The second legal obstacle which the courts must meet and overcome, if the view in question is to prevail, is the resulting difficulty of maintaining any theory whatever which places limitations upon the corporate power to contract. It will be observed that the exigencies of the policy under discussion require the courts to enforce ultra vires contracts as between the parties, leaving the State to institute proceedings, by quo warranto or otherwise, to deprive the offending body of its charter. But in point of fact, in nintynine cases out of a hundred the State has no real interest in the matter. Even in those cases in which we lawyers are accustomed to speak most glibly of "public interest," it often happens that the conventional conception of the interest of the community is just the reverse of its interest in fact. Take the case of a railway lease which has not been specifically authorized. The lessor refuses to perform certain covenants, and an effort is made to compel specific performance. In no jurisdiction will the desired decree be made, because it is the conventional view that the public is interested in seeing to it that no one but the original grantee of the franchise shall exercise it. Suppose the offer is made to prove by affidavit, or otherwise, that the entire community affected is anxious that the lease should be enforced. The offer is of course rejected by the court. It may be assumed to be clear that, upon submitting the documents in the case to the legislature, an enabling act authorizing the lease could have been had for the asking. The fact remains that corporations are driven to the legislature in these cases to seek protection from the courts.1 The reason for the persistence of the theory that a franchise of a public nature is inalienable without the consent of the sovereign is not altogether clear. As yet no court has been found so iconoclastic as to shatter the venerable doctrine.2 But, as has been said, the cases in which the public and the State have a direct interest, even by convention, are far from numerous. In the absence of direct interest there is no reason to expect active interference with corporate activity in any considerable number of cases. There is even a decision in the books in which the right of the State to forfeit a charter

1 Central Transportation Co. v. Pullman's Palace Car Co. is a striking illustration of this. There the legislature had passed an act specially enabling the lessor corporation to make the lease in question, but the court nevertheless held that the authority was not sufficiently explicit.

* See the dissent of Mr. Justice Bradley in Penna., &c. R. R. v. St. L. A. & T. H. R. R., 118 U. S. 290.

in such a case is denied. We should then have a law practically without a sanction in the matter of restraint upon the making of corporate contracts. This state of affairs is to some extent recognized; but it does not seem to be perceived that a significant alternative is presented to the judges in consequence of it. Shall the courts continue to maintain some theory of limited corporate power, or shall they take the absence of real public interest in so vast a number of cases as an indication that the so called "law of ultra vires" has survived whatever usefulness it may have possessed? Apparently unconscious of the existence of this problem, the courts have undertaken the task contemplated by the former alternative, and have set themselves to discourage unauthorized and prohibited contracts by enforcing them between the parties only in favor of one who has performed his part. Readiness to perform is not enough: the contract must be executed in part before the judge will give it recognition. Here is a fruitful source of litigation. What constitutes execution within the meaning of the rule? Is execution synonymous with that "passage of money or property" which would give rise to a cause of action in quasi contract, even under the former of our two conceptions of public policy? These and many other similar questions confront the courts in their attempt to signify a qualified disapproval of unauthorized or prohibited contracts.

What of the second alternative? Is there any reason, on principle, why the courts which believe in treating the prohibition as a condition should not carry out the theory to the end, and enforce all corporate contracts pricisely like other contracts, and subject only to the limitations which the general law of contracts recognizes? It seems to the writer that, if the doctrine of general capacities were once adopted, a strict adherence to our second line of policy would lead legitimately to that result. Some of the considerations in favor of the doctrine of general capacities have already been advanced. It remains to determine whether harm would result from the removal of all restraint from the corporate power to contract, whether, in other words, society would be the loser through the death of the whole law of corporate power and ultra vires. It is interesting to note that Judge Thompson is to be found upon the negative side of this question. "My own view," he says,1 "is that the doctrine of ultra vires has no proper place in the law

1 pages 397, 398.

of private corporations, except in respect of contracts which are bad in themselves, the making of which are [sic] prohibited by considerations of public morality, of justice, or of a sound public policy, and which therefore stand upon such a footing that neither party can be regarded as innocent or blameless in entering into them." This is the same thing as saying that doctrines of corporate power should no longer exist in any case, for the qualifications enumerated by the learned author already obtain in the case of contracts between man and man. It is somewhat difficult to perceive just how Judge Thompson reaches his conclusion upon principle, for he seems to have but a hazy conception of the two great theories of corporate power, and it is not clear that he even perceives the importance of working out his result upon one or the other of them. His view may be accepted, however, as an evidence of what is believed to be the general sense of the American world to-day; namely, that society is vastly more interested in the adjustment of the actual relations subsisting between corporations and individuals than in the maintenance of fancied relations between corporations and the State. The franchise to be a corporation is no longer in the hands of favorites of the Crown. It is no longer true that the owners of this franchise have their brethren at their mercy, or even that they occupy a position of peculiar advantage as compared with them. Corporate activity has taken its place in the mercantile world side by side with individual enterprise, and the two work together on equal terms. There are many aggregations of capital which do not take on the corporate form; while, on the other hand, behind the corporate machinery of many a gigantic enterprise stands a single individual, who has become the owner of all, or almost all, the shares. It is indeed to the interest of the State that these business ventures should succeed, and it may be said that the scope of their activity should therefore be circumscribed. But surely the question of what branches of business should or should not be combined together is not a question for the courts. The mercantile world must be left to work out the solution of this problem for itself. If, when the problem is solved, it is found that the union of two forms of business enterprise (as, for example, banking and insurance) is fraught with peculiar danger to the public, the case becomes one that is appropriate for legislation; and specific measures may then be adopted in order to deal with the difficulties which present themselves. Moreover, it must not be forgotten that, independently of these considerations, it remains

