This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If the public corporation has performed the contract on its side, the adversary party cannot retain the benefits and plead ultra vires. The objection that the contract was originally ultra vires has been eliminated by performance.1 Thus a city may collect a loan of its funds and enforce a mortgage given therefor, though the loan is ultra vires.2 So a city may enforce payment under an ultra vires contract for hiring out prisoners in its workhouse.3 This view is not entertained in all jurisdictions, however. The view is entertained by some courts that performance by the corporation does not make the contract itself enforceable, the right of the corporation being only to recover what it has parted with under such contract. Thus it has been held that if a city loans its funds to a private corporation, it cannot enforce a bond given therefor.4 Thus mouth, 167 Mass. 115; 45 N. E. 184; Spaulding v. Peabody, 153 Mass. 129; 26 N. E. 421; Mead v. Acton, 139 Mass. 341; 1 N. E. 413; Greenough v. Wakefield, 127 Mass. 275; Halstead v. Mayor, etc., of New York, 3 N. Y. 430; Philadelphia v. Flanigen, 47 Pa. St. 21; Alleghany Co. v. Parrish, 93 Va. 615; 25 S. E. 882.
2 Swift v. Falmouth, 167 Mass. 115; 45 N. E. 184.
3 Meek v. Meade Co., 12 S. D. 162; 80 N. W. 182.
4 McTwiggan v. Hunter, 19 R. I. 265; 29 L. R. A. 526; 33 Atl. 5.
5 Trowbridge v. Schmidt,-Miss. - ; 34 So. 84.
1 Middleton v. State, 120 Ind.
166; 22 N. E. 123; Deering v. Peterson, 75 Minn. 118; 77 N. W. 568; St. Louis v. Davidson, 102 Mo. 149; 22 Am. St. Rep. 764; 14 S. W. 825; Mayor, etc., of Hoboken, v. Harrison, 30 N. J. L. 73; Buffalo v. Balcom, 134 N. Y. 532; 32 N. E. 7; Mayor, etc., of New York, v. Sonneborn, 113 N. Y. 423; 21 N. E. 121; Hendersonville v. Price, 96 N. C. 423; 2 S. E. 155.
2 City of Fergus Falls v. Hotel Co., 80 Minn. 165; 81 Am. St. Rep. 249; 50 L. R. A. 170; 83 N. W. 54.
3 St. Louis v. Davidson, 102 Mo. 149; 22 Am. St. Rep. 764; 14 S. W. 825.
4 City Council v. Plank Road Co., 31 Ala. 76.
"where as part of an ultra vires contract the corporation takes a bond to secure performance, it has been held that it cannot maintain an action on such bond.5 The remedy of the corporation is to avoid the contract and recover whatever it has parted with thereunder.6