2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 3 - Purposes and Powers
§ 14-2-304. Ultra Vires
- Except as provided in subsection (b) of this Code section, the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.
- A corporation's power to act may be challenged:
- In a proceeding by a shareholder against the corporation to enjoin the act;
- In a proceeding by the corporation, directly, derivatively, or through a receiver, trustee, or other legal representative, against an incumbent or former director, officer, employee, or agent of the corporation; or
- In a proceeding by the Attorney General under Code Section 14-2-1430.
- In a shareholder's proceeding under paragraph (1) of subsection (b) of this Code section to enjoin an unauthorized corporate act, the court may enjoin or set aside the act, if equitable and if all affected persons are parties to the proceeding, and may award damages for loss, other than anticipated profits, suffered by the corporation or another party because of enjoining the unauthorized act.
(Code 1981, §14-2-304, enacted by Ga. L. 1988, p. 1070, § 1.)
Law reviews.- For article analyzing legal basis for corporate contributions to private educational institutions, see 5 Mercer L. Rev. 249 (1954). For article discussing liability of corporate directors, officers, and shareholders under the Georgia Business Corporation Code, and as affected by provisions of the Georgia Civil Practice Act, see 7 Ga. St. B. J. 277 (1971). For note, "Ultra Vires in Georgia," see 16 Mercer L. Rev. 320 (1964).
COMMENT
Source: Model Act, § 14-2-304. This generally follows former § 14-2-22.
The basic purpose of Section 14-2-304 is to eliminate all vestiges of the doctrine of inherent incapacity of corporations. Under this section it is unnecessary for persons dealing with a corporation to inquire into limitations on its purposes or powers that may appear in its articles of incorporation. A person who is unaware of these limitations when dealing with a corporation is not bound by them.
Cross-References Corporate powers, see § 14-2-302. Corporate purposes, see § 14-2-301. Derivative proceedings, see § 14-2-740 et seq. Director standards of conduct, see § 14-2-830 et seq. Dissolution, see Article 14. "Employee" defined, see § 14-2-140. "Proceeding" defined, see § 14-2-140.
JUDICIAL DECISIONS
Editor's notes.
- In light of the similarity of the statutory provisions, decisions under former Civil Code 1910, § 2225, former Code 1933, § 22-712, and former Code Section 14-2-22, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.
When defense proper.
- The doctrine of ultra vires has no proper place in the law of private corporations, organized merely for the purpose of private gain, except in respect of contracts which are bad in themselves, the making of which is prohibited by a consideration of public morals or justice, or of sound public policy, or prohibited by the statute law on grounds connected with the public good. Corbin Supply Co. v. Loftis, 50 Ga. App. 309, 178 S.E. 185 (1934) (decided under former Code 1933, § 22-712).
Public policy must be served by defense.
- Defense of ultra vires made by private corporation will be sustained only when imperative rule of public policy requires it. A contract partly executed will be enforced as against such a corporation when it has received benefits thereunder in its corporate capacity. Corbin Supply Co. v. Loftis, 50 Ga. App. 309, 178 S.E. 185 (1934) (decided under former Code 1933, § 22-712).
Corporation cannot use defense and retain benefits of transaction.- A corporation cannot interpose the defense that a transaction was ultra vires and retain the benefits of the transaction. In re Am. Ventures, Inc., 340 F. Supp. 279 (N.D. Ga. 1971), aff'd, 457 F.2d 974 (5th Cir. 1972) (decided under former Code 1933).
No application of doctrine of ultra vires will allow a corporation to retain and use benefits of the contract under which they were obtained. Flatauer Fixture & Sales Corp. v. Garcia & Assocs., 99 Ga. App. 685, 109 S.E.2d 818 (1959) (decided under former Code 1933, § 22-712).
Corporation may plead ultra vires although all stockholders acquiesced.
