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 proposition has been advanced in a number of recent cases, that only the state can take advantage of the fact that a contract is ultra vires, by a direct attack in quo warranto to oust the corporation from exercising such franchises; and that private persons cannot attack the validity of the corporation's contracts on the ground of ultra vires.1 The reason underly-
4 Kessler v. Ensley Co., 123 Fed. 746.
1 St. Louis, etc., R. R. Co. v. R. R. Co., 145 U. S. 393; Boston, etc., R. R. Co. v. R. R., 13 R. I. 260.
2 Boston, etc., R. R. Co. v. R. R., 13 R. I. 260; Boyce v. Coal Co., 37 W. Va. 73; 16 S. E. 501.
3 St. Louis, etc., R. R. Co. v. R. R. Co., 145 U. S. 393.
1 "That such doctrine cannot be resorted to as a weapon for attack and defense in the hands of mere private persons and used as a ready means of embarrassing business operations by and with corporate bodies, which directly or indirectly touch and administer to human desires at every turn of the individual in modern life, while its effectiveness for all essential purposes of restraint and punishment is fully preserved, furnishes no cause for regret, but rather cause for gratification at the evidence of how certainly principles by natural growth and development adapt the law and its administration to the ever-changing needs of advancing civilization, so as best to promote justice and the common welfare." John V. Farwell Co. v. Wolf, 96 Wis. 10, 16; 65 Am. St. Rep. 22; 37 L. R. A. 138; 70 N. W. 289; 71 N. W. 109.
"When a contract has been so far executed that to allow the corporation to repudiate it would work in-justice to the other party thereto, ing this rule is that in its inception and true place in law, ultra vires was a doctrine for restraining the action of a corporation, not intended for the benefit of either party to the transaction, but applicable only to public corporations or to questions between private corporations and the state.2 An analysis of the cases in which this doctrine has been advanced, will show that it has not in fact the radical and sweeping effect that it at first seems to have.3 It is applied chiefly to cases where one not a party to the ultra vires transaction seeks to avoid it;4 or to cases where the contract has been performed fully on one or both sides, and is therefore treated as valid and binding, whatever it may have been at its inception.5 who has in good faith relied thereon, the doctrine of estoppel applies and prevents such repudiation regardless of whether the corporation had a right to make it or not, unless its act in that regard was in violation of some written law of the State or sound public policy; (that) in such circumstances, if the corporation exceeds its power it commits a punishable offense against the sovereignty of the people, but cannot itself invoke the doctrine of ultra vires to avoid its act, at the same time inflicting a grievous wrong upon the one who has in good faith relied upon the assumption that it possessed in fact the power which it pretended to have authority to exercise." Wuerfler v. Trustees Grand Grove, 116 Wis. 19; 96 Am. St. Rep. 940; 92 N. W. 433.
2 "The doctrine of ultra vires is a most powerful weapon to keep private corporations within their legitimate spheres and to punish them for violations of their corporate charters, and it probably is not invoked too often; but to place that power in the hands of the corporation itself, or a private individual, to be used by it or him as a means of obtaining or retaining something of value which belongs to another, would turn an instrument intended to effect justice between the state and corporations into one of fraud as between the latter and innocent parties." Zinc Carbonate Co. v. Bank, 103 Wis. 125, 131; 74 Am. St. Rep. 845; 79 N. W. 229. Expressing somewhat similar views are Union National Bank v. Matthews, 98 U. S. 621; Wood v. Water Works Co., 44 Fed. 146; 12 L. R. A. 168; Prescott National Bank v. Butler, 157 Mass. 548; 32 N. E. 909; State v. Thresher, etc., Co., 40 Minn. 213; 3 L. R. A. 510; 41 N. W. 1020; Barrow v. Turnpike Co., 9 Humph. (Tenn.) 304.
3 Wuerfler v. Trustees Grand Grove, 116 Wis. 19; 96 Am. St. Rep. 940; 92 N. W. 433.
4 John V. Farwell Co. v. Wolf, 96 Wis. 10; 65 Am. St. Rep. 22; 37 L. R. A. 138; 70 N. W. 289; 71 N. W. 109.
5 Henderson v. Coal Co., 78 111. App. 437; Bank of Missouri v. Bank, 10 Mo. 123; Zinc Carbonate Co. v. Bank, 103 Wis. 125; 74 Am. St. Rep. 845; 79 N. W. 229.