They

the agent of his associates; their powers are undelegated. are the legal owners of the capital, or estate, and they have capacity to deal with it in contravention of duty or trust.

But the equitable rights of shareholders will enable them,in many circumstances to claim the affirmative interposition of the courts, to arrest an unauthorized course of dealing, or to prevent a threatened diversion of the capital to improper uses. Of this character are many of the cases usually cited, to prove that corporations cannot exceed their powers. Dodge v. Wolsey, 18 How. (U.S.) 331; Rolf v. Rogers, 3 Paige, 154; Angell & Ames on Corp. 424, 4th ed., and cases cited. So, too, it is plain, without citing authority, that a stockholder, who can show that he has sustuined a pecuniary loss by such a use of the capital, may have his redress in damages against the individuals who commit the wrong, unless he has himself acquiesced. These are extensive, and, it would seem, ample remedies, to prevent or redress the abuse of power; and it appears to me a much higher and better policy, that the private shareholders should be confined to these remedies, than to sacrifice the interests of the rest of the community, by conceding to these bodies absolute immunity, whenever power is thus abused.

But the principles which belong to this question need not present that naked alternative. In many cases, no injustice will be done by receiving the plea of ultra vires, when defensively interposed by the corporation itself. But these are cases where a want of good faith can be imputed to the dealer, and where the defence, if allowed, will leave the parties substantially in the enjoyment of their previous rights. An artificial, not less than a natural person, having the title and possession of an estate which in equity, belongs to others, and entering into engagements inconsistent with duty or trust, should have a locus penitentoe, where it can be allowed without manifest wrong to others. It may be difficult to lay down a rule so general and so exact as to include every case; but the principles and analogies of the law will be sufficient for the solution of such questions as they arise. Justice, not only in this, but in very many other cases of constant occurrence, can be administered according to law, if I have succeeded in showing, negatively, that a comparison of the charter of a corporation with what it actually does, is not always the test of liability.

It is said that there will be no restraint upon the acts and dealings of corporate bodies if we uphold them when in excess of rightful authority. To this I answer, that the most ample restraints will be found in the principles here advocated; while, on the other hand, if we concede to corporations immunity in all cases, when they do wrong, we invite and reward the very abuse. It is also

said, in order to render this doctrine less offensive to the reason and conscience, that the innocent dealer may, upon the voidness of the contract and a disaffirmance of it, recover back the value or consideration with which he has parted. This position necessarily concedes that the corporation, as a legal person, made the unauthorized contract, and received the money, or value, under and according to it; thus overthrowing the main objection to its liability to respond directly upon the contract. It also concedes the innocence of the other contracting party; thus, according to all the analogies of the law, refuting the only other objection (illegality) on which the absolute invalidity of such dealings is claimed to rest: for, surely, after conceeding that the corporation actually made the contract, it will not be contended that it can set up, that it ought not to have made it, against an innocent person, who has given up his money or property on the faith of the same contract. But I answer, further, that while in many cases the remedy of a suit in disaffirmance of the agreement, and to recover back the consideration, will be sufficient to prevent wrong, in many others it will be entirely worthless. All collateral securities must fall to the ground with the principal contract, and all its consequences and results. The present case will afford the best illustration. The defendants, in consideration of a trifling sum received from the plaintiff for fare, agreed to perform the service of carrying him in their cars, perhaps some two hundred miles. By the negligent performance of that agreement, they inflicted on him injuries for which a jury has said the proper compensation was $2,500. This being the measure of damages for the breach of the contract, the absurdity, not less than the injustice, of confining him to the remedy of dissaffirmance, because the agreement was ultra vires, must be quite apparent.

I have examined these questions with the more attention, because, aside from their bearing on the present controversy, they are of great practical importance. A vast amount of the business of the community has come to be carried on under corporate forms of organization; besides innumerable special charters, we have general laws, which impart corporate attributes to associations formed according to articles of agreement, for a great variety of purposes. When we consider these to be any less than partnerships, with the superadded privileges of succession, of a corporate seal, etc., we forget that corporations are no longer confined to the exercise of public or political franchises. These commercial, manufacturing, and trading bodies are brought into relation with almost every member of the community; and I think it greatly to be desired, that, in laying down the rules of law which are to govern in such relations, we should avoid a

system of destructive technicalities. Those rules should be founded in the principles of justice which are recognized in other and analogous dealings among men.

If we could find the law to be settled in the manner which must be, and is contended for, in order to exonerate the defendants in this case from responsibility, it would be our duty to follow it; but such is not the case. There are, certainly judicial opinions, and some adjudged cases, which countenance the extreme doctrines on which the defence must rest. Among these cases, a leading one is Hood v. New York & New Haven Railroad Company, 22 Conn. 502. That case appears to go the length of holding that corporations cannot, and never do, perform acts in excess of their powers. No authority was cited for such a proposition, and it cannot, as I think I have shown, be maintained. Another extreme authority is Pearce v. Madison and Indianapolis Railroad Company' 21 How. (U.S.) 442, where it appeared that a cororpation, in furtherence of its general objects, although, strictly speaking in excess of its powers had entered into an engagement, upon a consideration which it had received and appropriated; it was allowed to repudiate that engagement; but the principles of the question were not much discussed. A considerable number of other cases and dicta, of a character less marked, but tending in the same direction, might be referred to.

