liability on the notes, has paid interest on them, and has accepted reports which mentioned them amongst the outstanding obligations. So, where money was advanced directly to a corporation and to its president for its benefit, and the corporation recognized both sums as its debts, and attempted to secure them, it was held that they would be regarded in equity as corporate debts.3 A purchase made by a shareholder into a railway corporation, with cognizance that it is acting on an assumed power to invest in the stock of railway corporations without the State which created it, will operate as an implied recognition of such assumed power.' The principles stated above with respect to ratification and acquiescence apply as well to bar any defense to actions based upon tort as to those based upon contract. Thus, a corporation, chartered as a railway and banking company, but also running a steamboat, is estopped from setting up the defense of ultra vires in an action for an injury sus tained through the negligence of an officer of the steamboat.5 1 "Intelligent" ratification, or acquiescence, is such as is based upon knowledge of all the material facts, even though there may be ignorance of the legal effect of those facts: Kelly v. Newburyport etc. R. R. Co. 141 Mass. 496. 2 Kelly v. Newburyport etc. R. R. Co. 141 Mass. 496. 3 Poole v. West Point etc. Assoc. 30 Fed. Rep. 513. 4 Venner v. Atchison etc. R. R. Co. 28 Fed. Rep. 581. 5 Central R. R. etc. Co. v. Smith, 76 Ala. 572; S. O. 52 Am. Rep. 353. 523. Accepting the fruits of the contract a bar to pleading "ultra vires."-The corporation cannot avail itself of the defense of ultra vires, where the contract has been in good faith fully performed by the other party, and the corporation 4 has had the benefit of the contract and the performance.' Although there may be a defect of power in a co porat on to make a contract, if a contract made by it is not in violation of the terms of the charter of the corporation, or of any statute prohibiting it, and the corporation has, by its promises, induced a party relying upon such promises, and in execution of the contract, to expend money and perform his part thereof, the corporation also must perform." And so every stockholder of a corporation who participates in the fruits of an ultra vires act, is estopped from setting up the corporation's want of authority to perform it.3 In these cases the plaintiff's recovery rests on the circumstance that all the persons that would have been entitled to object, allowed the plaintiff to go on and perform his part thereof, under the reasonable assumption of their general acquiescence therein. This principle has been repeatedly held to be as applicable to the other contracting party as to the corporation In a recent case, it was decided, in accordance with these principles, that a railway company will be estopped from setting up as a defense to an action for rent on a lease of a branch road, the plea of ultra vires, when the branch was constructed upon the company's promise to lease it for a long term of years, and when it has actually operated it for a time without objection. Where the directors of an insolvent company issued bonds, and placed them as collaterals for money advanced by a bank to meet pressing obligations, it was held that a mere failure to enter of record the order authorizing the hypothecation could not be taken advantage of by the corporation or by the other BEACH ON RAILWAYS-54 cred tors as a defense against the bank's claim for a preferred participation in the distribution of the assets. But in a case in which a corporation covenanted to pay rent, in advance, in consideration of future occupation, the agreement was held not to be within the rule permitting a contract to be enforced against a corporation, when the contract is ultra vires, and the benefit of it has been enjoyed by the corporation. 1 National Bank v. Matthews, 98 U. S. 621; Stewart v. National Bank, 2 Abb. U. S. 424; Whitney Arms Co. v. Barlow. 63 N. Y. 62; 20 Am. Rep. 504; Bissell v. Michigan etc. R. R. Co. 22 N. Y. 254; Tracy v. Talmage, 14 N. Y. 162; 67 Am Dec. 132; Parish v. Wheeler, 22 N. Y. 434; De Graff v. American etc. Co. 21 N. Y. 124; Taylor County v. Baltimore etc. R. R. Co. (W. Va. 1885) 4 Ry & Corp. Law J. 10; Louisville etc. R'y Co. v. Flannagan, 119 Ind.; Durst v. Gale, 83 Ill. 136; Hertzo v. San Francisco, 33 Cal. 131; Connecticut River Savings Bank v. Fiske, 63 N. H. 363; Eastern Counties Ry Co. v. Hawkes, 5 H. L. Cas. 331. Cf. Illinois Central R. R. Co. v. Thompson, 116 Il. 159. 2 State Board of Agriculture v. Citizens' Street R'y Co. 47 Ind. 407; 17 Am. Rep. 702; Hitchcock v. Galveston, 96 U. S. 311. 