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.
All persons dealing with a corporation must take notice of its charter,1 and of statutory limitations on its corporate of the contract,8 and it is no defense to an action on the contract that it was under the existing facts ultra vires, unless it can be shown that the contracting party knew the facts which rendered it ultra vires. This doctrine is applied generally to contracts performed by one party,9 as where one who does not know that the limit of corporate indebtedness has been reached, loans money to the corporation ;10 or where a corporation purchases property which it might buy for a given purpose from one who does not know that it is to be used for other purposes.11
3 Pearce v. R. R., 21 How. (U. S.) 441; Rock River Bank v. Sherwood, 10 Wis. 230; 78 Am. Dec. 669.
4 Philadelphia Loan Co. v. Town er, 13 Conn. 249; Utica Insurance Co. v. Scott, 19 Johns (N. Y.) 1; Life, etc., Ins. Co. v. Insurance Co., 7 Wend. (N. Y.) 31.
5 Walker's Am. Law, p. 242n (10th ed.).
6 "The safety of men in their •daily contracts requires that this doctrine of ultra vires should be confined within narrow bounds." Directors, etc., of the Eastern, etc., Ry. Co. v. Hawkes, 5 H. L. Cas. 331, 371; quoted in Bath Gaslight Co. v. daffy, 151 N. Y. 24, 34; 36 L. R. A. 664; 45 N. E. 390.
1 McCormick v. Bank, 165 U. S. 538; Salt Lake City v. Hollister, 118 U. S. 256; Pearce v. R. R., 21 How. (U. S.) 441; Sherwood v. Alvis, 83 Ala. 115; 3 Am. St. Rep. 695; 3 So. 307; National, etc., Association v. Bank, 181 111. 35; 72 Am.
St. Rep. 245; 54 N. E. 619; Durkee v. People, 155 111. 354; 46 Am. St. Rep. 340; 40 N. E. 626; affirming, 53 111. App. 396; Humphrey v. Association, 50 Ia. 607; New Orleans, etc., Co. v. Dock Co., 28 La. Ann. 173; 26 Am. Rep. 90; Franklin Co. v. Lewiston Inst., 68 Me. 43; 28 Am. Rep. 9; Davis v. R. R., 131 Mass. 258; 41 Am. Rep. 221; Kran-iger v. Building Society, 60 Minn. 94; 61 N. W. 904; Nicollet National Bank v. Frisk-Turner Co., 71 Minn. 413; 70 Am. St. Rep. 334; 74 N. W. 160; Jemison v. Bank, 122 N. Y. 135; 19 Am. St. Rep. 482; 9 L. R. A. 708; 25 N. E. 264; Elevator Co. v. Memphis, etc., Co., 85 Tenn. 703; 4 Am. St. Rep. 798; 5 S. W. 52; Franco-Texan Land Co. v. McCor-mick, 85 Tex. 416; 34 Am. St. Rep. 815; 23 S. W. 123; Smith v. Cornelius, 41 W. Va. 59; 30 L. R. A. 747; 23 S. E. 599. "A party dealing with a corporation having limited and delegated powers conferred by law is chargeable with notice of power.2 Why this rule applies to corporations and not to part' nershrps,3 is by no means clear on principle. It is not limited to those cases of general laws alone, but extends to private acts of the legislature, foreign laws which are a part of the charter of the foreign corporation in question and to the articles of incorporation.4 A rigid application of this rule would charge persons with knowledge which it might be absolutely impossible for them to acquire, and would seriously affect the validity of contracts of corporations.5
It will not be presumed that a corporation has exceeded its powers in making a contract.6 This is merely an application of the broader principle that capacity is always presumed, and that a lack of it must be shown affirmatively.
Furthermore, while persons may be arbitrarily required to take notice of the powers of a corporation, they cannot be required to know all the facts and circumstances connected with the business of the corporation.7 Accordingly, if a contract may, under some states of fact, be within the power of the corporation, persons dealing with the corporation may assume that the proper facts exist which are requisite to the validity them and their limitations, and cannot plead ignorance in avoidance of the defense." National, etc., Association v. Bank, 181 111. 35, 44; 72 Am. St. Rep. 245; 54 N. E. 619.
2 National, etc., Association v. Bank, 181 111. 35; 72 Am. St. Rep. 245; 54 N. E. 619.
3 See Sec. 950.
4 McCormick v. Bank, 165 U. S. 538. The rule applies "whether such charter be a private act or a general law under which corporations of this class are organized." De La Vergne, etc., Co. v. Savings Institution, 175 U. S. 40, 59; (citing Zabriskie v. R. R., 23 How. (U. S.) 381; Thomas v. R. R., 101 U. S. 71; Pennsylvania Co. v. R. R.. 118 U. S. 290, 630: Oregon Ry. Co. v. Ry. Co.. 130 U. S. 1; Pittsburgh, etc.. Ry. Co. v. Bridge Co., 131 U. S. 371).
5 See Sec. 1066, 1067.
6 Ohio, etc., Ry. Co. v. McCarthy, 96 U. S. 258; International, etc., Association v. Wall, 153 Ind. 554; 55 N. E. 431; Wardner, etc.,.Co. v. Jack, 82 Ia. 435; 48 N. W. 729; West v. Grocery Co., 109 Ia. 488; 80 N. W. 555; Gorder v. Platts-mouth, etc., Co., 36 Neb. 548; 54 N. W. 830; Elkins v. R. R., 36 N. J. Eq. 241.
7 Kennedy v. Bank, 101 Cal. 495; 40 Am. St. Rep. 69; 35 Pac. 1039; Monument National Bank v. Globe Works, 101 Mass. 57; 3 Am. Rep. 322; Bissell v. R. R., 22 N. Y. 258; Miller v. Ins. Co., 92 Tenn. 167; 20 L. R. A. 765; 21 S. W. 39; North Hudson, etc., Association v. Bank, 79 Wis. 31; 11 L. R. A. 845; 47 N. W. 300.