above the river, a public highway, he was rightfully there, he may recover. Which alternative was the court to choose? It did choose the more liberal one, 82 although with so strong a dissent as to show that the choice was far from inevitable. A like liberal view was taken in an earlier case where at night responding to an alarm a fireman enters a private alley used to deliver goods to the premises and falls into an unlighted and unguarded hole. 83 Was he a trespasser or licensee so that no affirmative care was due him? Clearly he was not a trespasser. But was he there by the implied invitation of the owner? The court, against the weight of authority in this country, thought that he was. In any event, he was more than a bare licensee. He entered the property as of right, over a way prepared as a means of access for those entitled to enter.

In England, it is held that there is no duty to use any care whatever in making oral statements in the way of business or otherwise, on which other persons are likely to act.84 A contrary rule was foreshadowed here, 85 but now it has been decided that the relations between the parties may be such as to make one liable for a negligent reply to the enquiry of another. 86

Does malice ever make an act otherwise lawful, unlawful? If the motive is unjustifiable, if the only purpose is to injure another, is the act wrongful? The tendency seems to be to hold that it is although this may be doubtful.87 But at least this is true. Where one has a contract with another, a third party having knowledge of such contract may not induce him to break it intentionally and without reasonable justification.88

.90

Other matters have been discussed. The duty of a railroad to an intoxicated passenger;89 of a sleeping car company as to the property of passengers; damages in libel actions, and in actions against innkeepers;92 statutes and ordinances and whether they give a cause of action against an individual;93 the rule of respondeat superior as

82 Hynes v. R. R., 231 N. Y. 229, 131 N. E. 898 (1921).

83 Meiers v. Koch Brewery, 229 N. Y. 10, 127 N. E. 491 (1920).

84Fish v. Kilby, 17 C. B. (N. s.) 194 (1864).

85 Bush Terminal Co. v. Ins. Co., 228 N. Y. 575, 127 N. E. 909 (1920); Glanzer

v. Shepard, 233 N. Y. 236, 135 N. E. 275 (1922).

86 International Products Co. v. R. R., 244 N. Y. 331 (1927).

87 Beardsley v. Kilmer, 236 N. Y. 80, 140 N. E. 203 (1923).

88 Lamb v. Cheney, 227 N. Y. 418, 125 N. E. 817 (1919); Campbell v. Gates, 236 N. Y. 457, 141 N. É. 914 (1923).

89Fagan v. R. R. 220 N. Y. 301, 115 N. E. 704 (1917).

90Goldstein v. Pullman Co., 220 N. Y. 549, 116 N. E. 376 (1917).

91 Den Norske v. The Sun, 226 N. Y. 1, 122 N. E. 463 (1919).

92 Boyce v. The Hotel, 228 N. Y. 106, 126 N. E. 647 (1920).

93 Karpeles v. Heine, 227 N. Y. 74, 124 N. E. 101 (1919); Martin v. Herzog, 228 N. Y. 164, 126 N. E. 814 (1920); Ward v. R. R., 230 N. Y. 230, 129 N. È. 886 (1921); Di Caprio v. R. R., 231 N. Y. 94, 131 N. Ē. 746 (1921); Brown v. Shyne, 242 N. Y. 176, 151 N. E. 197 (1926).

94

95

applied to hospitals; and as to proximate cause; again not all showing changes in existing rules, but indicating where changes may be expected.

And so I end as I began. Changes come. Whether all or some or none result in progress, in greater justice on the whole, only the future may decide. But whether or no, change is inevitable. New needs must be recognized. I repeat, however, that I speak but for myself. If cases have been misinterpreted or the purposes of the court misunderstood, mine alone is the fault. To me, however, it is certain, viewing these decisions, that the tendency of the Court of Appeals in recent years has been toward greater liberality. There has been less regard to mere technicalities either of substance or procedure. There has been a desire to make the law require fair dealing and honesty and equity. At the same time, there has been restraint. There has been refusal to write new rules just because of logical consistency. The thought may be, in the middle path lies safety.

"Phillips v. The Hospital, 239 N. Y. 188, 146 N. E. 199 (1924).

Donelly v. Contracting Co., 222 N. Y. 210, 118 N. É. 605 (1918); Bird v. Ins. Co., 224 N. Y. 47, 120 N. E. 86 (1918).

Vires Doctrine

HENRY WINTHROP BALLANTINE*

The doctrine of ultra vires had its origin in judicial deduction from the fictional conception of corporations as artificial persons, creatures of the law, which have no existence, powers or capacity except those granted by statute. Hence a contract made in the name of the corporation for purposes not included in the articles, although by authority of all the directors, and even with the consent of all the stockholders, has been held by some courts not to be attributable to the corporation at all. The doctrine was not originated to accomplish in scientific fashion the just protection of the legitimate interests and expectations of the various parties concerned, such as the security of third persons in their dealings with corporate representatives, but "having been once created, it is now probably saddled onto the backs of the courts, like Sinbad's Old Man of the Sea, not to be shaken off." The Committee on a Uniform Incorporation Act in its report to the Commissioners on Uniform State Laws in 1924 included a provision, Section seven, as to the effect of ultra vires acts. This ninth tentative draft of a uniform incorporation act was the first to contain any provision with respect to the subject of ultra vires. Since there is no other topic as to which the law is in a more unsatisfactory or confused condition, it has seemed to the Committee and its draftsman, Professor R. S. Stevens of Cornell, that the opportunity of establishing uniformity in this field ought not to be lost. Section seven of the ninth tentative draft reads as follows:

"Section 7. Corporate Capacity and Authority. Subdivision I. Every corporation formed under this Act shall be a body politic and shall be deemed to have the general capacities of a natural person, provided, however, that the limits of permissible corporate action shall be those defined and restricted by the articles of incorporation and amendments thereof, and by the provisions of this Act and of the other laws and the Constitution of this State.