3 Branch v. Jessup, 106 U. S. 468; Zabriskie v. Cleveland etc. R. R. Co. 23 How. 381; Taylor v. South & North Alabama R. R. Co. 13 Fed. Rep. 152; Tyrrell v. Cairo etc. R. R. Co. 7 Mo. App. 294; Peoria etc. R. R. Co. v. Thompson, 103 Ill. 187. 4 Taylor on Corporations, §§ 279, 280, reviewing Bissell v. Michigan etc. R. R. Co. 22 N. Y. 258; Bradley v. Ballard, 55 III, 413; 7 Am. Rep. 656; Durst v. Gale, 83 Ill. 136. 5 De Graff v. American etc. Co. 21 N. Y. 124. 6 Camden etc. R. R. Co. v. May's Landing etc. R. R. Co. 48 N. J. 520. 7 Hubbard v. Camperdown Mills, 26 S. C. 581. 8 Oregonian R'y Co. v. Oregon R'y & Nav. Co. 23 Fed. Rep. 232. § 524. Laches as a bar to pleading "ultra vires."-Shareholders wishing to prevent ultra vires acts or to absolve the corporation from responsibility for them, must be vigilant and swift.' For a court of equity may refuse to interfere with a corporation at the instance of a stockholder in respect to an unauthorized contract which has been fully executed, when if he had applied in season for an order to restrain the execution of the contract, equity might have felt bound to grant that relief. Especially is this so when the complainant has stood by and allowed the illegal transaction to be consummated, and has allowed and induced others to become interested in the corporation on the supposition that the existing state of things is legal and proper.3 1 Pneumatic Gas Co. v. Berry, 113 U. S. 322; Taylor on Corporations, § 279; Cartlett v. Starr (Texas, 1888); Thompson v. Lambert, 44 Iowa, 239; Hoosac etc. Co. v. Donat, 10 Colo. 529; where acquiescence of a hundred days in a lease made by an authorized agent estopped from pleading ultra vires. 2 Terry v. Eagle Lock Co. 47 Conn. 141, 161. III. § 525. Of illegal corporate acts.-As we have seen, an illegal corporate act is one which, in addition to being ultra vires, is also invalid, because some rule of law forbids it to be done;' for any corporate contract may have the vices which sometimes infect the contracts of individuals. It may involve a malum per se, or a malum prohibitum, and may be void for any cause which would avoid the contract of a natural person. But unless the illegality inheres in the very act or contract itself, it will not render the transaction void. The mere knowledge on the part of the corporation that the other party is going to use the proceeds of the contract for some illegal purpose, does not render the contract void, so far as it is concerned, provided it does not participate in the illegal undertaking.* An illegal act cannot be ratified nor made valid even by the unanimous consent of the stockholders 5 1 Whitney Arms Co. v. Barlow, 63 N. Y. 62, 68; 20 Am. Rep. 504; Bissell v. Michigan etc. R. R. Co. 22 N. Y. 264. 2 Bissell v. Michigan etc. R. R. Co. 22 N. Y. 264, 269-270. 3 Orchards v. Hughes, 1 Wall. 73; Atlas National Bank v. Savery, 127 Mass. 75. See Taylor on Corporations, § 293. 4 Jones v. Planters' Bank, 9 Heisk. 455: Bank of Tennessee v. Cummings, 9 Heisk. 465; Taylor on Corporations, § 293. 5 Thomas v. The Railroad Co. 101 U. S. 70, and authorities there reviewed; Salem Mill Dam Co. v. Ropes, 6 Pick. 23, 32; Ashbury Railway Carriage etc. Co. v. Riche, Law R. 7 H. L. 653. § 526. Of acts illegal and against public policy. When a corporation like a railroad company has been granted a franchise intended in a large measure to be exercised for the public good, the due performance of those functions being the consideration of the public grant, any contract which disables the corporation from performing those functions is a violation of the contract with the State, and is void as against public policy.' Thus, a railroad cannot without the consent of the State transfer to others the rights and powers conferred by its charter and relieve itself of the duties which the grant imposes upon it; nor without legislative sanction can it mortgage its franchises, nor consolidate with another corporation. Railways being granted valuable franchises for the good of the whole people, must exercise them impartially in favor of all. is contrary to public policy for a railway company to give an express company exclusive privileges over its line; or to give a telegraph company the exclusive privilege of erecting its line along the road; or to discriminate in rates between shippers, or to allow rebates to some shippers to the exclusion of others." A contract to convey land to a railway company to secure the location of a station upon it, is contrary to public policy; for railway stations are presumably located with a view to the convenience of the public, and no other motive It |