§ 4. Corporations.

A corporation is an artificial person created by law. Hence

the limitations to the capacity of a corporation for entering

into a contract may be divided into necessary and express.

The very nature of a corporation imposes some necessary 1. Neces-

restrictions upon its contiactaal power, and the terms of its Hs^^n*!

incorporation may impose others. tractual

. . . . capacity.

A corporation is an artificial entity, apart from the persons

who compose it; their corporate rights and liabilities are

something distinct from their individual rights and liabilities,

and they do not of themselves constitute the corporation, but

are only its members for the time being. Since then a cor- Must con-

poration has this ideal existence apart from its members, it ^oug]^ ^

follows that it cannot personally enter into contracts, it must ^ent.

Ill !• ^ • • T^cr Lord

contract by means of an a^ent. It ^cannot act m its own caimsinFer.

* o ifuson V. Wil-

person, for it has no person.' chl'^ ^' '

And the Common Law rule that a corporation can only Cannot

contract under seal puts this further limit upon its contractual ^^^^ ^^^

powers, that it cannot as a rule make negotiable instruments, stmments.

For by the law merchant an instrument under seal is not

negotiable, and therefore, unless the making of bills of ex-

chaxige and promissory notes be part of the ordinary business

234-

Iia rOBMATION OF CONTRACT. Part If.

of a trading corporation^ they cannot be made by these artificial

persons.

2. Express The express limitations upon the capacity of corporate bodies

limitations. , . -i j-l x i? j t. • • - •

must vary m every case by the terms of their incorporation.

Much has been and still may be said as to the effect of these

terms in limiting the contractual powers of corporations, but

it is not a part of the objects of this book to discuss the

i^R. 7, H. L. jjQ^|;j.ijjg Qf < Ultra vires.' The question whether the terms

of incorporation are the measure of the contracting powers of

the corporation, or whether they are merely prohibitory of

contracts which are inconsistent with them, was discussed in

the much litigated case of the AshJbury Carriage Convpany v.

RichSy and the question was thus stated and answered by

inExch.ch. Blackburn, J. : —

L. R. 9. Exch. '

'I take it that the true rule of law is, that a corporation

at Common Law has, as an incident given by law, the same

power to contract, and subject to the same restrictions, that

a natural person has. And this is important when we come

to construe the statutes creating a corporation. For if it

were true that a corporation at Common Law has a capacity

to contract to the extent given it by the instrument creating it

cmd no farther ^ the question would be. Does the statute

creating the corporation by express provision or necessary

implication show an intention in the legislature to confer

upon this corporation capacity to make the contract ? But

if a body corporate has, as incident to it, a general capacity

to control, the question is. Does the statute creating the

corporation by express provision or necessary implication

show an intention in the legislature to prohibit, and so avoid

the making of a contract of this particular kind T

The House of Lords appear not to have dissented from the

view of the general powers of corporations expressed by

Blackburn, J., but they differed from him and overruled his

judgment upon the interpretation of the statute under con-

sideration ; holding that a company incorporated under the

Chap. III. §5- LUNATIC AND DRUNKEN PERSONS. II3

Companies Act of 1862 is so far bound by the terms of its

memorandum of association that it may make no contracts

which are either inconsistent with or foreign to the objects

expressed in that memorandum.

A contract made ultra vires is void ; it is sometimes said Contracts

to be void on the ground of illegality, but Lord Cairns in not'void for

the case above cited takes exception to this use of the term [^legality,

. . °^^ for '""

* illegality/ pointing out that it is not the objects of the capacity.

contracting parties, but the incapacity of one of them, that

avoids the contract.