Sec 135

A corporation can only bind itself contractually within its chartered limits. A banking corporation, for instance, chartered to do banking, cannot, without specific additional powers from the sovereign, bind itself by contracts of common carriage; nor can a manufacturing company without such powers go into the mining business. The corporation, in other words, cannot be bound to any act not appertaining to the proper exercise of the functions it was created to perform.3 When a corporation is chartered for a specific purpose, then all contracts which are not incidental to such purpose are invalid. The test is not judiciousness. Such contracts may, to a dispassionate and intelligent observer, appear wise. The test is, is the contract incidental to the discharge of the functions the corporation was chartered to perform ? If not, it is on its face invalid;4 while otherwise it would be valid.5 "A corporation," so is the rule stated by Gray, C. J., in the Supreme Court of Massachusetts in 1881,6 "has power to do such business only as it is authorized by its act of incorporation to do, and no other. It is not held out by the governcourt said : "We know not why corporations may not be known by several names as well as individuals." See infra, sec 810 a.

Can only act within chartered limits.

1 Horn v. Ivey, 1 Mod. 18 ; 2 Keb. 567; Koehler v. Iron Co., 2 Black, 715.

2 Infra, sec 141; Wh. on Ev. sec 1310.

3 Pollock, 3d ed. 122 et seq.; Norwich v. R. R., 4 E. & B. 397 ; East Anglian R. R. v. E. C. R. R., 11 C. B. 775 ; Ashbury Co. v. Riche, L. R. 7 H. L. 653; Laing v. Reed, L. R. 5 Ch. 4; Clinch v. Financial Corp., L. R. 4 Ch. 117 ; Macgregor v. R. R., 18 Q. B. 618 ; Prince of Wales Co. v. Harding, E. B. & E. 183; Mulliner v. R. R., L. R. 11 Ch. D. 611; R. v. Reed, L. R. 5 Q. B. D. 488; White Valley Co. v. Vallette,.

2 How. 424; Old Col. R. R. v. Evans, 6 Gray, 38 ; and cases cited infra.

4 Colchester v. Lowten, 1 Ves. & B. 245; see Brown v. Winnisimmet Co., 11 Allen, 326; Lynch v. Hartwell, 8 Johns. 422 ; Curtis v. Leavitt, 15 N. Y. 65 ; Hood v. R. R., 22 Conn. 502 ; Van-wickle v. R. R., 2 Green, 162; Stewart's Appeal, 56 Penn. St. 413 ; Galena v. Corwith, 48 111. 423.

5 Lyndeborough Glass Co. v. Mass. Glass Co., 111 Mass. 315; Ossipee Man. Co. v. Canney, 54 N. H. 295 ; Hood v. R. R., 22 Conn. 1; Thompson v. Lambert, 44 Iowa, 239 ; Cent. R. R. v. Collins, 40 Ga. 582.

6 Davis v. R. R., infra, sec 137.

16:2 merit, nor by the stockholders, as authorized to make contracts which are beyond thepurposes and scope of its charter. It is not vested with all the capacities of a natural person, or of an ordinary partnership, but with such only as its charter confers. If it exceeds its chartered powers, not only may the government take away its charter, but those who have subscribed to its stock may avoid any contract made by the corporation in clear excess of its powers. If it makes a contract manifestly beyond the power conferred by its charter, and therefore unlawful, a court of chancery, on the application of a stockholder, will restrain the corporation from carrying out the contract; and a court of common law will sustain no action on the contract against the corporation." Thus a corporation cannot, without special legislative authority, go into a distinct business, as where a railroad company undertakes buying and selling coal as merchandise,1 or running an independent line of steamers to a foreign port,2 or dealing with real estate on speculation.3 " That which the crown has not granted by express unambiguous terms, the subject has no right to claim under a grant or charter. 'In no species of grant does this rule of construction more especially obtain than in grants which emanate from and operate in derogation of the prerogative of the crown,' ex. gr., where a monopoly is granted."4 In England it is settled that a corporation can only act contractually within its chartered limits, nor can it employ its franchises and property in any way but that specifically designated by the charter.5 But a corporation organized for commercial purposes has power to borrow money, unless restricted specially, and for this purpose to mortgage.

1 Atty.-Gen. v. Great North. R. R., 1 Dr. & Sm. 154; Eccles. Commis. v. R. R., L. R. 4 Ch. D. 845.

2 Colman v. R. R., 10 Beav. 1.

3 Carington v. Wycombe, L. R. 3 Ch. 377 ; Leake, 2d ed. 587.

4 Brown's Leg. Max. 607, citing Feather v. R., 6 B. & C. 283; The Rebeckah, 1 Rob. 227.

5 Southall v. Ass. Co., L. R. 11 Eq.

65 ; Featherstonhaugh v. Clay Co., L. R. 1 Eq. 318 ; Horsey's case, L. R. 5 Eq. 561; Holmes v. Newcastle Abattoir Co., L. R. 1 Ch. D. 682; Ashbury R. R. Carriage Co. v. Riche, L. R. 7 H. L. 653; Hope v. Financial Society, L. R. 4 Ch. D. 327 ; London and. Provincial Coal Co. in re, L. R. 5 Ch. D. 525 ; White v. R. R., 1 H. & M. 786; Cork, etc., R. R. M re, L. R. 4 Ch. 748.