But, on the other hand, there are well considered authorities which sustain the principles advocated in this opinion. Steam Navigation Co. v. Weed, 17 Barb. 378; Silver Lake Bank v. North, 4 Johns. Ch. 370; Chester Glass Co. v. Dewey, 16 Mass. 94, 102; Bank of Genesee v. Patchin Bank, 13 N. Y. 309, 314; Bulkley v. Derby Fishing Co., 2 Conn. 252, 255; Parker v, Boston and Maine R. R., 3 Cush. 107, 108; Alleghany City v. McClurkan et al., 14 Penn. St. 83. In the case from 2d Connecticut, it was said: "A corporate body, by transgressing the limits of its charter, may doubtless incur a forfeiture of its privileges and powers, but whovever imagined that it could thus acquire immunity, to the prejudice of third persons?" It will be found, indeed, that such a doctrine is of very modern origin.

In the case from the 14th Pennsylvania, Coulter, J., observed: "It is not universally true, that a corporation cannot bind the corporators beyond what is expressly authorized in the charter. There is a power to contract, undoubtedly; and if a series of contracts have been made, openly and palpably within the knowledge of the corporators, the public have a right to presume that they are within the scope of the authority granted. A bank, which has been long in the habit of doing business of a particular description, would not be exonerated from liability because such

business was not expressly authorized in its charter. The object of all law is, to promote justice and honest dealing, when that can be done without violating principle. I cannot perceive that any principle is violated, by holding a corporation liable for the acts of its accredited agents, even not expressly authorized, when these contracts for a series of times were entered into publicly and in such a manner as, by necessary and irresistible implication to be within the knowledge of the corporators." "One rule of law," he adds, "is often met and counterchecked by another of equal force, so that, although the corporators are, in general, protected from unauthorized acts of their agents, yet at the same time, a rule of equal force requires that they should not deceive the public or lead them to trust and confide in the unauthorized acts of their agents. If they receive the avails and value of those acts, it is implicit evidence that they consented to and authorized them." A more particular discussion of the authorities on either side, would not be profitable. The general question is one which ought to be considered on principle; and I have so viewed it, because I find no settled rule which stands in the way of such an examination.

But little more need be said in reference to the particular case now before us. If the defendants did not become liable for the breach of their undertaking to carry the plaintiff, or of their duty resulting from that undertaking, I can see no ground for holding them accountable as simple wrongdoers. If their contract was ultra vires, and that defence to an action upon it must be received as absolute and peremptory,-if no principle of estoppel or rule of justice can be urged against that defence,-then it is more clear, that the simple wrong to the plaintiff's person was also ultra vires. It was with considerable difficulty that the liability of a corporation in any case for a pure tort was ever established; and they are never so liable, except when engaged in the performance of some duty or undertaking in respect to which accountability arises. If the defendants' express undertaking was absolutely void, so that no duty could arise thereupon, the implied undertaking, resulting from the actual attempt to carry the plaintiff as a passenger, is encountered by the same objection; and there is nothing left of the transaction, except a pure and simple tort, committed by the defendants' servants, while not engaged in any business which could bring responsibilities upon the defendants themselves. I think it plain, that this theory of liability will not sustain the plaintiff's case.

But I have no hesitation in affirming the judgment of the court below, upon the principles of contract, and of duty resulting therefrom. That the entire course of business in which the defendants were engaged could not be justified by their charters, I

am not prepared to deny. Each of them was chartered to build a railroad, the termini of which were specified; they built the roads, and then consolidated their business, The common interest might thus be promoted; but it is difficult to affirm, that the charter of either authorized its capital to be thus blended with that of the other; it is equally difficult to hold, that they had any rightful authority to construct or lease another road in continuation of the line. But these things were actually done, and they were done openly and publicly. If these acts were an abuse of power, the shareholders had ample opportunity to prevent or arrest the abuse; but no complaint from them has ever been heard, and their acquiescence must be presumed. If State sovereignties were wronged by the course of dealing pursued, no interference or complaint has come from that quarter. Conceding, then, that the defendants might change the attitude in which they stood toward the public and return at any time to the sphere of legitimate duty, they could not revoke past contracts, the consideration of which they had received, and upon the performance of which they had entered. They were bound to pay their servants and laborers, and they were liable for the careful transportation of freight committed to their charge. They could not invite a traveler into their cars, and, after injuring him by their negligance, reject the responsibilities of their contract. A traveller from New York to the Mississippi can hardly be required to furnish himself with the charters of all the railroads on his route, or to study a treatise on the law of corporations. The present case, in short, plainly falls within the principles of corporate liability herein asserted and the defendants must respond to that liability. The judgment should be affirmed.

RABE V. DUNLAP.

NEW JERSEY COURT OF CHANCERY, 1893.

(25 Atl. Rep. 959.)

Rights of Stockholders- Relief Against Ultra Vires Acts.Laches.

Van Fleet, V. C.: This is an application for an injunction. The application is resisted on the ground that the complainants have, by their laches, lost all right to either temporary or permanent relief; the contention being that they are not entitled