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 fact that an ultra vires contract, which is so often said to be void, does in many jurisdictions give rise to liability on the contract, has caused many authorities to explain this apparent anomaly by invoking the doctrine of estoppel.1 Thus whether a deposit of securities with state officers in compliance with the statutes thereof prescribing the terms on which foreign corporations may do business in such state is ultra vires of such foreign corporation or not, it cannot take advantage of its lack of power.2 So where a corporation bought bank stock as an investment and received dividends thereon for years, with the acquiescence of its own stockholders, it was held to be estopped to deny that it was a stockholder, in a suit to enforce a stock liability.3 So where a corporation made a conveyance to one who agreed to pay the debts of the corporation, it was held that after a delay of five years and after third persons have acquired an interest in such property, the corporation cannot have such conveyance set aside.4 So one who has agreed to sell realty to a corporation is said to be estopped to avoid the contract after the corporation has taken possession of such realty and made valuable improvements thereon.5 However, it was held that no estoppel existed where a stockholder who had not assented to an ultra vires sale by the corporation of corporate property, received some of the bonds issued in payment for such property as long as he did not assert any rights thereunder.6 Conversely, no estoppel exists if nothing of value is received by virtue of the transaction in question.7 An examination of these cases will show, however, that no technical estoppel is meant; and they may be explained by saying that such contracts were originally voidable, and that those who have elected by receiving and retaining benefits thereunder, to treat them as valid, are bound by such election.
3 Union National Bank v. Matthews, 98 U. S. 621; Tidwell v. Cattle Co. (Ariz.), 53 Pac. 192; Water, etc., Co. v. Tenney, 24 Colo. 344; 51 Pac. 505; Chicago, etc., R. R. Co. v. Keegan, 185 111. 70; 56 N. E. 1088; Cooney v. Packing Co., 169 111. 370; 48 N. E. 406; Henderson v. Coal Co., 78 111. App. 437; Watts v. Gantt, 42 Neb. 869; 61 N. W. 104; Ray v. Foster (Tex. Civ. App), 53 S. W. 54. This rule is applied in some jurisdictions to devises to a corporation. Farrington v. Putnam,
90 Me. 405; 38 L. R. A. 339; 37 Atl. 652; In re Stickney's Will, 85 Md. 79; 60 Am. St. Rep. 308; 35 L. R. A. 693; 36 Atl. 654; Hanson v. Little Sisters, etc., 79 Md. 434; 32 L. R. A. 293; 32 Atl. 1052; Heiskell v. Chickasaw Lodge, 87 Tenn. 668; 4 L. R. A. 699; 11 S. W. 825.
4 McCoy v. Columbian Exposition, 186 111. 356; 78 Am. St. Rep. 288; 57 N. E. 1043; affirming 87 111. App. 605.
5 186 111. 360.
6 Brown v. Schleier, 194 U. S. 18.
1 Eastern, etc., Association v. Williamson, 189 U. S. 122; American National Bank v. Paper Co., 77 Fed. 85; Wood v. Corry, etc., Water Works, 44 Fed. 146; 12 L. R. A. 168; Kennedy v. Savings Bank, 101 Cal. 495; 40 Am. St. Rep. 69; 35 Pac. 1039; People v. R. R., 178 111. 594; 53 N. E. 349; Eckman v. R. R., 169 111. 312; 48 N. E. 496; Heims Brewing Co. v. Flannery, 137 111. 309; McCarthy v. Lavasche, 27 N. E. 286; 89 111. 270; 31 Am. Rep. 83; State Board v. Ry., 47 Ind. 407; 17 Am. Rep. 702; Wright v. Hughes, 119 Ind. 324; 12 Am. St. Rep. 412; 21 N. E. 907; White v. Marquardt, 105 Ia. 145; 74 N. W. 930; Sherman Center Town Co. v. Fletcher, 43 Kan. 282; 19 Am. St. Rep. 134; 23 Pac. 569; Nims v. School, 160 Mass. 177; 39 Am. St. Rep. 467; 22 L. R. A. 364; 35 N. E. 776; (a tort growing out of contract to carry as a ferryman) ; Carson, etc., Bank v. Carson, etc., Co., 90
Mich. 550; 30 Am. St. Rep. 454; 51 N. W. 641; Dewey v. Ry., 91 Mich. 351; 51 N. W. 1063; Manchester, etc., R. R. Co. v. R. R., 66 N. H. 100; 49 Am. St. Rep. 582; 9 L. R. A. 689; 20 Atl. 383; Bissell v. R. R., 22 N. Y. 258; Whitney Arms Co. v. Barlow, 63 N. Y. 62; 20 Am. Rep. 504; Kent v. Mining Co., 78 N. Y. 159; Linkauf v. Lombard, 137 N. Y. 417; 33 Am. St. Rep. 743; 20 L. R. A. 48; 33 N. E. 472; Hannon v. Sie-gel-Cooper Co., 167 N. Y. 244; 52 L. R. A. 429; 50 N. E. 597; Vought v. Loan Association, 172 N. Y. 508; 92 Am. St. Rep. 761; 65 N. E. 496; Tyler v. Academy, 14 Or. 485; 13 Pac. 329.
2 Lewis v. American, etc., Loan Association, 98 Wis. 203; 39 L. R. A. 559; 73 N. W. 793.
3 Hunt v. Malting Co., 90 Minn, 282; 96 N. W. 85.
4 Bear Valley, etc., Co. v. Trust Co., 117 Fed. 941.
Estoppel in pais exists only where one party by false repre sentations of fact has induced the other to act so that he would be prejudiced were the first party allowed to deny the truth of the facts as represented by him. If the power is one which might under proper circumstances be exercised by the corporation, there may be a true estoppel,8 though the contract is much oftener, in such case, entered into in ignorance of the law. Where the power is one which the corporation cannot exercise under any circumstances, there can never be a technical estoppel if all are bound to take notice of the charter.9 The doctrine of estoppel is accordingly repudiated by some courts.10 For the most part however, these same courts say that such contracts are void.
5 Coleridge Creamery Co. v. Jenkins, - Neb. - ; 92 N. W. 123.
6 Morris v. Land Co., 125 Ala. 263; 28 So. 513.
7 Nebraska Shirt Co. v. Horton (Neb.), 93 N. W. 225. "No fruits of the transaction were received by the company and its mere acquiescence in the unauthorized acts of its officers in a matter outside of its corporate powers cannot give rise to an estoppel." Wheeler v. Bank, 188 111. 34, 38; 80 Am. St. Rep. 161; 58 N. E. 598.
8 Estoppel applies only where the "making of the contract is within the scope of the franchise and the contract is sought to be avoided because there was a failure to comply with some regulation, or the power was improperly exercised" National, etc., Association v. Bank, 181 111. 35, 46; 72 Am. St. Rep. 245; 54 N. E. 619; Davis v. R. R., 131 Mass. 258; 41 Am. Rep. 221.
9 See Sec. 1066.
10 An ultra vires contract "cannot be enforced or rendered enforceable by the aplication of the doctrine of estoppel." Union Pacific Ry. v. Ry., 163 U. S. 564, 581; quoted in California, etc., Bank v. Kennedy, 167 U. S. 362, 371; Best Brewing Co. v. Klassen, 185 111. 37; 76 Am. St. Rep. 26; 50 L. R. A. 765; 57 N. E. 20; National, etc., Association v.
If the contract is invalid as against policy or as forbidden by statute, estoppel has no application.11