majorities in corporate affairs with an extraordinary latitude, assigning unlimited authority to the majority of a properly convened meeting in most cases, and to the whole body of existing members in any case. But Savigny has shown this to be not only false in principle but unwarranted by the Roman law, the authorities relied on being in truth special provisions for the government of municipal corporations which were never intended, to be of unlimited application (@). His exposition is interesting for the clearness with which he enforces the fundamental proposition that a corporation is not identical with the sum of its existing members, but otherwise it throws little if any light on the problems arising from the modern development and multiplication of corporate bodies in the English and allied systems of law. It is further to be observed that such cases as those last mentioned have but a slight and perhaps a misleading likeness to those where we have to determine the rights of strangers against the corporation arising out of contract or dispositions of property. In Society of Practical Knowledge v. Abbott (b) the principle is that, quite apart from the nature of its particular objects, a corporation does not exist for the sake of the persons who are the members at any one time, as is also shown by the rule of common law that they have no power of their own mere will to dissolve it. No corporate property can be treated as the property of the members, or divisible among them, unless there appears from the nature and constitution of the corporation an intention that it shall be so treated. In Mill v. Hawker (c),\ again, the removal of an obstruction to a highway is a thing! which by its nature cannot be a corporate act at common law. The common law right is founded on the use of the highway by the person removing the obstruction, but a corporation cannot use a highway. No doubt a corporation might have a statutory power or be under a statutory duty to remove obstructions, and the true question in the case was whether any such power or duty had been conferred on highway boards. The majority of the court held that it had not. But if such had been the case, the (a) Sav. Syst. 3. 329 sqq. §. 97-99. The illustration in our text is given at p. 350, note, with the remark, "Hier ist gewiss Einstimmigkeit vorhanden." (b) 2 Beav. 559. (c) L. R. 9 Ex. 309, see at p. 318. theories of powers. right so conferred would still have been wholly distinct from the right of a natural person at common law to remove things which obstruct his lawful use of a highway (). As limited We now come to consider the far more difficult and complicated by positive law. Con- question of special restrictions. The importance of this subject flicting is quite modern; it arose from the general establishment of railcorporate way companies and others of a like nature incorporated by special Acts of Parliament, and has been continued and increased by the multiplication of joint stock companies, building societies, &c., which are incorporated or made "quasi-corporations" under general Acts. On this there have been many decisions, much discussion, and some real conflict of judicial opinions. There are two opposite views by which the consideration of the matter may be governed, and they may be expressed thus : 1. A corporation is an artificial creature of the law, and has no existence except for the purposes for which it was created. Νο act exceeding the limits of those purposes can be the act of the corporation, and no one can be authorized to bind the corporation to such an act. In each particular case, therefore, the question is: Was the corporation empowered to bind itself to this transaction? 2. A corporation once duly constituted has all such powers and capacities of a natural person as in the nature of things can be exercised by an artificial person. Transactions entered into with apparent authority in the name of the corporation are presumably valid and binding, and are invalid only if it can be shown that the Legislature has expressly or by necessary implication deprived the corporation of the power it naturally would have had of entering into them. The question is, therefore: Was the corporation forbidden to bind itself to this transaction? As Mr. Justice Lindley puts it (b), the difference is "as to whether the act of incorporation is to be regarded as conferring unlimited powers except where the contrary can be shown; or whether alleged corporate powers are not rather to be denied (a) On the nature of corporate action in general cp. Hobbes, Behemoth, part 1. ad init. (6. 359, ed. Molesworth), and Leviathan, pt. 1. c. 16; and on its artificial character, Maine, Early History of Institutions, 352. (4) 1. 265. unless they can be shown to have been conferred either expressly or by necessary implication." As we shall often have to refer to these views, we may call (1) the doctrine of special capacities and (2) the doctrine of general capacity. There is much to be said on principle for the theory of special "Special capacities. Most if not all corporations are established for capacities" tolerably well defined purposes, which persons dealing with them can ascertain without difficulty. They are certainly not intended to do anything substantially beyond those purposes, and a reasonable and liberal construction of their powers may be trusted to prevent the application of the doctrine from causing any real hardship (a). This theory was the prevalent one in the earlier period of the discussion. For a while the common law courts took it without question from the courts of equity, where for particular reasons to be mentioned afterwards it appeared in a somewhat more positive form and was maintained for a longer time. It is adopted by some of the best English writers (), and in America Kent stated it (long before the subject had attained its present development in England) as the modern and even as the obvious doctrine (c). It also seems to have been taken for granted by those who framed the modern statutes defining the powers of incorporated companies (d); which, if the opposite view be correct, are redundant in permission and defective in prohibition. this now vailing doctrine. The theory of general capacity, on the other hand, may well "General be supported on principle as tending to call the attention of the capacity:" Legislature more distinctly to the limits it may be proposed the preto assign to corporate powers, and ultimately to promote the general convenience by making those limits more certain. It is also favoured by the general analogies of the law. There is a fallacy latent in the phrase of the other theory. When we speak of an artificial person as a creature of the law, we mean its legal (a) See judgment of Coleridge, J. Mayor of Norwich v. Norfolk Ry. Co. 4 E. & B. 397, 24 L. J. Q. B. 105, 119. (b) Leake on Contracts, 258; Lindley, 1. 