Island Whaling Company executed to the defendant the promissory note sued on, and that the same was duly transferred and delivered to the plaintiff; that said company was incorporated "for the purpose of engaging in the whale fishery and in the manufacture of spermaceti candles "; that said note was given for State bonds of the plaintiff, and was executed and transferred in consideration of said bonds. BRONSON, J, said: "Another objection to the second and third sets of counts is, that the Staten Island Whaling Company has no power by its charter to purchase or deal in State bonds. It was incorporated for the purpose of engaging in the whale fishery and in the manufacture of oil and spermaceti candles', and has only such general powers as are incident to all corporations. * I agree with the counsel for the defendants that this company had no authority to purchase or deal in those bonds. But since the decision Moss v. The Rossie Lead Mining Co., 5 Hill, 137, I do not see that a corporation can ever avoid its obligation on the ground that it was given for property which the corporation was not authorized to purchase. And if the company was bound, I see no reason why the defendants should not also be bound by the contract."

*

*

In the case above referred to (Moss v. The Rossie Lead Mining Co.), the corporation had purchased a large amount of property which had been previously used by the vendor in carrying on the business of washing and smelting lead ore, consisting in part of a house and lot, fifty acres of improved land with several houses thereon, a building which had been used as a store, a school-house, threshing-machine, etc. The defendants were incorporated for carrying on the business of smelting and washing lead ore; and the note sued on was given by them for the property purchased. It was held that the purchase was not necessarily in excess of the power granted by the charter, and that the plaintiff was entitled to recover thereon.

By the Court, CowEN, J., inter alia: "Where the vendors are apprised that a company are acting in fraud of their charter, and knowingly sell for the purpose of effecting the fraud, a different question arises. But tenements, being taken in lease, goods purchased, though even for a criminal object, such as carrying on smuggling, or for the purposes of prostitution, this being a secret with the lessee or vendee, forms no defense against an action for the rent or price, by the persons from whom the lease was taken or the goods obtained. If articles bought by a corporation cannot possibly be of any use in the line of corporate business, but the purchase is necessarily in excess of power, a question might be raised on that ground. Yet in dealing with corporations created for manufacturing purposes, who that does not take a part of them shall be holden to penetrate the ramifications of their business, so far as to fix the boundary of possible utility? Such a company as the defendants must have lands, houses and wood, as well as mines, machinery and utensils. They may resort to all the ordinary means of paying workmen and providing them and their families with residences, and who would deny in this country of schools that they may pay by providing school-houses and schoolmasters for the children of workmen. Education in certain branches is better than cash. Even the threshing-machine, the purchase of which was thought by counsel to be such a scandalous excess, might have been quite useful in preparing and furnishing grain for the

workmen and their families, who might prefer this as an article of payment. It would, moreover, thresh the grain for the teams employed in marketing the lead. Is it quite clear that lands to a reasonable extent and within the limits of the company's capital may not be cultivated and crops raised by them as another means for paying the expenses of their business? But above all, I repeat, shall those by whom the company are furnished with articles of doubtful utility be made responsible for the excess? I think not." Remarks and suggestions.-We here find suggested the difficulty attending the application of the doctrine to cases of this character, and it leads us to consider whether the doctrine should be applied in suits at all on contracts. Is the reason in support of the rule in such cases of sufficient force to weigh against all the injustice inflicted or liable to be inflicted by its application as a defense in suits on contracts? In cases of this character, it would appear necessary for the vendor to take the chances of the judgment of a court or the verdict of a jury, as to whether the article sold was of sufficient utility to the corporation to avoid the application of the defense of ultra vires. And this question must be one of fact, to be determined from all the circumstances of the case. It would hardly be possible to suppose a sale to a corporation of any article that might not be of some use in the conducting of its legitimate business, and on the general reasoning of the court in the last case, can the court say, as a matter of law, that any article which may be purchased is not within the scope of the powers of a corporation for manufacturing, trading, or commercial purposes, to purchase?

The argument for the application of the doctrine in these and other cases is, that the corporation might extend its action without limit in this direction, and subvert the authority of the State if its ultra vires acts were held valid. But the State, as we shall hereafter show, has a more ample remedy in such cases by proceedings by quo warranto, or in the nature of quo warranto, and this remedy, in view of the hardship of the defense of ultra vires, was suggested in some of the preceding cases. And in the case of Chester Glass Co. v. Dewey, 16 Mass., 94, where the plaintiffs claimed to recover for goods sold and delivered to the defendant, and the defendant objected that the plaintiffs were prohibited from trading in goods, the court (per PARKE, C. J.), said: "The defendant cannot refuse payment on this ground; but the legislature may enforce the prohibition by causing the charter to be revoked, when they shall determine that it has been abused."

