Page:Henry Osborn Taylor, A Treatise on the Law of Private Corporations (5th ed, 1905).djvu/279

 PART HI.] ACTS BEYOND THE CORPORATE POWERS. [§ 298. this act to be stated is " the objects for which the proposed company is to be established." 1 In view of these statutory provisions, it was held in Ashbury Railway Carriage and Iron Co. v. Riche, 2 that a contract not included in the memorandum of association could not be enforced against the company, even if the whole body of shareholders had assented to it. 3 § 297. To formulate a rule by which may be determined the effect of a statutory prohibition contained in the Effect of constitution of a corporation, on the validity of acts statutory proliibi- thereby forbidden is most difficult. Undoubtedly tions. the intention of the legislature is to be followed by the courts : 4 but how determine that intention ? With diffi- dence the following rule is submitted: 5 If a statute expressly forbids a corporation to make a certain contract, the contract is void, even though not expressly declared to be so, and is in- capable of ratification ; and that the contract is void as unlaw- ful, may be pleaded by any one to an action founded directly and exclusively on the contract ; unless (1) the statute expressly states what the consequences of violating it shall be, and those consequences are other than that the contract is void ; or (2) the statutory prohibition was evidently imposed for the protection of a certain class of persons who alone may take advantage of it ; or (3) to adjudge the contract void and incapable of form- ing the basis of a right of action would clearly frustrate the evi- dent purposes of the prohibition itself. § 298. The rule just stated may be illustrated by decisions. First, as to the body of the rule; the prohibited con- niustra- tract is void, and its illegality may be pleaded by any oTthe rail. one to an action founded directlv and exclusivelv on Excessive • . rate of rn- the contract itself. 6 If the charter of a bank forbids terest. i§8. 2 L. R. 7 H. L. 653. 8 Lord Cairns said he did not wish to consider such a contract illegal, but " extra vires and wholly null and void," and incapable of ratification. (L. R. 7 H. L. 673). But whether or not the contract should be called illegal, the court certainly construed the statute as prohibiting it; and, consequently, the contract was con- trary to law. 4 See Harris v. Runnels, 12 How. 79. 5 Forbidden acts will of course be ultra vires the corporation; and in that respect their validity will de- pend on principles heretofore stated. 6 For note 6 see p. 260. 259