116. Ultra Vires Acts. A corporation by its charter is granted certain privileges. It has a right to act within the terms of its charter, but no right to go beyond the terms of its charter. If it performs acts beyond the terms of its charter these acts are said to be ultra vires. This does not mean that all the acts which may be performed by a corporation must expressly be enumerated in its charter. Corporations are created for certain purposes. They are permitted to perform all the acts necessary, and incidental to the purpose of their organization. The general laws under which a corporation is created are a part of its charter. A corporation organized to do a general banking business has no authority to sign bonds as surety for persons or corporations. Attempts to perform such acts of suretyship are beyond their power, and are ultra vires. Ultra vires acts are unlawful, and a single stockholder may prevent, by legal action, the officers of a corporation from completing an ultra vires contract. Third persons are deemed to have notice of the limitation of the powers of a corporation. They are not permitted to act in such a manner as to benefit by ultra vires acts, and then escape liability on the ground that the obligation is ultra vires. If an ultra vires contract is wholly executory on both sides, neither party can enforce it, if the other party complains by reason thereof. But one cannot accept benefits thereunder, and refuse to carry out the contract on his part. He is said to be estopped from so doing. The doctrine laid down by the last statement is disputed in some jurisdictions.
117. Rights and Liabilities of a Foreign Corporation. Corporations have no rights, as such, outside of the jurisdiction of the power creating them. A corporation organized under the laws of one state may be excluded from performing any of its corporate functions in another state. States may permit foreign corporations to exercise their function within their borders, if they so desire. But states cannot be compelled to recognize the corporate rights of foreign corporations. While the United States constitution provides that citizens of each state shall be entitled to all the privileges and immunities of citizens of the several states, a corporation is not a citizen within the meaning of this provision. The United States Government may employ or organize corporations to carry out its purposes. Such corporations cannot be denied the right to exercise their functions by any state. For example, the United States Constitution gives Congress the right to regulate commerce with foreign nations, among the several states, and with the Indian tribes. A corporation engaged in interstate commerce cannot be excluded by any state, in the exercise of this function. Outside these governmental agencies, each state has the right to exclude a foreign corporation from exercising any of its corporate functions within their jurisdictions. The states generally provide by statute that foreign corporations may transact business within their territory by filing with the Secretary of State a statement of their capitalization, the amount actually paid in, the nature of their business, and the names of their officers. Then, by paying a certain tax, they are permitted to maintain an office and transact business within the state thus granting them the privilege. The statutes of the various states regulating foreign corporations commonly use the term, "doing business." They prohibit foreign corporations from doing business within their borders unless they comply with their statutes. The term, "doing business," has been held to mean the maintaining an office or place of business, or manufacturing plant within a state, and does not prohibit a foreign corporation from selling goods by traveling salesmen, or from making or suing on contracts.
118. Liability of a Corporation for its Torts and Crimes. A corporation, as well as an individual, may commit torts and crimes. If an agent, acting within the scope of his employment, defrauds another, the corporation is liable in damages for his act. If, however, an officer or agent goes outside his employment, and commits a wrong, it is his own act, and he, personally, and not the corporation, is liable. A corporation, as well as an individual, may commit a crime for which it may be punished. It must, of course, commit the crime through its officers and agents. If a corporation is guilty of criminal negligence in failing to keep its works in repair, and persons are injured thereby, it is subject to indictment and punishment. If a corporation obstructs navigation or breaks the Sabbath, it is subject to criminal action. The usual punishment for the crime of a corporation is the payment of a fine, but the officers of a corporation may be imprisoned as well.
119. Dissolution of Corporations. A corporation continues to exist indefinitely, unless the period of its existence is limited by its charter, unless its charter is revoked by the power that granted it, or unless it voluntarily or by a decree of court ceases business. A corporation may forfeit its right to continue as a corporation, if it abuses its privileges, if it assumes to have powers and rights which it does not have, or if it fails to exercise its corporate functions. The latter is called nonruser. Most states provide by statute that corporations shall not commence business until a certain portion of its capital has been raised. If the corporation violates this provision or any provision of the statutes regulating the completion of its organization, its franchise may be revoked by the state. Most states provide by statute, a means by which a corporation may wind up its affairs. After paying its liabilities the balance of its assets may be divided ratably among its stockholders.