its property,1 and to draw and accept commercial paper, if it be authorized to do trading business.2 It is, however, conceded in England that the acts of a corporation within its chartered sphere are to be considered as prima facie authorized ; and this presumption is liberally applied to whatever may be regarded as conducive to the protection of the interests the corporation was chartered to promote. If it is acting apparently for the purposes of its creation, the burden is on it, should it afterwards attempt to disavow its acts, to show that they were ultra vires.3

1 Leake, 2d ed. 585; Australian Clipper Co. v. Mounsey, 4 K. & J. 733; Patent File Co. in re, L. R. 6 Ch. 83; Shears v. Jacob, L. R. 1 C. P. 513; Anglo Danubian St. Co. in re, L. R. 20 Eq. 339 ; Campbell's case, L. R. 4 Ch. D. 470.

2 Murray v. East Ind. Co., 5 B. & Ald. 204. Infra, sec 137.

Lord Cranworth, in Shrewsbury, etc., R. R. v. N. W. R. R., 6 H. L. 135, as adopted by Mr. Pollock (Wald's ed. 104), said: "Prima facie corporate bodies are bound by all contracts under their common seal. When the legislature constitutes a corporation, it gives to that body prima facie an absolute right of contracting. But this prima facie right does not exist in any case when the contract is one which, from the nature and object of the incorporation, the corporate body is expressly or impliedly prohibited from making ; such a contract is said to be ultra vires. And the question here, as in similar cases, is whether there is anything on the face of the act of incorporation which expressly or impliedly forbids the making of the contract sought to be enforced."

In East. Co. R. R. v. Hawkes, 5 H. L. C. 331, Lord Cranworth said: "It must now be considered as a well-settled doctrine that a company incorporated by act of parliament for a special purpose cannot devote any part of its funds to objects unauthorized by the terms of its incorporation, however desirable such an application may appear to be." And when the legislature prohibits a corporation from entering on a particular line of business, its contracts in this line of business are invalid. Taylor v. R. R., L. R. 2 Ex. 356. And it is laid down " that if, on the true construction of a statute creating a corporation, it appears to be the intention of the legislature, express or implied, that the corporation shall not enter into a particular contract, every court, whether of law or of equity, is bound to treat a contract entered into contrary to the enactment as illegal and therefore void." Blackburn in Riche v. Ashbury R. R. Car. Co., L. R. 9 Ex. 262; adopted in Ashbury R. R. Car. Co. v. Riche, L. R. 7 H. L. 673.

That a corporation can mortgage its property to pay its debts, see People v. Brown, 5 Wend. 590.

The expressions ultra vires and infra vires are preferred by Lord Cairns as more correct in such cases than "illegal" or "legal." Ashbury R. R. Car. Co. v. Riche, L. R. 7 H. L. 672.

3 Lindley, op. cit. 266; Pollock, 3d ed.131.

"As a general rule, corporations can have and exercise only such powers as the incidental powers which it is notorious that some possess. That a railroad company, for instance, should be supposed to have power to endorse commercial paper is natural in a community in which there are many such companies which have this power expressly given to them ; and when such power is largely exercised by corporations of this class, it is natural that it should be supposed to belong to all others.-A second reason is, that in this country, charters are now largely granted under general laws, while in England, they are always the creatures of special legislation. In England the grant is only what is given by the charter, the sovereign reserving all power in the subject matter not specially granted. In most of our American States, large blocks of power, by means of general legislation, are distributed without reservation among certain classes of corporations. Thus, any corporation that desires to do banking business may do so by complying with certain requisites ; and the artificial persons coming up to do business under these statutes are entitled to do this business as freely as could natural persons.-In the third place, a corporation, in England, when it is chartered, remains open to revision by parliament, and continues, during its whole existence, to be the creature of parliament; whereas, in this country, under the clause in the federal constitution which provides that no state shall impair the obligation of contracts, a corporation once chartered is an independent power.-In the fourth place, from the very fact of the multitudes of corporations by which the business of the country is conducted, great injury would accrue to the public and to individuals if corporations should beheld responsible only on such of their contracts as do not technically transcend their chartered limits.-For these and other reasons, our courts, with but few exceptions, have held that business corporations are entitled to exercise whatever incidental powers would be exercised by natural persons doing the same kind of business under general powers of attorney. If an agent, under a general power of attorney, can issue negotiable paper, or can pledge assets, or can take or grant leases, so can a corporation. And if a corporation exceeds its powers, it can only be called to account in two ways. The first is by injunction by its members, which will presently be 166 noticed. The second is by proceedings of ouster and dissolution by the sovereign. So far as concerns bona fide purchasers, its contracts within the above limits are legal, even though, at the first view ultra vires, and it is estopped from setting up their illegality.1 Any contract, however, by such a corporation, designed to pervert the trust of which it is the agent, and of such a character that its inconsistency with the object for which the corporation is designed is transparent, is illegal.2