true that a dissenting minority of stockholders would still have all the rights of a partner in respect of confining his associates to the enterprise to which he agreed to contribute his capital. This is not a case in which partnership law has drawn upon corporation law for its conception of limitations upon the power of the majority. The reverse has been the case, as may be seen by a consideration of Lord Eldon's decision in Natusch v. Irving.1

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The observations which have just been made in regard to legislative declarations of policy with respect to particular forms of enterprise are of course applicable to the case of quasi public corporations. Where the nature of the business is such that the public has an interest in the conduct of it, it seems not unreasonable to insist that the business shall be regulated as a business, and not with reference to the fact that it is carried on by a corporation. It is settled that a strictly private corporation may mortgage its property and "plant," unless prohibited. It is said to be equally well settled that a corporation with public duties to perform, as, for example, a railroad, cannot make a valid mortgage contract unless specifically authorized. The reason assigned is that a mortgage 'may ripen into a sale," and that in the latter case a sale means that the railroad can no longer perform its duties to the public. In the judgment of the writer, it is altogether unphilosophical to make this distinction the basis of a judicial development of a doctrine of corporation law. If the distinction is really of any importance, it should be made the subject of a legislative enactment regulating the management of railroads. The prediction may be hazarded that before twenty-five years have passed away our courts will have manifested a disposition to depart from the present basis of decision, and that they will have indicated an intention to abandon the attempt to regulate a business by developing the law relating to one out of several agencies by which, conceivably, that business may be carried on.

It must not be forgotten, however, that the latter part of this discussion has been concerned with the possible rather than with the actual in corporation law. In point of fact, there is a grand division of jurisdictions upon the primary question of public policy outlined above. The Supreme Court of the United States,2 the Supreme Courts of Massachusetts, Alabama,1 and a few other States, have

'Gow on Partnership, App., p. 398, ed. 3.

♦ Bank v. Dunkin 54 Ala. 471.

⚫ Central Transportation Co. v. Pullman's Pal. Car Co., 139 U. S. 24.

declared themselves definitely in favor of maintaining existing restrictions upon the corporate power to contract. They have, in general, refused to enforce unauthorized or prohibited contracts, even in favor of the party who has fully performed. The doctrine is entirely intelligible and consistent, and, in the main, it has been consistently applied. In a few cases, however (as has been seen), there are either dicta or actual decisions which seem to mar the symmetry of the system. If this doctrine becomes obsolete it will be the result, not of any inherent defects of structure, but because it is not in touch with the needs and requirements of the business world. In Pennsylvania,1 on the other hand, and in New York,2 New Jersey, Indiana, Illinois, Minnesota, Kansas, and in many other jurisdictions, the courts have manifested a tendency to give a qualified adherence to the second theory of public policy, — hesitating to ignore altogether the legal restrictions upon corporate power, but refusing to permit the party who has received a benefit to take advantage of the defect of power when a suit is brought to enforce the contract. The position of these courts of the second group is believed by the writer (as has been pointed out above) to be unsound upon principle, unless the theory of general capacities is adopted; and unsound even then unless it is pushed to its legiti mate conclusion, with the result of enforcing all corporate contracts, even when they are wholly executory, in every case where a contract between individuals would be enforced. In point of fact, the courts of the second group endeavor, in general, to work out the ends of justice upon the basis of a theory of estoppel. Where a corporation has received a benefit under a contract, it is said to be "estopped " from pleading the fact that the contract was unauthorized (or, in some cases, even that it was prohibited) as a defence to an action brought to enforce the agreement. This view seems to be open, upon principle, to certain serious objections. In most jurisdictions the courts are definitely committed to the position that those who deal with corporations are charged with notice of the limits of corporate power. In contemplation of law, when A.

1 Wright v. Pipe Line Co., 101 Pa. 204.

2 Holmes, etc. Mfg. Co. v. Metal Co., 127 N. Y. 252.

3 Camden, etc. R. R. Co. v. Mays Landing R. R. Co., 48 N. J. L. 530.

4 State Board of Agriculture, v. Citizens' R. R. Co., 47 Ind. 407.

5 Heims v. Flannery, 137 Ill. 309.

6 Auerbach v. Mill Co., 28 Minn. 291.

7 Sherman etc. Town Co v. Morris, 43 Kan. 282.