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 a contract is executory on both sides, it is subject to the defense of ultra vires by the corporation.1 If the doctrine of ultra vires has any force at all, it applies to cases like this where the adversary party as as yet parted with nothing of value in reliance on the contract. Thus notes given by an insurance company under a contract whereby it was to purchase another insurance company are void.2 The other party may also treat the contract as invalid. Since the only consideration for his promise is the invalid promise of the corporation, his promise is in legal effect without consideration.3 The foregoing principles are necessarily based on the proposition that an ultra vires contract, while executory on both sides, is more than merely voidable. For many purposes it may be treated as absolutely void.
1 Thomas v. R. R., 101 U. S. 71; First National Bank v. Winchester, 119 Ala. 168; 72 Am. St. Rep. 904; 24 So. 351; Simmons v. Iron Works, 92 Ala. 427; 9 So. 160; Coleman v. Turnpike Co., 49 Cal. 517; Mc-Nulta v. Bank, 164 111. 427; 56 Am. St. Rep. 203; 45 N. E. 954; affirming, 63 111. App. 593; Wright v. Hughes, 119 Ind. 324; 12 Am. St. Rep. 412; 21 N. E. 907; Sherman, etc., Co. v. Morris, 43 Kan. 282; 19 Am. St. Rep. 134; 23 Pac. 569; Garrett v. Mining Co., 113 Mo. 330; 35 Am. St. Rep. 713; 20 S. W. 965; Nassau Bank v. Jones, 95 N. Y. 115; 47 Am. Rep. 14; Jemison v. Bank, 122 N. Y. 135; 19 Am. St. Rep. 482; 9 L. R. A. 708; 25 N. E. 264; Simpson v. Association, 38 O. S. 349; Coppin v. Greenlees, etc.,
Co., 38 O. S. 275; 43 Am. Rep. 425.
2 McClure v. Levy, 147 N. Y. 215; 41 N. E. 492.
3 Governor, etc., v. Fox, 16 Q. B. 229; 71 E. C. L. 227; First National Bank v. Winchester, 119 Ala. 168; 72 Am. St. Rep. 904; 24 So. 351; Screven Hose Co. v. Philpot, 53 Ga. 625. Thus the court held that "an executory contract, the enforcement of which by the plaintiff could be successfully resisted by the defendant on the ground that the former was not authorized by its charter to enter into it," was formed by the acceptance by a corporation of a proposition to enter into an ultra vires contract and bound neither while executory. Boss-hardt, etc., Co. v. Oil Co., 171 Pa. St. 109, 120; 32 Atl. 1120.