263. (c) Kent, Comm. 2. 298-9 (in the later editions, however, this is much qualified by the note at p. 278.) The (d) See L. R. 9 Ex. 266. Results existence, not its particular rights and capacities. If legal existence as a subject of rights and duties is once admitted by a fiction, why not admit its ordinary incidents so far as they are physically possible? All rights are in one sense creatures of the law, and it is in a special sense by creation of the law that artificial persons exist at all: but when you have got your artificial person, why call in a second special creation to account for its rights? And this view has in its favour (what is much\ more important) a preponderance of modern authority, backed by a very strong assertion of the common law privileges and powers of a corporation, which is reported by Coke (), but has somewhat strangely met with no particular attention until in a very late case it was revived (if we may so speak) in the Court of Exchequer Chamber, and admitted for law by the whole court, though the judges were divided as to its application in the particular case (b). The more recent tendency of the Court of Chancery has also been in the same direction, and since the case last referred to it is apprehended that this must be considered the established doctrine-in other words that at common law a corporation is presumed, not to have only those powers which are given to it, but to have all that are not taken away. The authorities will be more particularly referred to hereafter. The results of these conflicting theories are however less discordant in practice than might be expected: for the difference is only as to the burden of proof, and there are other important considerations which, though in themselves foreign to the law of corporations as such, are constantly present in the modern cases and often are so decisive as to make this difference insignificant. These considerations are derived (1) from the law of partnership: (2) from principles of public policy. 1. In trading corporations the relation of the members or modified― shareholders to one another is in fact a modified (e) contract of (a) Case of Sutton's Hospital, 10 Rep. 23a, 30b; it is cited by Erle J. in Bostock v. N. Staffordshire Ry. Co. 4 E. & B. 798, 819, 24 L. J. Q. B. 225, but this seems a solitary excep tion from the general neglect it had fallen into. See p. 96 infra. (b) Riche v. Ashbury Ry. Carriage Co. L. R. 9 Ex. 224, 263. (c) Namely by provisions for transfer of shares, limited liability of shareholders, and other things which cannot (at least with convenience or completeness) be made incident to a partnership at common law. partnership, which in the view of courts of equity is governed 1. Bypartnership by the ordinary rules of partnership law so far as they are not law. excluded by the constitution of the company. Now it is a well settled principle of partnership law that no Rights of dissenting majority of the partners can bind a dissenting minority, or even partners. one dissenting partner, to engage the firm in transactions beyond its original scope (a). In the case, therefore, of a corporation whose members are as between themselves partners in the business carried on by the corporation, any dissenting member is entitled to restrain the governing body or the majority of the company from attempting to involve the company in an undertaking which does not come within its purposes as defined by its original constitution. Courts of Equity have been naturally called upon to look at the subject chiefly from this point of view, that is, as giving rise to questions between shareholders and directors, or between minorities and majorities. Such questions do not require the court to decide whether an act which dissentients may prevent the agents of the company from doing in its name might not nevertheless, if so done by them with apparent authority, be binding on the corporate body, or a contract so made be enforceable by the other party who had contracted in good faith. This distinction, clear and important as it is, has not always been kept in sight. But further, according to the law of partnership a partner can bind the firm Doctrine only as its agent: his authority is prima facie an extensive as to one (), but if it is specially restricted by agreement between agency. the partners, and such restriction is known to the person dealing with him, he cannot bind the firm to anything beyond those special limits (c). Limits of this kind may be imposed on the directors &c. of a company by its constitution; and if that conIn public stitution is embodied in a special act of parliament, or in a deed limits of of settlement or articles of association registered in a public office directors' authority under the provisions of a general act, it is considered that all presumed persons dealing with the agents of the corporation must be deemed to be to have notice of the limits thus publicly set to their authority. The corporation is accordingly not bound by anything done by (a) Lindley, 1. 621 sqq. (b) Lindley 1. 248; per James L. J. Baird's ca. 5 Ch. 733; Story on Agency, §§ 124, 125, adopted by the Judicial Committee in Bank of (c) Lindley, 1. 344-9. limited companies known. |