Subject to the qualifications of the preceding decisions, which, broadly speaking, distinguish between disturbing a conveyance or transfer and enforcing a contract', the following quotation from a recent decision of the Supreme Court, involving the right of a national bank to accept a conveyance of real property to be held in trust, expresses the generally accepted rule: "In the absence of a clear expression of legislative intention to the contrary2, a conveyance of real estate to a corporation for a purpose not authorized by its charter is not void, but voidable, and the sovereign alone can object. Neither the grantor nor his heirs nor third persons can impugn it upon the ground that the grantee has exceeded its powers. * * * This rule, while recognizing the authority of the government to which the corporation is amenable, has the salutary effect of assuring the security of titles and of avoiding the injurious. consequences which would otherwise result. In the present case a trust was declared, and this trust should not be permitted to fail and the property to be diverted from those for whom it was intended, by treating the conveyance to the bank as a nullity, in the absence of a clear statement of legislative intent that it should be so regarded." Kerfoot v. Bank, 218 U. S. 281. Third. In Maryland, a corporation may hold and convey property acquired in excess of a statutory or charter limit by a title "valid as to all the world, until it has been determined, at the instance of the State, that the charter 1 Compare the concluding paragraph of the opinion in St. Louis Railroad Co. v. Terre Haute Railroad Co., 145 U. S. 393. 2 For what constitutes such clear expression, compare Fritz v. Palmer, 112 U. S. 405, and Building Association v. Denson, 189 U. S. has been violated." Again, in Booth v. Robinson, 55 Md. 435, the contention was that a loan, secured by a mortgage of a steam boat, was ultra vires the mortgagee. The court said that, even conceding the want of power, the transaction could not be disturbed. In Hagerstown Manufacturing Co. v. Keedy, 91 Md. 438, an attempt was made to reopen a consummated transaction upon the authority of Foreman's Case (supra, §76). The appellee, receiver of a beneficial association which had purchased some town lots of the appellant, was reclaiming the purchase money upon tender of a conveyance. It was held that the transaction would not be disturbed even if it were ultra vires: "When a corporation has by its charter or by general statute, power to hold land for some purposes * * * its right to take and hold any particular parcel of land is a matter solely between the corporation and the state, and can be called in question only in a direct proceeding instituted by the state for that purpose.2 The doctrine that even where a corporation has no power to take or hold real estate, a deed made to it is not void but voidable, and that only at the suit of the state, has found strong support." § 79. Irregular exercise of granted powers. A statute conferring upon the corporation a particular power may prescribe the way in which it is to be exercised and the result manifested. For example, the question of increasing 1 Re. Stickney's Will, 85 Md. 107; ante, § 38. This is also the rule of the federal courts; and while the cases deal with devises and bequests, the principle is not so limited. 2 Compare State v. Consolidation Coal Co., 46 Md. 1. The rule, however, has no application where a corporation is asking the court to aid it in acquiring title to property which it has no power to hold. Case v. Kelly, 133 U. S. 21. the capital stock must be passed upon at a corporate meeting, duly called, warned and held; and a certificate of increase in prescribed form must be recorded. In such and similar cases, the resulting act may be unauthorized and invalid because the power has been defectively exercised. The broad principle applicable to such situations is this: Where the corporation has done irregularly something that might have been done regularly; or where the validity of an act depends upon the existence of extraneous facts, notice of which is not properly chargeable to third parties, then the rights of such parties, having no actual knowledge, will not be affected by the failure to exercise the power in the manner prescribed. Where, however, the facts upon which the validity of the transaction depends are required by law to be embodied in a recorded certificate, then third parties are charged with knowledge of what the record shows; but they have the right to assume that the recitals of the record are true. The following cases illustrate the principle and show the great length to which courts will go in upholding transactions depending upon granted powers defectively exercised. In R. R. Co. v. Louisville Trust Co., 174 U. S. 570, the appellant had endorsed the bonds of another corporation and it was conceded that the transaction would have been ultra vires but for a statute which granted the power upon condition that it should be exercised only upon a petition made to the directors by the holders of a majority of the shares. No such petition was ever presented, and at a subsequent meeting of shareholders, the guarantee was disapproved as having been made without legal authority. The appellee had taken some of the bonds so endorsed without notice of the defect and its title was held to be good. The court said: "The distinction between the doing by a cor- 1 In Harrison v. R. R. Co., 50 Md. 494, this principle was applied to sustain the action of directors, who, it was alleged, were not legally elected. In Cole v. La Grange, 113 U. S. 1, negotiable bonds were issued by a municipal corporation. by way of donation, to a private manufacturing company. This appeared on the face of the bonds; and they were held void in the hands of a bona fide purchaser for value. The bonds had been issued under the authority of the legislature; but the court said: "The general grant of legislative power in the Constitution of a state, does not enable the legislature, in the exercise either of the right of eminent domain or of the right of taxation, to take private property for any but a public object.” In Cahill v. Maryland Ins. Co., 90 Md. 346, it was held that the omission of the corporate seal, notwithstanding a charter requirement, would be a matter of irregularity, merely. L C no certificate of increase was recorded as a statute of the creating state required. The court held that notwithstanding all these defects, the issue of increased stock was voidable, and not void, as it would have been had there been no power to issue it. In Scott v. Deweese, 181 U. S. 202, the appellant was being sued for the statutory liability to creditors imposed upon holders of shares in national banks. The shares were a part of an increase made without compliance with the statute providing, that "no increase of capital shall be valid until the whole amount of such increase is paid in and notice thereof has been transmitted to the Comptroller of the Currency and his certificate obtained specifying the amount of such increase of capital stock, with his approval thereof and that it has been duly paid in as part of the capital of such association." In point of fact, the whole amount of the proposed increase was not paid in, nor had the certificate of the Comptroller been obtained. The court held that this was a matter between the corporation and the government, and did not render void the subscriptions or certificates of stock based upon the capital actually paid in, or relieve the subscriber of his statutory liability. 1 Distinguishing Scovill v. Thayer, 105 U. S. 143, in which there was an entire lack of authority to make the increase and not simply a power defectively exercised. Here the court held that the increase was ultra vires and void; and that the defendant, a holder of the pretended stock, was not estopped from denying its validity or his obligation to pay for it, even as against a creditor. See, to the same effect, Oler v. R. R. Co. 41 Md. 583. |