31. De facto corporations.- By a curative act the legislature, if otherwise empowered to pass the act, can cure a defective organization and thus remove all question of the validity of past as well as future acts of the corporation.' Such an act would not be special legislation. But whenever defects in the organization of a corporation exist, and the objection is urged in a collateral way by a person who has contracted with the bank, or is urged by the bank in order to escape liability, careful discrimination is necessary to ascertain whether the defect is something which is made a condition precedent to the organization of the corporation, without which it is provided by law that no business shall be done, or whether the defect is one which is made a step in the method of incorporation. The first condition will be examined in the next section; but as to any other kind of an act required by law to be performed by the corporators, the rule is that advantage of it can be taken only in a direct proceeding against the corporation in favor of the state. No other party has the right to set up the objection in a collateral way, neither one who has contracted with the corporation nor one who has participated in it.3 Nor can the corporation set up such a defect in order to escape liability. The very statement of the proposition involves the not in pari delicto because a penalty was attached to the persons doing private banking. Had this been done, a most iniquitous result would have been avoided. 1 People v. Perrin, 56 Cal. 345. But see Sykes v. People, 132 Ill. 32. 2 Syracuse Bank v. Davis, 16 Barb. 188. any liability against the corpora- 3 Bank of Port Jervis v. Darling, 91 Hun, 236; Pine River Bank v. Hodson, 46 N. H. 114; Kellogg v. Douglas Co. Bank, 58 Kan. 43. 4 McDougald v. Bellamy, 18 Ga. 411; Bartholomew v. Bentley, 1 assumption that if the defective step in the organization had been properly taken, a de jure corporation would have resulted; in fact, as against every party but the state, such a corporation is de jure. § 32. Statutory prohibitions.-But where the act required to be performed is a condition precedent, without which the bank is enjoined from doing any business, the failure to perform the act is fatal, whether urged in favor of the bank or against it. The same rule applies where the law expressly says that the corporation shall not exist without the performance of a certain act or shall not do a certain act. The remedy of the person injured in such a case can only be to disregard the alleged corporation, and in case of a contract bring an action of deceit against the corporators, or on their warranty of authority as agents, or for both contracts and torts hold the corporators liable as partners. The right to recover in such a case would depend upon the fact whether the person suing was an active participant in a violation of the statute, or had knowledge of facts that put him upon inquiry as to the illegality; in other words, whether he was in pari delicto. The same rules govern as to violations of positive provisions of law in case of the organization of corporations, or of the acts of corporations positively forbidden by law, that would govern any other illegal transaction, a subject which has been already noticed." 1 McCormick v. Market National Bank, 165 U. S. 538; Utica Ins. Co. v. Scott, 19 Johns. 1; Attorney-General v. Life Ins. Co., 9 Paige, 470; Myers v. Manhattan Bank, 26 Ohio, 283; Medill v. Collier, 16 Ohio St. 599; Armstrong v. Second Nat. Bank, 38 Fed. R. 883. says that the liability as partners cannot exist where a corporation actually comes into existence. 4 See § 35, infra, and Empire Mills v. Allston Grocery Co., 15 S. W. R. 505; McGrew v. Produce Ex., 35 Tenn. 572. 5 Davidson v. Lanier, 4 Wall. 447; 2 Trowbridge v. Scudder, 11 Cush. Thomas v. Richmond, 12 Wall. 349. 83, and cases cited. 3 Seeberger v. McCormick, 178 Ill. 404, 73 Ill. App. 87, where the court 6 Attorney-General v. Life Ins. Co., 9 Paige, 470. 7 See § 27, ante, and Brown v. Kil § 33. Ultra vires acts. The words ultra vires have been unfortunately used to describe very different things, and in consequence great confusion in the law has resulted. It means beyond the powers, and when applied to a corporation means beyond the powers of the corporation. But an act may be beyond the powers of a corporation because it is forbidden by an express rule of the statute or common law, and it would be beyond the powers of any corporation or individual to which the rule of the statute or the common law was applicable. The reason why the act is illegal is not because the power is not granted to the corporation, but because the act is positively and expressly forbidden. Thus, where an act is expressly forbidden by a statute, or is contrary to the rules of the common law, the transaction is illegal, just as any transaction in violation of statute law or the rules of public policy is illegal. Such a transaction is erroneously called ultra vires. The courts persist in applying this phrase to such a transaction, and the capital sinner in this respect is unfortunately the Supreme Court of the United States. It is admitted that such a transaction cannot be made the basis of any express contract rights against the corporation or in favor of the corporation, but lian, 11 Ind. 449; Buffalo Bank v. Codd, 25 N. Y. 163. And see § 312, post, notes 11 and 12. 