- A corporation is not estopped to plead an ultra vires act by which the corporation contracted to pay an individual debt of one of its officers, notwithstanding that all the stockholders of the corporation consented to or acquiesced in the execution of the contract. Piedmont Feed & Grocery Co. v. Georgia Feed & Grocery Co., 52 Ga. App. 847, 184 S.E. 899 (1936) (decided under former Code 1933, § 22-712).
No defense to action for breach after performance by either party.
- After a contract entered into by a corporation has been performed by either of the contracting parties, the fact that the making of the contract involved an unauthorized exercise of corporate power on the part of the company will not constitute a defense to an action brought by the party having performed the contract to recover compensation for a breach of the contract by the other party. Flatauer Fixture & Sales Corp. v. Garcia & Assocs., 99 Ga. App. 685, 109 S.E.2d 818 (1959) (decided under former Code 1933, § 22-712).
President cannot borrow money and bind corporation without authority.
- A corporation can only act by and through its proper and duly authorized officers, agents, and servants. The president of a corporation is its alter ego in many respects, and, without any special delegation of authority, is presumed to have power to act for it in matters within the scope of its ordinary business. However, the president of a corporation, who has no charter authority nor authority from the controlling board of directors, either general or special, to do so, cannot borrow money in the name of the corporation and execute a corporate promissory note binding upon such corporation, when the corporation received none of the proceeds of the loan, nor any benefit therefrom, nor ratified such action upon the part of its president in any manner. F & M Bank v. Stovall Inv. Co., 50 Ga. App. 277, 177 S.E. 882 (1934) (decided under former Civil Code 1910, § 2225).
Corporation liable when fruits of contract are applied to corporate uses.
- If the officers of a corporation, though without authority to do so, do in fact execute a contract on behalf of the corporation, and the fruits of it are received, retained, and applied to corporate uses, the corporation will be liable thereon notwithstanding any want of authority in its officers. Flatauer Fixture & Sales Corp. v. Garcia & Assocs., 99 Ga. App. 685, 109 S.E.2d 818 (1959) (decided under former Code 1933, § 22-712).
Cited in Free For All Missionary Baptist Church, Inc. v. Southeastern Beverage & Ice Equip. Co., 135 Ga. App. 498, 218 S.E.2d 169 (1975); Shier v. Price, 152 Ga. App. 593, 263 S.E.2d 466 (1979); Fresh & Fancy Produce, Inc. v. Brantley, 190 Ga. App. 128, 378 S.E.2d 379 (1989) (decided under former Code section14-2-22).
RESEARCH REFERENCES
Am. Jur. 2d.
- 18B Am. Jur. 2d, Corporations, § 1712 et seq.
C.J.S.- 19 C.J.S., Corporations, §§ 673, 676, 677, 678.
ALR.
- Liability of corporation on contracts of promoters, 17 A.L.R. 452; 49 A.L.R. 673; 123 A.L.R. 726.
Right of obligor to challenge assignment or transfer by corporation as ultra vires, 45 A.L.R. 1509.
Release by corporation resting for consideration on detriment to release without benefit to corporation as ultra vires the corporation, 52 A.L.R. 579.
Contract in relation to corporate stock as binding upon the corporation or personally upon the officers who sign it, 54 A.L.R. 1388.
Doctrine of ultra vires as applied to torts of private corporation, 57 A.L.R. 302.
Contract by national bank for purchase of stock in another corporation as ultra vires, 89 A.L.R. 1308.
Assumption of mortgage or lien by bank or other corporation as ultra vires, 91 A.L.R. 177.
Right of corporation to perform or to hold itself out as ready to perform functions in the nature of legal services, 157 A.L.R. 282.
Power of corporation or its officers with respect to payment of remuneration, bonus, and the like, to widow or family of deceased officer, 29 A.L.R.2d 1262.
Right of corporation to indemnity for civil or criminal liability incurred by employee's violation of antitrust laws, 37 A.L.R.3d 1355.
Validity of obligation given by corporation incident to purchase of entire stock by sole shareholder, 71 A.L.R.3d 639.
Power of corporation to make political contribution or expenditure under state law, 79 A.L.R.3d 491.
