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.
"The doctrine of ultra vires by which a contract made by a corporation beyond the scope of its corporate powers is unlawful and void, and will not support an action, rests as this court has often recognized and affirmed upon three distinct grounds: The obligation of anyone contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders not to be subject to risks which they have never undertaken; and, above all, the interest of the public that the corporation shall not transcend the powers conferred upon it by law."1 These reasons cannot be considered conclusive.
11 Southern, etc., Association v. Stable Co., 128 Ala. 624; 29 So. 654.
12 Southern, etc., Association v. Stable Co., 119 Ala. 175; 24 So. 886.
13 City of Spokane v. Amster-damsch Trustees, etc., 22 Wash. 172; 60 Pac. 141.
14 Union, etc., Co. v. McMillen, 24 O. S. 67.
15 Anderson v. Bank, 122 Ala. 275; 25 So. 523.
1 McCormick v. Bank, 165 U. S. 538, 549; citing Pearce v. R. R., 21 How. (U. S.) 441; Pittsburgh, etc., Co. v. Bridge Co., 131 U. S. 371; Central, etc., Co. v. Car Co., 139 U. S. 24; quoted in California, etc., Bank v. Kennedy, 167 U. S. 362, 368, which cites on this point the English cases, Mann v. Tramways Co. (1893), App. Cas. 69; Ooregum Mining Co. v. Roper (1892), App. Cas. 125; Directors, etc., Iron Co. v. Riche, L. R. 7 H. L. 653. So
Even if all persons are required to take notice of the powers of a corporation, it is hard to see why ultra vires contracts should be nullities, any more than the contracts of an infant should be nullities. All persons are bound to take notice of the contractual powers of an infant and of the fact of infancy,2 yet his contracts are not unlawful or void. Stockholders who acquiesce in ultra vires contracts cannot rightfully complain that they never undertook the risk; and the interest of the state would be better subserved by a greater willingness to take away charters for abuse of corporate powers, than by treating as void a contract of which the corporation has had the full benefit. Accordingly, many courts place the doctrine on different grounds, with different practical results.3