1 See McCormick v. Market National Bank, 165 U. S. 538, where the act done was expressly forbidden by a statute; Central Transp. Co. v. Pullman's Car Co., 139 U. S. 24, where the act done was in violation of an express rule of the common law; Thomas v. Railroad Co., 101 U. S. 71, which shows an act forbidden by the express rules of the common law. In such cases the agreement, being illegal, cannot be made the basis of an action on the contract; but, at the same time, if, under such a contract, as pointed out under § 27, ante, the corpora tion has received a benefit, or has conferred a benefit upon another, either the corporation or that other person, as the case may be, must respond in quasi-contract. But in the cases above the futile attempts made by the court to discriminate cases would have been unnecessary if it had observed the distinctions pointed out in the text above. The law will generally be found to be much more reasonable than the reasoning of courts upon it. A man can often see a just conclusion without being able to give a good reason for it. 2 The text expressly applies to contract rights. Otherwise it would be incorrect, because a corporation at the same time the act of the corporation may make it liable for a tort done in carrying on the corporation's business. Such is one mistaken meaning given to the words. ultra vires. Its true meaning is an act beyond the powers of a corporation, because the act is not within the corporate power, such a power not being granted to the corporation, although the act is innocent in itself. The reason for not enforcing such an act is merely one for the protection of the corporation or the state. But if it be for the interest of the corporation to enforce it, or if it would be unjust to other persons not to do so, the corporation in the first case, and the state in either case, can feel no necessity for opposing a mere rule of convenience against the manifest dictates of justice. In the case of acts expressly contrary to law this consideration does not apply, because the statute or rule of law is general, and no court could make itself a party to the enforcement of such an agreement without abdicating its function of administering the law. Therefore as to the latter kind of acts it is properly said that they cannot be made the basis of an estoppel on behalf of or against the corporation, where such an estoppel goes in affirmance of the contract. But the other kind of an act, which is purely ultra vires or beyond the corporate power, but otherwise innocent, may become the basis of contract rights both in favor of and against the corporation. In is responsible for its torts. National 3 Central Transp. Co. v. Pullman's Car Co., 139 U. S. 24, 55 et seq. But all the cases recognize the right to recover in quasi-contract, on a quantum meruit, or for money had and received. See White v. Franklin Bank, 39 Mass. 181; Oneida Bank v. Ontario Bank, 21 N. Y. 490. Some cases which seem exceptions are not really so. Thus, a forbidden loan to a director may be recovered in a suit on the note. But the note is treated simply as evidence of the loan. And the law being for the protection of the bank, it is not in pari delicto with the person who wrongfully obtained the loan, and a recovery is permitted under the rule in § 27, ante. 4 Union Trust Co. v. Illinois Midland Co., 117 U. S. 434; Bank v. Matthews, 98 U. S. 621; Volz v. National Bank, 158 Ill. 532; Anderson v. First Nat. Bank. 67 N. W. R. any case a recovery may be had in quasi-contract, where the contract has been even fully performed on one side,3 and even though there be nothing to show that the parties were not equally culpable. Herein the rule applied to the suit on a contract merely ultra vires, but otherwise innocent, differs toto coelo from a suit upon a contract positively illegal. In the last section it appeared that the latter kind of a contract would not be enforced, but quasicontract lay for a benefit that would be wrongly retained, provided the parties were not in pari delicto. But as to a contract purely ultra vires, the contract itself may be enforced, where the result of its non-enforcement will be to perpetrate a legal wrong. This matter is of the greatest importance in questions of ratification, and here too a distinction must be made. If the agent's act, which is sometimes also called ultra vires because it is not within the scope of the agent's authority, is within the power of the corporation, the corporation may always ratify it. But if the act is one not within the agent's authority because it is denied to the corporation by reason of the fact that it is contrary to an express rule of law, such an act cannot of course be ratified so as to create a contract. If the act be purely ultra vires 821; First Nat. Bank v. Smith, 65 N. W. R. 437; Ayres Co. v. Dorsey 'Co., 70 N. W. R. 111: Town Council v. Union Nat. Bank, 22 S. R. 291; Cameron v. First Nat. Bank, 34 S. W. R. 178; Utica Ins. Co. v. Scott, 19 Johns. 1; Barrow v. Bank of La., 2 La. Ann. 453; Mt. Vernon Bank v. Porter, 52 Mo. App. 244; Sioux Falls Bank v. First Nat. Bank, 6 Dak. 113; Northern Bank v. Zipp, 28 Ill. 180; Foster v. Essex Bank, 17 Mass. 479; Safford v. Wyckoff, 4 Hill, 472; Tootle v. First Nat. Bank, 6 Wash. 181; Smith v. Philadelphia Bank, 34 Leg. Int. 86; Williams v. American Nat. Bank, 85 Fed. R. 376. Bridge, 131 U. S. 371, 389; Whitney 6 Compare § 25, ante, and Louisiana v. Wood, 102 U. S. 294. 7 Ridgway Co. v. McCarthay, 96 U. S. 258, 267; San Antonio v. Mehaffy, 96 U. S. 312, 315; Whitney Arms Co. v. Barlow, 63 N. Y. 62. This last case contains the best statement of the principle in any 5 Pittsburgh Ry. Co. v. Keokuk of the decisions. |