Page:Harvard Law Review Volume 9.djvu/299

271 EXERCISE OF CORPORATE POWER. 271 interest. A result more strictly " equitable " might perhaps be reached if the courts were to hold that a corporation, by contract- ing, warrants its power and right to enter into the agreement. Suppose, for example, that a corporation makes a prohibited con- tract. In the face of the prohibition the contract will not be specifi- cally enforced. Nor will the plaintiff be permitted to maintain an action upon it. Rights of recovery in quasi contract, however, are not broad enough to meet the requirements of the case. The cor- poration will accordingly be treated as having warranted its power and right to make the agreement. The subsequent assertion of a lack of power and right, although theoretically effective so far as disposing of the plaintiff's suit is concerned, now becomes a clear breach of the warranty. The measure of damage in an action for this breach is the value of the contract which the plaintiff has lost. This includes prospective profit and the loss of a bargain. Thus the plaintiff in such a case has every right except the right of specific performance. It goes without saying that such a theory presupposes the abandonment of the view that all the world has notice of the limits of corporate power. It is, of course, a some- what fanciful theory, but it furnishes an interesting basis for a comparison with the modern German conception of damage by reason of the non-existence of contract, — *' the negative interest of contract," as Jhering calls it (Negatives Vertragsinteresse). Ac- cording to that conception, if A. leads B. to believe that there is a contract when, owing to facts which B. neither knows nor is bound to know, there is not. A., however innocent, is liable for the dam- ages sustained by B. " He [A.] is not liable on the contract, for there is none ; nor is he bound to put the other party in as good position as if he had a contract ; but he is bound to put the other party in as good position as if there had. never been a simulacrum of contract." ^ If we return from the domain of theory to our final survey of ex- isting conditions in American courts, it seems hard to escape a con- clusion favorable to the view which results in the enforcement in so many cases of unauthorized and prohibited contracts. Incomplete ^ The language cited is that of Professor Munroe Smith of the Faculty of Political Science in Columbia College, to whom the writer is indebted for this reference to Ger- man law. Professor Munroe Smith adds : ** I do not find that any German jurist has suggested the extension of the above principle to cases where a contract is void (or voidable) because of incapacity. Perhaps they regard these cases as falling under the restriction of 'grounds of invalidity which the other party was bound to know. ' "