ULTRA-VIRES CONTRACTS. Ultra-vires contracts of corporations should be distinguished from those which are illegal either by statute or some rule of the common law. Strictly an ultra-vi.res contract of a corporation is without legal valid ity to bind the corporation because the act is without o• beyond the legal powers of the cor poration, and therefore has no legal existence. Illegal contracts, on the other hand, are without such validity because of the positive prohibition of such contracts by the statute or common law on grounds of public policy. This distinction is important because of the difference in the conse quences which flow respectively from vltra-vircs contracts and illegal contracts of corporations. (For a fuller discussion of this subject, see QUASI CONTRACTS.) It is held by the English courts, by the Federal courts of the United States, and by the courts of some of the States that neither party to an ultra-rires contract can acquire any true contract rights under it. In each of these courts, except the English courts, it is also held that in case either party has given his perform ance under such a contract. he may recover the property or thing so given in an appropriate action, or the value of the performance so given, on theory of quasi contract. The distinction between rights on the contract and in quasi con tract in ease of ultra-rires contracts is often of the greatest importance.
The second view with reference to ultra rires contracts. and the one which is held
in most of the States. is that so long as such contracts remain executory neither party to the contract acquires any rights un der it, it being a complete answer to an ac tion brought by either party either for damages or specific performance that the contract is in valid because ultra rires. lf, however. either party has performed the contract on his part, the other is held to be estoppel to deny- its validity, and the plaintiff may recover as though the contract were originally valid. The applica tion of the doctrine of estoppel to such cases is anomalous and in many eases practically does away with the doctrine of ultra wires. In the ease of negotiable paper issued ultra rircs by a corporation, it is everywhere held that ultra Fires is a personal and not a real defense (see NEGOTIABLE INSTRUMENTS), and cannot he set up against a bone fide purchaser for valve. al though it may he a valid defense against the original taker or holder of the paper. In de termining what contracts are nitro rites, the courts have applied liberal rules of interpreta tion, holding not only that contracts expressly authorized were within the powers of the cor poration. but that it has all the power to con tract which can fairly be implied from the language of its charter and from the character of the business which it is authorized to con duct.