the properties, rights, and franchises of the old corporations subject to the same liabilities and burdens which attach to the charter and business of the constituent companies.

"For the purpose of answering for the liabilities of the constituent corporations, the consolidated company should be deemed to be merely the same as each of its constituents, their existence continued in it under the new form and name, their liabilities still existing as before and capable of enforcement against the new company in the same way as if no change had occurred in its organization or name." 24 Where the old companies are dissolved upon consolidation, the rights of creditors continue in force against the consolidated company in equity against the assets of the constituent companies in the hands of the consolidated company. Creditors have no right to prevent a consolidation or combination of corporations, but they cannot, by this action, be deprived of any of their rights or remedies against the constituent companies.

24 Indianapolis, etc., Ry. Co. v. Jones, 29 Ind. 465.

CHAPTER VIII

ULTRA VIRES ACTS

§ 72. Definition and Discussion of Doctrine. The term ultra vires is used to express the action of a corporation in excess of or beyond the powers conferred, either expressly or impliedly, upon it by its charter. The existence of a legal right or cause of action as resulting from the ultra vires act is the essential question involved. There are two doctrines followed by the courts, one, known as the strict rule or doctrine of ultra vires, viz, that all acts of the corporation not within the powers conferred upon it or reasonably implied from its charter are absolutely null and void. The other rule or doctrine is known as the liberal one, and this holds that ultra vires acts, so far as their legal effect is concerned, are not absolutely null and void, but merely voidable. When an ultra vires act is spoken of as beyond the powers of the corporation, it must be remembered that the word power is used in the sense of legal authority or right and not of mere capacity. In this sense a corporation has no power to perform any act which is outside or in excess of the authority conferred upon it or reasonably implied from its charter, but, like a natural person, it has the capacity or the ability to perform many acts which are unauthorized, some of which may be actually wrongful or positively criminal. A natural person may be prohibited by law from committing the crime of murder. The act is in excess of or beyond his lawful powers, but the prohibition does not prevent the commission of many crimes of this nature.

As illustrative of this idea, a New York case can be read with interest and profit, where Chief Justice Comstock said:

"But such, I apprehend, is not the nature of these bodies; like natural persons, they can overleap the legal and moral restraints imposed upon them: In other words, they are

capable of doing wrong. To say that a corporation has no right to do unauthorized acts, is only to put forth a very plain truism; but to say that such bodies have no power or capacity to err, is to impute to them an excellence which does not belong to any created existences with which we are acquainted. The distinction between power and right is no more to be lost sight of in respect to artificial than in respect to natural persons. One of the sources of error, in reasoning upon legal as well as other questions, is exactness in the use of language, or perhaps in the imperfectness of language to express the varieties of thought. It is a self-evident truth, that a natural person cannot exceed the powers which belong to his nature. In this proposition, we use words in their literal and exact sense. In the same sense, it is a truth, equally evident, that a corporation cannot exceed its powers; but this is only asserting that it cannot exercise attributes which it does not possess. As an impersonal being, it cannot experience religious emotion, nor feel the moral sentiments. Corporations are said to be clothed with certain powers enumerated in their charters or incidental to those which are enumerated, and it is also said, they cannot exceed those powers; therefore it has been urged, that all attempts to do so are simply nugatory. The premises are correct, when properly understood; but the conclusion is false, because the premises are misinterpreted. When we speak of the powers of a corporation, the term only expresses the privileges and franchises which are bestowed in the charter; and when we say it cannot exercise other powers, the just meaning of the language is, that as the attempt to do so is without authority of law, the performance of unauthorized acts is a usurpation, which may be a wrong to the State, or, perhaps, to the shareholders. But the usurpation is possible. In the same sense natural persons are under the restraints of law, but they may transgress the law, and when they do so, they are responsible for their acts. From this consequence, corporations are not, in my judgment, wholly exempt.""

An ultra vires act is not necessarily regarded as not being in all cases the act of the corporation. Where real property has been acquired contrary to law by it, the general rule obtains that the title passes none the less. A 1 Bissell v. Michigan Southern R. R. Co., etc., 22 N. Y. 259.

corporation may commit an offense contrary to express statutory provision for which it may be punished. A contract in excess of the powers of a corporation may be made by it, but this may still be enforced under the liberal rule relating to ultra vires acts.

§ 73. Misapplication of Term (Ultra Vires). In this connection the doctrine of special and general capacities of a corporation, as discussed in section 52, should be referred to. It is not necessary to repeat it here. The decisions upon the subject of ultra vires are many, confusing, and conflicting. No general rule can be stated which will be of assistance in positively and definitely determining the answer to the essential question, viz, the legal rights following or resulting from the doing of an ultra vires act by a corporation. It will be found upon investigation that in many cases the decision turns upon the parties complaining, whether the State, taking cognizance of a violation of its prohibitions or grants, or private persons engaged in litigation over a business transaction in which no other parties may be interested except themselves. The decision, again, may depend upon the person against whom the relief is sought in the proceeding which involves the legal effect of the ultra vires act; and, again, the decision may turn upon the relief sought, whether a forfeiture of the charter of the corporation, the enforcement of a contract, or the enforcement of their rights claimed to exist by reason of the act done in excess of the corporate powers.

The confusion in the authorities upon this whole general topic is manifest from an examination of them, and much of it has arisen from a misapprehension of the true limits and application of the doctrine of ultra vires. Cases are to be found where acts which require the consent of the stockholders to make them binding have been done without such consent, and these are spoken of as ultra vires acts, when in truth they are mere violations of the general law of agency. Such acts might be beyond the powers of the managing officers of the corporation, but would not be beyond or in excess of the powers of the corporation itself.

Again, cases are to be found in which directory provisions of the charter have prescribed that certain acts shall be done in a certain manner and these acts have been performed without observing the required formalities. These have been referred to as ultra vires acts, when it is apparent that in the absence of any intention on the part of the legislature to make such provisions mandatory or to impose penalties for their non-observance, they are mere irregularities and do not seriously affect the transaction. There are also acts which are forbidden by statute or common law, or against good morals or public policy which are classed as ultra vires acts. The better authorities treat these cases as governed by the same principles of law controlling an individual and hold the act or contract unenforcible, not because it is ultra vires merely, but because it is positively unlawful.

§ 74. Classes of Ultra Vires Acts. To clarify the subject as much as possible, acts stated to be ultra vires by the authorities may be classified into acts in excess of the corporate powers, as conferred by the charter of the corporation expressly, or by reasonable implication. To this class alone, in the proper sense of the term ultra vires, can this character be properly ascribed. Another class of acts termed ultra vires by some authorities, but which are not in the strict sense of the word, are those where the corporation is authorized to exercise powers by and through the consent of the stockholders, but which the corporation has done without this consent. Corporations may be also authorized to exercise certain powers for designated purposes. The power is, however, exercised for a different purpose or in excess of the designated power. There is clearly here a distinction between a want of power and a misuse of power. And, finally, there are also corporate acts which are valid if done in a certain manner by the corporation, but otherwise not. Here there is a clear distinction between a want of power and a lack of necessary formality in the execution of that power. Using the term ultra vires in its proper sense, acts of the last three classes