Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/259

 PART III.] ACTS BEYOXD THE CORPORATE POWERS. [§ 277. criticism that this last proposition involves a fallacy. If the other contracting party had contracted through an agent whose instructions were contained in a written instrument which the corporation knew to contain all the authority which the agent possessed ; and if the contract in question was unauthorized by this instrument, could any one maintain that the principal would be bound because the corporation had performed its side of the contract ? x Yet, in reality, it is in analogy with this to hold the corporation bound because the other contracting party has per- formed. 2 Hardware Co., in re, 24 Oreg. 330 ; Tootle v. Bank, 6 Wash. 181. " The rule may not be strictly logical, but it prevents a great deal of injustice.' 1 Seymour ». Chicago Guaranty, etc., Soc, 54 Minn. 147, 149. 1 To be sure, the principal could not disavow the unauthorized portion of a contract, and hold the other con- tracting party with respect to the rest. And on similar principles, when the agent of a corporation has purchased for it certain chattels, and given back a purchase-money mort- gage thereon, the enforcement of the mortgage cannot be enjoined on the ground that the mortgage was ultra vires. Amerman v. Wiles, 24 X. J. Eq. 13; see Parish v. Wheeler, 22 N. Y. 494; Whitney v. Leominster Savings Bank, 141 Mass. 85. See §§310-312. 2 To illustrate, let us imagine that B. is a landowner, A. his agent, and C. a manufacturer of fertilizers. If C, knowing that A. has no authority from B. to purchase fertilizers, sells a large amount of them to be applied on B.'s lands, and they are so applied, but without B.'s knowledge, C. has executed the contract on his side, and B.'s lands have had the benefit. Yet it is clear that C. has no valid claim against B. Apply this to the case of a corporation. Let B. be the shareholders and creditors ; let A. be the board of directors, and C. the other contracting party. A. makes a contract with C. beyond the powers of the corporation — beyond A.'s powers to represent the corporate interests. In legal intendment C. knows this contract to be beyond A.'s authority, but nevertheless performs his side of it, and the results of his performance are applied to the bene- fit of the corporate enterprise, but without the knowledge of the share- holders or creditors. Here the inter- ests of shareholders and creditors have been benefited ; but through no voluntary action or acquiescence on their part, and through acts which C. knew they had not authoi'ized. It is again clear that C. by his per- formance acquires no rights which can affect the interests of share- holders and creditors. And the same reasoning would apply even if the corporation by a vote in corporate meeting ratified the contract ; the rights of absent or dissentient share- holders would not thereby be affect- ed, provided they were guilty of no laches in asserting their rights. Un- doubtedly, if the shareholders know that ultra vires contracts are being entered into and performed, and that the proceeds are being applied to the corporate enterprise, they cannot with honesty stand quietly by, but must do all in their power to prevent 239