NEGOTIABLE INSTRUMENTS
120. In General. By negotiable instruments are meant those written instruments intended to circulate as money, which by their form and nature are transferred by delivery or by indorsement and delivery. The most common negotiable instruments are promissory notes, drafts and checks. Negotiable instruments are much more commonly and extensively used than money in the transaction of business. Their function is to take the place of money. Their use arose out of the scarcity of currency and facilitates the transaction of business. Their form and nature make them more desirable and practical in many respects than money itself. Negotiable instruments may readily be traced. They may be drawn in any denomination to meet any emergency. They may be indorsed in such a manner that only the person intended by the maker to receive payment can receive payment thereon. Money, on the other hand, has no particular identity. After payment it cannot be traced, nor can mistakes in amount be corrected. If lost, payment thereon cannot be stopped. If found or stolen, its possessor may receive the benefit of it without question. Negotiable instruments were devised to meet a broad and pressing demand. Usage and custom have given them characteristics to meet this demand.
121. Negotiability. Negotiability is the power of a written instrument to circulate as money. To be negotiable, an instrument must contain language of negotiability. The common phrases of negotiability are Pay to the order of, or Pay to bearer. Any draft, promissory note, check, or bill of exchange containing the words, pay to the order of, or pay to bearer are known as negotiable instruments. If a negotiable instrument is made payable to bearer, it is transferable by delivery. The holder of it may pass it like money and the taker is entitled to receive payment of it when it is due. A negotiable instrument payable to the order of a designated person is payable upon the indorsement and delivery of the person to whose order it is made payable. For example, if a check is made payable to the order of John Smith, and John Smith desires to transfer it to John Jones, he writes his name, John Smith, on the back of the check, and delivers the check to John Jones. By this act, John Jones becomes the owner of the check, and may in turn transfer it, or cash it by presenting it to the bank on which it is drawn. If a check is made payable to John Smith or bearer, and if John Smith desires to transfer it to John Jones, he merely hands John Jones the check. No indorsement is necessary.
122. Negotiability Distinguished from Assignability. An ordinary contract or obligation not requiring personal services or discretion may be transferred by oral or written contract of assignment. For example, if B purchases a barrel of flour from A, his grocer, to be paid for in thirty days, A may assign his claim against B to C. This may be accomplished by a verbal agreement to that effect between A and C, or A may give C a written statement to the effect that he has transferred his claim against B to C. When B is notified of this assignment, he is obliged to pay C the money. If for any reason the flour was not accepted by B, or if B has a claim against A, C can recover from B only the amount B owes A. If B owes A nothing, on account of the flour being of poor quality, and not accepted for that reason, or if B has a claim for an equal amount against A, B can set up this defense against C's claim, and C can recover from B only the amount that A could have recovered against B. In other words, in case of an assignment, all defenses that were good against the assignor are good against the assignee. In case of negotiable instruments, however, the transferee who takes the instrument before maturity for value, and without notice of any defenses, has the right to recover the full face value from the maker, regardless of defenses the maker may have against the original payee. In case of assignment, notice must be given the debtor to make the title good in the purchaser. In case of negotiability, no notice to the debtor is necessary.
A negotiable instrument may be assigned. A common example is the delivery for value, of an instrument payable to order without indorsement. The purchaser takes only the rights of a seller.
123. Law Merchant. The law relating to negotiable instruments is said to be based upon the Law Merchant. By the Law Merchant, is meant the rules and customs of merchants relating to bills and notes. At an early time, various rules were recognized by the merchants trading between different countries. Drafts or bills of exchange were given and passed current as money, without notice to the debtor of the transfer. As early as the year 1200, these customs of merchants were recognized in England. At first, they were recognized only in connection with foreign bills of exchange. By foreign bills of exchange are meant bills made or drawn by persons of one country to be paid or accepted by persons of another state or country. Originally, the rules were recognized by merchants only. The courts of England recognized and enforced these rules in actions brought on foreign bills of exchange. Gradually, these rules were recognized and enforced by all the merchants of England. They were applied to inland bills as well as to foreign. Some statutes were passed, notably one making the rules of the Law Merchant apply to promissory notes. This statute compelled the general recognition of the Law Merchant. Gradually these rules were applied to all negotiable instruments by whomever used. The customs which started between merchants of foreign countries were held applicable to all persons, and became the recognized law relating to negotiable instruments. This country adopted these rules, together with the greater part of the common law of England. At the present time, most of the states have negotiable instrument codes. These codes, for the most part, are statutory enactments of the well recognized rules of common law.