CHAPTER VII

CORPORATE POWERS

The term power, as used in connection with corporations, has a somewhat technical significance. In the legal sense the word power, as applied to private corporations, does not mean their ability to act through their various agents, but rather their legal right and authority to so act. It is possible for a corporation to do an act which is in excess of or beyond its powers as the term is properly used. For instance, a bank corporation may contract to buy real estate for investment, although its charter gives it no such power. Such an act is said to be ultra vires (beyond its powers) and this subject will be treated in the following chapter.

A corporation is an artificial and juridical person possessing powers and capacities different from those of its members. In order that an artificial person exist, some affirmative act, or its equivalent, of the State is necessary. It is a creature of granted powers unlike a natural person who can exercise powers given to all. A natural person can do all the acts, for he has the capacity, except those prohibited by law. A corporation, on the other hand, can only exercise such powers or capacities as may be given in its charter and which are the result of the grant by the State. It can only exercise such powers, using the word in its proper sense, as are conferred upon it by the sovereign, either by express grant or through necessary implication, and in general it can be said that its implied powers are those which are incidental to its very existence, or those which are necessary and proper for carrying out

the purposes of its creation. In determining whether a corporation has overstepped its legal powers, two theories or principles are followed by the courts in England and in this country. They are known sometimes as the theory or principle of general capacity and that of special capacities. The rule generally adopted in England is that of general capacity. In Pollock on Contracts, page 119, this doctrine is stated in the following language:

"A corporation once 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 of entering into them. The question is, therefore, was the corporation forbidden to bind itself by this transaction."

In Ashbury Railroad Company v. Riche, L. R. 7, H. L. 653, the following modification of this rule was made:

"Where there is an Act of Parliament creating a corporation for a particular purpose and giving it powers for that particular purpose, what it does not expressly or impliedly authorize is to be taken as prohibited."

The rule of general capacity, stated by Pollock, with the subsequent modification, is generally adopted in England.

In this country, in the Federal courts, the rule or doctrine of special capacities is generally followed, and that is well stated by the Supreme Court of the United States in Thomas v. Railway Company, 101 U. S., 82:

"We take the general doctrine to be in this country, although there may be exceptional cases and some authorities to the contrary, that the powers of corporations organized under legislative statutes are such and such only as those statutes confer. Conceding the rule applicable to all statutes, that what is fairly implied is as much granted as what is expressed, it remains that the charter of a corporation is the measure of its powers and that the

enumeration of these powers implies the exclusion of all others."

In a later case the doctrine was again stated in much the same language,1 where Justice Gray said:

"The powers of a corporation, like its corporate existence, are derived from the legislature and are not, as in the case of a copartnership, coextensive with the powers of the individuals who compose it. Its charter, therefore, is the measure of its powers and it can lawfully exercise such only as are expressly or impliedly conferred by that instrument.

"The clear result of all these decisions may be summed up thus: The charter of a corporation, ordinarily, in the light of any general laws which may be applicable, is the measure of its powers, and the enumeration of those powers implies the exclusion of others."

It might be said, however, that in many of the State courts the English rule is followed, especially in respect to the transaction of all business relative to the exercise of the ordinary powers of the corporation or which are necessary to carry into effect powers expressly granted.

§ 52. Presumption of a Legal Exercise of Corporate Powers. The presumption of law exists that a corporation is acting within its powers, another phase of the general presumption of law of right doing. Those dealing with a corporation have a right to assume that it is acting within its legal authority, unless the act is clearly in excess of or beyond its charter rights.

Place and Manner of Exercise. It has already been stated that a private corporation is a creature of the State under the laws of which it has been created and that it can have no legal existence outside the jurisdiction of that State. However, the principle or law of comity, as it is termed, is followed almost universally, and corporations are permitted, through its recognition to engage in the transaction of business elsewhere. They are there subject, however, to all the laws and regulations that may be passed

1 Central Transportation Company v. Pullman Palace Car Co., 139 U. S., 4.

or adopted by that State relative to the doing of business by foreign corporations, and the courts have repeatedly held that restrictions or limitations upon the right of foreign corporations to so engage in business are not to be regarded as discriminations or a denial of the equal privileges, when compared with domestic corporations, which are prohibited by the Constitution of the United States and its amendments.

It is scarcely necessary to suggest that since a corporation is an artificial person authorized only to transact its business by the State, statutory, and constitutional provisions relative to the manner in which its corporate capacities are to be exercised, control. Furthermore, a corporation is not limited by the statutory term of its existence, but may enter into contracts extending beyond its natural life.

§ 53. Classification and Definition of Powers. The term power has already been defined, and the classification suggested by Chief Justice Marshall in his definition of a corporation in the Dartmouth College case is that generally followed. Their powers are commonly divided into express and implied; those directly and clearly given in the charter and others not expressly granted but which the courts hold may be impliedly exercised. Where a legal authority to do an act, to exercise a power is expressly granted, there can be no controversy as to its legal powers or capacities in this respect.

Implied powers are usually divided into those which the corporation impliedly can exercise because essential or necessary to corporate existence, and those which the corporation can exercise because they are necessary or proper to the exercise of the powers expressly conferred. There is, as a rule, little controversy in respect to the rights of a corporation to exercise the implied powers of the first class, viz, those which are absolutely necessary or essential to the existence of the corporation or the transaction of business, the right to transact which has been expressly given. The disagreement in the authorities chiefly arises in respect to the exercise of the implied powers of a corporation of

the latter class, viz, those which it is claimed the corporation can exercise because they are necessary or proper to the exercise of powers expressly conferred. The contest is over the meaning of the words "necessary and proper". The case of McCulloch v. Maryland, 4 Wheat., 316, will be found of great assistance in determining this question. There one of the questions arising was the significance of the words "necessary and proper" as used in the Federal Constitution in connection with the powers exercised by the Federal Government. The argument and the reasons given by the court can be applied equally to the powers of the corporation. Chief Justice Marshall said, in the course of his opinion:

"Congress is not empowered by it (the Constitution) to make all laws which may have relation to the powers conferred upon the Government, but such only as may be 'necessary and proper' for carrying them into execution. The word 'necessary' is considered as controlling the whole sentence and as limiting the right to pass laws for the execution of the granted powers to such as are indispensable and without which the power would be nugatory; that it excludes the choice of means and leaves to Congress in each case, that only which is most direct and simple. Is it true that this is the sense in which the word 'necessary' is always used? Does it always import an absolute physical necessity so strong that one thing to which another may be termed necessary can not exist without that other? We think it does not. If reference be had to its use in the common affairs of the world, or in approved authors, we find that it frequently imports no more than that one thing is convenient or useful or essential to another. To employ the means necessary to an end is generally understood as employing any means calculated to produce the end, and not as being confined to those single means, without which the end would be entirely unattainable. Such is the character of human language, that no word conveys to the mind, in all situations, one single definite idea; and nothing is more common than to use words in a figurative sense. Almost all compositions contain words which, taken in their rigorous sense, would convey a meaning different from that which is obviously intended. It is essential to just con