositions are settled. One is that a contract by which a corporation disables itself from performing the functions and duties undertaken and imposed by its charter is, unless the state which created it consents, ultra vires. A charter not only grants rights-it also imposes duties. An acceptance of those rights is an assumption of those duties. As it is a contract which binds the state not to interfere with those rights, so, likewise, it is one which binds the corporation not to abandon the discharge of those duties. It is not like a deed or patent, which vests in the grantee or patentee, not only title, but full power of alienation; but it is more-it is a con

tract whose obligations neither party, state or corporation, can, without the consent of the other, abandon. The other is that the powers of a corporation are such, and such only, as its charter confers; and an act beyond the measure of those powers, as either expressly stated or fairly implied, is ultra vires. A corporation has no natural or inherent rights or capacities. Created by the state, it has such powers as the state has seen fit to give it-"only this, and nothing more." And so, when it assumes to do that which it has not been empowered by the state to do, its assumption of power is vain; the act is a nullity; the contract is ultra vires. These two propositions embrace the whole doctrine of ultra vires. They are its alpha and omega.

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Sec. 359. Same.

CENTRAL TRANSPORTATION CO. v. PULLMAN'S PALACE CAR CO.1

1891.

IN THE SUPREME COURT OF THE UNITED STATES.
S. 24, 66, 11 Sup. Ct. 478.

139 U.

In error to the circuit court of the United States for the eastern district of Pennsylvania.

This was an action of covenant, brought September 21, 1886, by the Central Transportation Company, a corporation of Pennsylvania, against Pullman's Palace Car Company, a corporation of Illinois, to recover the sum of $198,000, due for the last three-quarters of the year ending July 1, 1886, according to the terms of an indenture of lease from the plaintiff of all its personal property to the defendant, dated February 17, 1870, and set forth in full in the declaration.

Plaintiff was nonsuited in the court below, and then sued out this writ of error.

MR. JUSTICE GRAY. The principal defense in this case, duly made by the defendant, by formal plea, as well as by objection to the plaintiff's evidence, and sustained by the circuit court, was that the indenture of lease sued on was void in law, because beyond the powers of each of the corporations by and between whom it was made.

[After disposing of a preliminary question of practice and reviewing the following cases: Railroad Co. v. Winans, 17 How. 30, 39; Pearce v. Railroad Co., 21 How. 441-443; Zabriskie v. Railroad Co., 23 How. 381, 398; Thomas v. Railroad Co., 101 U. S. 71, 80, 81, 82, 85, Branch v. Jesup, 106 U. S. 468, 478, 479, I Sup. Ct. Rep. 495; Pennsylvania R. Co. v. St. Louis, etc., R. Co., 118 U. S. 290, 309, 312, 630, 6 Sup. Ct. Rep. 1094, 7 Sup. Ct. Rep. 68, 24; Salt Lake City v. Hollister, 118 U. S. 256, 263, 6 Sup. Ct. Rep. 1055; Willamette Woolen Manuf'g Co. v. Bank of British Columbia, 119 U. S. 191, 7 Sup. Ct. Rep. 187; Green Bay & M. R. 1 Statement abridged, and quotations from cases omitted.

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