Ultra vires doctrine collapsed because it hindered corporate flexibility

Evidence

But the courts soon backed off from this extreme form of ultra vires. They began to “imply” powers much more freely. In 1896, the Supreme Court held that a Florida railroad company had not crossed over the line into ultra vires territory when it leased and ran a hotel in Duval County, Florida. This summer hotel might increase the railroad’s business. It was not, then, ultra vires to “maintain cheap hotels or eating houses … at the end of a railroad on a barren, unsettled beach … not for the purpose of making money out of such business, but to furnish reasonable and necessary accommodations to its passengers and employees.” Corporations had become indispensable in the business world. They need to be flexible. The corporation had become “simply an alternative form of business organization”; and as such, “should presumptively be able to do what any business firm can lawfully do.” Ultra vires was a nuisance. It made corporate behavior riskier. It therefore was an obstacle to credit markets and sources of capital. The doctrine had to go. — Lawrence M. Friedman, A History of American Law, 3011

Categorization

• XREF: Pays off the ch24-27 theme of courts reading charters to favor new enterprise and market fluidity; also connects to ch16 hostility-to-legislatures thread.