Sub-division III. If any acts shall have been done by a corporation in excess of its powers, the corporation's lack of power

*Professor of Law, School of Jurisprudence, Univ. of California.

1(1878) 6 CENT. L. J. 2; Carpenter, Should the Doctrine of Ultra Vires Be Discarded? (1923) 33 YALE L. J. 49; Scarborough, Ultra Vires No Defence in Private Contract (1923) 11 KY. L. J. 197.

to do such act shall not be inquired into collaterally, provided that the act is one that the corporation might, at the time the act was committed, have been formed under this Act with power to do. Any action by a corporation in excess of its powers may be enjoined at the suit of any shareholder. The commission by a corporation of any act in excess of its corporate powers shall be a ground for the forfeiture of the corporate existence at the suit of the State, and the directors or officers engaging in such unauthorized corporate action shall be liable to the corporation for any damage suffered thereby in a suit by it, or by a shareholder in case it will not or cannot sue therefor."

The tenth draft, Section nine, to be presented to the National Conference in August, 1927, now reads as follows:2

"Section 9. Corporate Capacity and Corporate Authority Distinguished.

1. A corporation which has been formed under this Act, or a corporation existing at the time this Act took effect and of a class which might be formed under this Act, shall have the capacity to act possessed by natural persons, but such a corporation shall have authority to perform only such acts as are necessary or proper to accomplish its purposes and which are not repugnant to law."

The companion section on constructive notice is Section eight, "Purpose of Requiring Certain Papers to be Filed." This now reads as follows:

"The filing of articles of incorporation, or amendments thereto, and of any other papers, pursuant to the provisions of this Act, shall not charge persons who deal with a corporation with notice of the contents thereof."

Since the Committee desires all the cooperation it can get to make the proposed Uniform Act meet the proper demands of present day business, a few comments will be submitted without any attempt to discuss the authorities. The effort to restore the law to realism on this subject is certainly a timely and courageous one and deserves vigorous support. The main criticism that suggests itself as to the proposed draft is that it fails to go far enough in indicating what practical legal consequences and changes are intended to be produced. It attempts to repeal an artificial theory or premise, that of limited capacity or powers, and to establish a theory of general capacity or powers. It provides that the corporation shall have authority only to act for the accomplishment of its corporate purposes, but fails to show for whose benefit the limitations upon such authority are

2See Stevens, A Proposal as to The Codification and Restatement of the Ultra Vires Doctrine (1927) 36 YALE L. J. 321, 328 for original language of the com

mittee.

imposed, or who can raise the question of lack of authority and when. What are the differences between limited capacity and limited authority to act? Will the establishment of the doctrine of general capacity destroy the doctrine of ultra vires in whole or in part? May executory or partly executed contracts be collaterally attacked by either party?

The theory of the draftsman evidently is that if we wipe out the two false premises of limited capacity and constructive notice we shall leave the courts sufficiently free so that they can work out for themselves a reasonable and uniform doctrine of ultra vires without statutory guidance other than that which might be furnished by a restatement of the law by the American Law Institute.3

It is, in brief, the view of the present writer that the law on this topic cannot be expressed in terms of capacity or incapacity. It is equally a fiction to say that a corporation has certain powers only, or all the powers of an individual. The question remains, by what principle or rule is it possible to ascertain whether a transaction is to be attributed to the corporation? Neither in a practical sense is it a question of the "authority" of the corporation, but rather of the authority of the directors to bind the corporation with or without the consent of the stockholders. The corporation by legal fiction is deemed to have certain powers, but a corporation can act only by having the acts of officers and agents ascribed to it. The practical question then is not what power or capacity or authority has the state granted to an imaginary person, but rather what authority has the group of stockholders granted to their representatives, the directors, to do business on their behalf.

The result is that in general the objects and purposes clause of the articles should operate simply like by-laws or articles of partnership, as limitations on the actual authority of the directors and officers to bind the corporation, but not upon their ostensible or apparent authority, unless reasonably to be inferred or actually known. Their ostensible authority to bind the corporation would then depend upon the nature of the business, banking, insurance, etc., according to the actual course in which it is carried on by similar concerns, or by that concern, very much as in the case of partnerships.

3Ibid. 297, 300.

'See Uniform Partnership Act, § 9. The act of every partner for apparently carrying on in the usual way the business of the partnership binds the partnership unless the partner so acting has in fact no authority so to act, and the person with whom he is dealing has knowledge of the fact that he has no such authority. No act of a partner in contravention of a restriction on his authority shall bind the partnership to persons having knowledge of the restriction. No act in contravention of any agreement between the partners may be done rightfully without the consent of all. § 18(h). See Rianhard v. Hovey, 13 Ohio 300 (1844).