named cannot be regarded as coming within the term, although many authorities regard some or all of them of this character.

These distinctions have been made, however, in many cases, where the true concept of the term ultra vires is understood by the court. In a New Jersey case, Camden etc. Ry. v. May's Landing, 48 N. J. L. 530, in a dissenting opinion, but none the less valuable on this point, it was said:

"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 an act done by directors or officers is simply beyond the powers of the executive department of the corporation, the agency by which the corporation organizes 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 the directors 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 by 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 or may not be valid as to third persons dealing bona fide with the corporation, according to the nature of the formalities 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 tends to confusion and misapprehension. In its legitimate use, the expression ultra vires should be applied only to such acts as are beyond the powers of the corporation itself."

§ 75. The Strict Rule and Its Reasons. The strict rule of ultra vires has already been briefly stated. The rights of different parties may be involved in the act. The act may be one in violation of the terms of its charter and where the State elects to take cognizance of it and punish the corporation for the use of powers not granted. The

right of the State to proceed against the corporation in these cases is plain. The rights of innocent third parties may be and are frequently also involved in the same transaction, and an effort to render substantial justice to the individual, and at the same time follow with logical consistency the rule that a corporation can exercise only those powers conferred upon it by its charter directly or by reasonable implication, leads to hopeless confusion in the cases. The strict rule of ultra vires, viz, that no legal results follow from the doing of the act of the corporation in excess of its powers, is followed with more strictness by the English cases and the Federal courts in this country than in many other jurisdictions. Thompson on Corporations, applying the rule to contracts, states it as follows:

"A contract of a corporation which is either unauthorized by or in violation of its charter or governing statutes, or which is entirely outside the scope of the powers of its creation, is void in the sense of being no contract at all, because of the want of power in the corporation to enter into it. That such a contract will not be enforced by any species of action in a court of justice, that being void ab initio (from the beginning), it cannot be made good by ratification or by any succession of renewals, and that no performance on either side can give validity to it so as to give a party to the contract any right of action upon it.""2

The reasons upon which the strict rule of ultra vires rests were concisely and clearly stated by Justice Gray in a case in the Supreme Court of the United States:3

"The reason why a corporation is not liable upon a contract ultra vires, that is to say, beyond the powers conferred upon it by the legislature, and varying from the objects of its creation, as declared in the law of its organization, are: (1) The interest of the public that the corporation shall not transcend the powers granted; (2) The interest of the stockholders that the capital shall not be subjected to the risk of enterprises not contemplated by the

2 Thompson on Private Corporations, § 5355.

Pittsburgh, etc., R. R. Co. v. Keokuk, etc., Bridge Co., 131 U. S. 371.

charter, and therefore not authorized by the stockholders in subscribing for stock; (3) The obligation of everyone entering into a contract with a corporation to take notice of the legal limits of its powers."

And in an Iowa case, Lucas v. White Line, etc. Co., 70 Iowa, 541, the court said, referring to the strict rule and some modifications:

"Corporations and officers do not always keep within their powers, and the application of the doctrine of ultra vires is often attended with very perplexing questions. By the application of a few plain rules, however, we may readily reach the proper answer to the questions involved in the case: (1) Every person dealing with a corporation is charged with knowledge of its powers as set out in its recorded articles of incorporation; (2) Where a corporation exercises power not given by its charter it violates the law of its organization, and may be proceeded against by the State through its attorney-general, as provided by the statute, and the unanimous consent of all the stockholders can not make illegal acts valid. The State has the right to interfere in such cases; (3) Where a third party makes with the officers of a corporation an illegal contract beyond the powers of a corporation, as shown by its charter, such third party can not recover; because he acts with knowledge that the officers have exceeded their powers, and between him and the corporation or its stockholders no amount of ratification by those unauthorized to make the contract will make it valid; (4) Where the officers of a corporation make a contract with third parties in regard to matters apparently within their corporate powers, but which, upon the proof of extrinsic facts of which the parties had no notice, lie beyond their powers, the corporation must be held, unless it may avoid liability by taking timely steps to prevent loss or damage to such third parties; for in such cases the third party is innocent, and the corporation or stockholders less innocent for having selected officers not worthy of the trust reposed in them."

§ 76. The Liberal Rule. Under the operation of the strict rule commonly followed by the English and Federal courts, an ultra vires act is treated as a nullity. On the other hand, a great many authorities in the States, while

acquiescing in the general doctrine that the corporation cannot act as a matter of theory in excess of its powers, and conceding that an ultra vires contract as such cannot be enforced, adhere to the view that it is not a nullity, but merely voidable and may be the basis of an estoppel by direct act or acquiescence; or they proceed upon the general doctrine that while they will not lend their aid to further promote or enforce an ultra vires transaction, they will not permit a party who has obtained a benefit thereby to interpose ultra vires as a defense. In other words, they attempt to do substantial justice, even though in so doing they may indirectly enforce an ultra vires act. Stated concisely, this doctrine may be summed up in a definition of the liberal rule, that an ultra vires act is not void but merely voidable when the application of the strict rule would not advance justice, but, on the contrary, would accomplish a legal wrong. It might be said, in connection with a discussion of the two rules, that the strict rule is applied to public corporations in all its severity, and its original use in respect to private corporations by the English decisions followed from its existence and its application against corporations of the character noted. For equitable reasons, it would appear that the liberal rule is the one to be applied in all cases involving private corporations. In the transaction of business by a public corporation, the interests of the public from the corporate standpoint alone are involved. Private corporations, on the other hand, are private enterprises employing personal and private capital, and only in exceptional cases involving, in the conduct of their business, the interests of the public.

§ 77. Effect of Ultra Vires Contracts. It is impossible to lay down any general rules regarding the enforcibility of ultra vires contracts which would apply in all cases or be recognized in all courts. Where the liberal ultra vires rule is followed, the facts of a particular case determine the rights and equities of the parties, and even in those courts where the strict rule controls, decisions are rendered which modify materially its application. The general

results of all of the authorities may be summed up substantially in the following general propositions classified, as will be noted, upon the extent to which the ultra vires act has proceeded.

Executed on Both Sides. Where an ultra vires contract has been entered into and fully performed on both sides, the courts, without exception, hold that neither party can maintain an action to set aside the transaction or to recover the consideration that has been paid. The parties will be left in statu quo, and this rule is followed in those jurisdictions in which the strict doctrine of ultra vires is followed as well as in those jurisdictions where the contrary holding prevails. "The executed dealings of corporations must be allowed to stand for and against both parties when the plainest rules of good faith so require."'4

Executory on Both Sides. An ultra vires contract executory on both sides is void and cannot be enforced in any jurisdiction, for courts will not lend their assistance to enforce a void contract. This rule applies, however, only to those contracts which are clearly ultra vires. Where it is within the apparent scope of the corporate powers and ultra vires because of outside facts peculiarly within the knowledge of the corporation and without the knowledge of the other party to the transaction, the courts have frequently held the corporation estopped to deny its power to enter into a particular contract.

Partially Executed. If the ultra vires contract has been executed wholly or partially by both or one of the parties, the weight of authority in the State courts is to the effect that the party receiving benefits is estopped to assert the claim that the corporation had no authority to make the contract; and while the contract itself may not be directly enforced, the one who has, in good faith, parted with value or suffered damage in reliance upon it, will not be estopped to obtain relief by recovering what he has parted with or its value. In the jurisdictions where the strict rule of ultra vires obtains, it is held that under the circumstances 4 Parish v. Wheeler, 22 N. Y. 494.