HARDIN, ISAAC N.— .... Observations on the Illinois Decisions Affecting Proprietary Rights HARKER, OLIVER A.— The Illinois Educational Charter Under Special Charter.... 540 Observations on the Illinois Decisions Affecting Proprietary Rights The Hague Convention of 1912 relating to Bills of Exchange and The Present Status of the Illinois Law Governing Marriage and Shall the Standard Law Course Be Extended to Four Years..... 351 MILLAR, ROBERT W.- The Illinois Criminal Decisions for 1915-16: a Comment on Pro- 327 MILLARD, EVERETT L.- Present Legal Aspect of the Billboard Problem........... 29 ROGERS, W. P.— A Review of Some of the World Court Decisions.... 91 ROSENBAUM, SAMUEL.- Chancery Chambers in England Today...... 18 ROWE, WILLIAM V.- Legal Clinics and Better Trained Lawyers-A Necessity.... 591 Law Reform.. 402 Legislative and Judicial Tendencies in the Field of Criminal Law 69 The period of unlimited destructive criticism with regard to corporations may be regarded as about ended. It is time for reconstruction. The public policy of every state favors the creation of corporations. Since this is so it is desirable from every point of view that they should be created and supported in such a way that they can transact their business efficiently. This is obvious. It should also be obvious that all penalties imposed upon corporations, for exceeding their powers or failing to comply with the necessary technicalities of the various laws which govern them, should be made to fall equitably-so that while accomplishing the end sought they do not jeopardize the progress of general business. But under the pressure of a vague adverse public opinion the decisions. of our courts have introduced a confusion of ideas-due to the fact that in seeking to correct certain well established evils, sweeping penalties have been held to exist, which have fallen in ways highly unjust to the public as well as to the corporations themselves; unfair weapons have been put into the hands of unscrupulous parties; the courts have been burdened with technical questions in an increasing degree; and the resulting economic waste is enor mous. 1. Of the Chicago Bar and Lecturer on Illinois Law in Northwestern University Law School. TINKYKA With these general principles in mind it is the purpose of this paper to discuss the present condition of the law of corporations with regard to three of its important phases, to point out how certain clear ideals of the common law have been practically abandoned, and to suggest statutory remedies. These three phases of the law relate to the doctrine of ultra vires, of de facto corporations and of foreign corporations. They are closely related because in each subject the present state of the law is largely the result of attempts in detail to apply the common law doctrine of collateral attack. How successful this application has been will appear in the discussion. Ultra Vires.-The law of this state with respect to ultra vires contracts has undergone an unfortunate experience and is still extremely difficult to apply. The early doctrine is represented by the leading case of Bradley v. Ballard. This was a bill in equity brought by a stockholder of the North Star Gold & Silver Mining Company to enjoin the prosecution of a suit pending in the Circuit Court against this corporation upon certain promissory notes which had been given by the company, and to cancel other notes upon which no suit had been brought. The corporation was organized under the laws of Illinois and its charter stated that its operations would be carried on in the City of Chicago, but as a matter of fact the corporation was engaged in mining in Colorado and for that purpose borrowed large sums of money for which the notes had been given. It was not claimed that there had not been given full and fair consideration for the notes, but their cancellation was sought upon the ground that they were given for money borrowed to enable the company to prosecute a business which it had no power to prosecute. Conceding that the corporation had no power to engage in mining in Colorado, the court nevertheless dismissed the bill on the ground that the contracts represented by the notes had been completely executed on one side by the payment of the money and that, when a corporation seeks thus to evade the payment of borrowed money, "It is pressing the doctrine of ultra vires to an extent that can never be tolerated, even though the lender of the money knew that the corporation was transacting a business beyond its chartered powers, and that his money would be used in such business, provided the business itself was free from any intrinsic immorality or illegality." The court further held that the doctrine of ultra vires is applied only for the purpose of compelling corporations to be honest in the simplest and commonest sense of honesty; yet that while the contract remains executory, the powers of corporations cannot be extended beyond their proper limitations for the purpose of enforcing such contract, and on the application of a stockholder a court of chancery would interfere and forbid the execution of such a contract. "That while courts are inclined to maintain with vigor limitations of corporate action, whenever it is a question of restraining the corporation in advance from passing beyond the boundaries of their charters, they are equally inclined, on the other hand, to enforce against them contracts, though ultra vires, of which they have received the benefit. This is demanded by the plainest principles of justice." The opinion in this case appeals to one's sense of justice, but it does not represent the law today. For in the subsequent case of National Home Building Assn. v. Bank,3 the theory of strictly ultra vires acts as distinguished from acts in abuse of power was established and has since prevailed. The National Home Building case was foreclosure. The building association had acquired real estate subject to a mortgage which it assumed and agreed to pay. In this foreclosure case a deficiency decree was sought against the association and it defended on the ground that under its charter it had no power to acquire any land except such as had been mortgaged to it or in which it had an interest and that since the property in question was not of this character its acquisition of such property was beyond its powers and its agreement to pay the mortgage therefore void. The court sustained the Building Association in its defensea result which seems highly inequitable. For if the property had turned out to be valuable, there is no rule of law by which the corporation could have been deprived of the profit thus acquired. It is true that the state might compel the sale of such property, but it could not require its confiscation. Thus a material part of the contract by which it acquired this property was set aside by the court with the result that the person who sold the property to the corporation and had put the mortgage upon it was probably held liable on this deficiency decree instead of the corporation. There is a line of cases relating to the contracts of insurance made by mutual benefit associations which illustrate the inequities of this doctrine in a marked degree. In Rockhold v. Canton Mas. 3. 181 Ill. 35. Mut. Ben. Society, suit was brought upon an insurance policy issued to one of the members of the society by which the society agreed to pay a certain sum when such member should reach the age of seventy. All the premiums had been paid upon this policy in full over a period of eleven years. The beneficiary had arrived at the age of seventy and sued to recover the amount of the policy. The corporation defended on the ground that it was organized for the benefit of "widows, relatives, heirs and devisees of deceased members" and had no power to make a policy by which it agreed to pay a certain sum to a living person. This defense prevailed. 6 In Benefit Association v. Blue, and in Wood v. Mystic Circle (cases similar to the Rockhold case) a recovery was allowed because although the insurance policies in question were issued to persons not possible within the provisions of the by-laws, there was nothing within the charter of the corporation to prevent the contract of insurance from being valid. But in Steele v. Fraternal Tribunes," the certificate of organization prohibited the corporation from taking in a member over 51 years of age, and hence, although the officers knew that the plaintiff was over 51 when the insurance policy was taken out, the defense prevailed. And there are at least ten other cases in the Supreme and Appellate Courts where these same questions have been involved and insurance policies held valid or invalid according to whether they were technically authorized by the provisions of the charter. Two other interesting illustrations may be taken from the decisions of the Appellate Court: In Chicago Pneumatic Tool Co. v. V. H. W. Jones Mfg. Co. a suit was brought against the Tool Co. for the price of certain mica washers which the corporation defendant had agreed to purchase. The defense was that the contract was beyond its corporate powers and the Appellate Court reversed a judgment for the plaintiff because the trial court had not allowed evidence to be introduced to show that mica washers could not be used by the defendant in its business of making tools. In the subsequent case of Chicago Pneumatic Tool Co. v. Munsell, the court held that the same defense could not prevail because, since the corporation could buy mica washers for some purpose (as for example in building a factory or erecting machinery), the defense 4. 129 Ill. 440. 5. 120 Ill. 21. 7. 215 Ill. 190. |