Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/272

 § 289.] THE LAW OF PRIVATE CORPORATIONS. [CHAP. VII. so as to impair the legally protected interests of an}' person. 1 Accordingly, if the persons having the management of these funds make a contract respecting them, whereby they would be diverted from the objects for which they are set apart, such contract would be invalid in this respect, that it would not bind the rights of dissenting shareholders or creditors. These re- strictions, however, on the powers of the managers of these funds, on the powers, that is to say, of the corporate agents and of the body corporate itself, exist mainly for the security of the subscribers of the funds and of those who may deal with the corporation on the credit of them. If, then, the persons for whose security these restrictions exist authorize or acquiesce in a diversion of the funds from the objects to which they are restricted, no one remains who can object to transactions in disregard of these restrictions. Such transactions are not il- legal, for illegal means unlawful or forbidden by law ; these transactions were merely unauthorized in that certain persons could have restrained the corporation from engaging in them. 2 § 289. This reasoning accords with the general rules relating Public to ultra vires transactions as deduced through the policy. analytical method, 3 and also with the New York rule. 4 Whether it accords with the Federal rule is more ques- tionable. Also the point may be raised, that to restrain cor- porations within the scope of the purposes of incorporation is clearly defined public policy ; that any contract contrary to public policy is illegal ; therefore, contracts ultra vires a cor- poration are illegal. This requires consideration. An argument based on public policy is at best vague and unsatisfactory. If the courts are to give weight to such argu- ments, in many cases they will have to determine for them- selves what public policy is in regard to the question before them ; and, to some extent, they will have to base their decision on their notion of what public policy should be. 5 Consequently, in their deliberations they will have to weigh the same con- siderations that a legislative body weighs in considering the 1 §§ 32, 33. 2 See Kent ». Quicksilver M'g Co., 78 N. Y. 159, §269; and Vermont & C. R. R. Co. v. Vermont Central R. It. Co., 34 Vt. 2, 47. 252 3 Ante, §§ 264a— 274. 4 Ante, §§ 275 sqq. 5 For ex hypothese, as it were, pub- lic policy is what it should be.