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So, in the case of Palmer v. Lawrence, 3 Sand. (N. Y. S. C.), 170, DUER, J., observes: "A defendant who has contracted with a corporation de facto, is never permitted to allege any defect in its organization, as affecting its capacity to contract or sue; but all such objections, if valid, are only available on behalf of the sovereign power of the State. * It would be in the highest degree inequitable and unjust to permit him to rescind a contract the fruits of which he retains, and can never be compelled to restore." The general doctrine relating to the ultra vires contracts of private corporations, where they have received the consideration or benefit of the same, in respect to the enforcement of the contracts, as illustrated by the preceding cases, has frequently been recognized in the enforcement of ultra vires contracts of municipal corporations. See post, Ch., IX.

CHAPTER V.

ILLUSTRATION OF THE DOCTRINE IN ITS APPLICATION IN EQUITY, TO RESTRAIN UNAUTHORIZED ACTS.

TENTH SELECTED CASE.

COLEMAN V. THE EASTERN COUNTIES RAILROAD COMPANY.*

The directors of a railway company, for the purpose of increasing the traffic proposed to guarantee certain profits and to secure the capital of an intended Steam Packet Company, who were to act in connection with the railway.

Held, first, that such a transaction was not within their powers, and they were restrained by injunction.

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Held, secondly, that in such a case one of the shareholders in a railway company was entitled to sue, on behalf of himself and all the other shareholders, except the directors," who were defendants, although some of the shareholders had taken shares in the Steam Packet Company.

A plaintiff filed a bill on behalf of himself and the other shareholders in a railway company to restrain the directors committing a breach of trust. It appeared that he was suing at the instigation of another rival company. Held, that this circumstance was not, of itself, sufficient to prevent him obtaining a special injunction on the merits of his case.

THIS was a motion to dissolve a special injunction under the following circumstances:

Under the powers contained in their act of Parliament (6 & 7 W. 4, c. cvi, local and personal), the Eastern Counties Railway Company and the Eastern Union Railway Company had formed a railroad from London to Manningtree, a place within ten miles of the port of Harwich. The directors of these com

Reported in 10 Beav., 1 (1846).

panies conceived that it would add to the traffic and profit of the railway if a steam packet company could be formed communicating between Harwich and the northern parts of Europe, and they accordingly took proceedings for the establishment of such a company.

A prospectus was issued and a deed of settlement was prepared, whereby it was proposed that the shares in the projected company called "The Harwich Steam Packet Company," should be offered to the shareholders in the above mentioned railway companies.

The railway company intended to guarantee to the shareholders in the Steam Packet Company a dividend of five per cent per annum upon their paid-up capital until the dissolution of the Steam Packet Company, and that upon the dissolution the whole paid-up capital should be paid by the railway companies to the holders of the Steam Packet Company in exchange for a transfer of their assets and property.

The plaintiff, a shareholder in the Eastern Counties Railway Company, objected to this, and to prevent it, he instituted this suit, on behalf of himself, and all other proprietors of shares in that company (except the defendants) who should come in and contribute to the expenses of the suit, against the company and all the directors.

The bill, after alleging a case to the above effect, stated, that in October, 1846, the plaintiff called upon the secretary to inquire into the nature of the arrangement between the two companies, and was informed that the proposed arrangement was of this nature; that passengers should be conveyed from London to Rotherham, etc., for certain fixed fares, and that if it should be found necessary that the whole of those fares should be paid over to the Steam Packet Company, in order to declare a dividend of five per cent, the railway company would pay the whole amount received for the fares to the Steam Packet Company.

The bill also stated that many of the proprietors of shares in the Eastern Counties Railway Company had declined to take any share in the Steam Packet Company, and had altogether disapproved of the proposed arrangement between the railway company and the Steam Packet Company; but

that several proprietors of shares in the Eastern Counties Railway Company, upon the faith of the proposed guarantee had accepted the shares allotted to them, and had paid the deposits thereon.

The bill stated that no contract or agreement had at present been entered into with the Harwich Steam Packet Company, under the common seal of the Eastern Counties Railway Company, or in any other manner, sufficient to render an agreement or contract legally binding upon said railway companies.

The bill prayed a declaration that it would be a breach of trust on the part of the directors of the Eastern Counties. Railway Company to enter into any contract, etc., on behalf of the Eastern Counties Railway Company to guarantee to the Harwich Steam Packet Company any dividend on their capital, or the repayment of the said capital in case of the dissolution of the Steam Packet Company, or to apply any funds of the railway company in making any payment to the Steam Packet Company for any of the purposes aforesaid; and it might also be declared that the directors of the railway company were not authorized to make any reduction from their usual tolls, etc., in favor of any person or goods conveyed to or from Harwich by any steam packet belonging to the said Steam Packet Company; and that the directors of the Eastern Counties Railway Company might be restrained by injunction from entering into such proposed arrangement, or any such contract, agreement or undertaking as aforesaid, etc.

On the 19th of November, 1846, a special injunction was granted ex parte, by the Master of Rolls, to restrain the defendants, the directors, until the 26th of November, from entering into the proposed arrangement with the Steam Packet Company, or any such contract, agreement, or undertaking as was mentioned in the bill.

This injunction was afterward continued till the 14th of December, when the case was agreed before the Master of Rolls, upon a motion and a cross-motion; the defendants moved to dissolve the injunction, and the plaintiffs moved to continue it.

In support of the motion to dissolve the injunction an