Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/254

 Illus- tration § 273. J THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. § 272. Suppose, for example, that A. has made a contract with a corporation which was beyond its powers ; but the contract has been ratified by all the shareholders. It may also be assumed that A. has performed his part, so that all that remains is for the corporation to pay money, or otherwise perform on its side. The corporation may be insolvent, and there ma} 7 be creditors whose claims have arisen from transactions clearly within the corporate powers. If the claim of A. is satisfied, those creditors will lose part or all of the monev due them. The funds of the corporation are funds to be applied to the corporate objects, which are known to all ; and every one contracts and is entitled to do so on the faith that these funds will be applied exclusively to these ob- jects. The corporate objects include the discharge of liability properly contracted in their attainment ; and the funds of the corporation are funds set apart for this among other purposes. Under such circumstances, who has the better claim to have his debt paid from the corporate funds ? A., who contracted, knowing that the objects for which those funds were set apart excluded the payment of his debt % or the other creditors who contracted, knowing that the objects for which the funds were set apart included the payment of their debts? There can be no doubt that the other creditors have a far clearer right, and that by an appropriate action the payment of any money to A. may be restrained. 1 § 273. Accordingly, it is held that as against the rights of creditors of the corporation a contract not within the creditors, corporate powers cannot be made valid by the assent of all the shareholders, nor can it, by partial perform- ance on the side of the person contracting with the corporation, become the foundation of a right of action. 2 And when a cor- poration has entered into an ultra vires contract, a claim founded 1 As between creditors of an insol- vent bank, tbose whose debts were created under lawful power given by the charter must be preferred to tbose who claim under a contract which the bank had no power to make. In such caseas^he bank is not estopped to set up th» illegality or 234 want of power. Bk. of Chtno'ga v. Bk. of Memphis, 9 Heisk. (Tenn.) 408. See First Nat. Bk. v. Kiefer Co., 95 Ky. 97. 2 National Trust Co. ». Miller, 33 N. J. Eq. 155; Washington Mill Co. v. Lumber Co., 19 Wash. 165.