127 Neb. 307 | Neb. | 1934
This is an action by plaintiff upon a promissory note for $5,000, executed by defendant Ferguson & Company, a corporation. The defense is that the execution of the note was ultra vires the defendant corporation. Plaintiff replied, denying that the note was ultra vires, and entering a plea of estoppel. A jury was waived and trial had to the court, resulting in a finding and judgment for the defendant, and the plaintiff appeals.
The note in suit, dated April 14, 1931, due in one year, was the final renewal in a series of notes beginning in
In April, 1927, when Ferguson & Company executed the first renewal note and procured the release of William H. Ferguson as indorser, the latter was indebted to the company for over $24,000, and at the dates of the subsequent renewal notes upon which Ferguson & Company was indorser, William H. Ferguson was indebted to the company in sums varying from about $60,000 to $17,000 when the note in suit was executed. At the dates of the last four renewal notes, from October, 1929, to April, 1931, W. R. Adams Company was indebted to Ferguson & Company in sums varying from $13,000 in October, 1929, and gradually increasing to over $37,000 in April, 1931. In addition, W. R. Adams was personally indebted to Ferguson & Company in about $2,600. The Adams Company was engaged in the fur and hide business in Fremont and had no business connection with Ferguson & Company except in respect of the indebtedness above stated; the nature of the transactions between the Adams Company and Ferguson & Company resulting in the indebtedness is not disclosed by the evidence. Mrs. Adams was the niece of William H. Ferguson.
There is some slight conflict in the evidence upon the point, but the great weight thereof establishes the fact that the first notice plaintiff had that the defendant •claimed that the various notes in question were ultra vires was after the commencement of the present suit; in fact, as late as April 26, 1932, Mr. Robert L. Ferguson, as ■vice-president, wrote the plaintiff requesting a further renewal and suggesting a scheme of partial payments, and in the letter made no reference to the defense of ultra vires.
The general nature of the business to be transacted by
Upon the above statement of facts, as disclosed by the record, two questions are presented: (1) Was the execution of the note ultra vires? (2) Is the defendant estopped from making this defense?
1. We think it appropriate, in approaching the discussion of the first question, to call attention to some well-established principles of corporation law. A corporation, while a separate entity, is a mere creature of the law, and possesses only those powers which are expressly granted to it by its charter, and such other powers as are necessary, appropriate or convenient for the full
A concise statement of the plaintiff’s case is this: The Adams Company was indebted to plaintiff on a promissory note which became due, and plaintiff refused renewal unless security was given; thereupon William H. Ferguson indorsed the renewal note and a number of others, the last of which became due April 20, 1927. Shortly prior to this date Ferguson organized the defendant corporation, which took over his many business interests and assumed his large personal indebtedness connected therewith, of which, however, his liability as indorser to plaintiff was not one. He transferred nearly all of his property and assets to the corporation, and received the entire issue of its stock, which he divided with members of his immediate family. April 20, 1927, William H. Ferguson was in California, and the note heretofore mentioned was renewed with the defendant corporation as indorser. On that date William H. Ferguson was indebted to the corporation in the sum of $24,000. The Adams Company and the defendant had no business connection or common interests; in fact, the Adams Company was engaged in the fur and hide business, one of the few
The precise question then for our determination is whether or not the fact of the indebtedness of William H. Ferguson at the time of the first indorsement or the indebtedness of the Adams Company at the time the note in suit was given, or both, furnished a sufficient foundation upon which to rest the exercise of the implied or incidental powers of the defendant corporation in the prosecution of its business. The plaintiff contends that, by reason of the indebtedness referred to, the defendant corporation had such an interest in the Adams Company and its continued commercial existence that it was justified in lending its credit to the Adams Company for the purpose of improving its position as a creditor and bettering its chances of finally collecting its debt. On the other hand, the defendant contends that the various indorsements and final execution by the Ferguson company of the note in suit were merely for the accommodation of the Adams Company and therefore ultra, vires—citing Park Hotel Co. v. Fourth Nat. Bank, 86 Fed. 742; Smith v. Nelson Land. & Cattle Co., 212 Fed. 56; 3 Thompson, Corporations (3d ed.) sec. 2300. The question is not without difficulty and its solution may be aided by examining the holdings of the courts in analogous situations. We will first consider the cases relied upon by the plaintiff.
Woods Lumber Co. v. Moore, 183 Cal. 497. In that
Sturdevant Bros. & Co. v. Farmers & Merchants Bank, 69 Neb. 220. There the action was upon a replevin bond signed by the bank as surety, and the contract was held ultra vires. It did not appear in that case the bank had any interest in the property replevied, nor any right or claim to protect, but it was said in the opinion: “A banking corporation, it would seem, is empowered to do any act or make any contract, even though under usual and ordinary circumstances such transaction is beyond the scope of its charter powers, if in the particular case the act was engaged in or contract entered into in furtherance of the business of the corporation or to protect it in its property rights or to maintain the integrity of the corporate entity. * * * If, in the case at bar, the defendant bank held a note against the plaintiff in the replevin action and a mortgage on the goods replevied securing the note, it would scarcely be doubted that it might not, for the purpose of collecting what was due it and thus protect its assets, execute as surety the replevin undertaking which the plaintiff in the replevin action was by statute required to give before regaining possession of the property.” The case serves to illustrate that a corporation may make a valid contract under some circumstances or in some situations which might be ultra vires under other conditions.
Burg & Sons, Inc., v. Twin City Four-Wheel Drive Co., 140 Minn. 101. The defendant corporation guaranteed an account of one of its salesmen for the purchase of
First Nat. Bank v. Pacific Elevator Co., 159 Minn. 94. In that case it was held: “A corporation cannot become a mere accommodation surety for others unless expressly authorized to do so, but a corporation which is a large stockholder in another corporation has such an interest therein that it may become a surety on its obligations.” And it was said in the opinion: “While a corporation cannot become a surety on obligations in which it has no interest, it may guarantee the obligations of its subsidiary companies, and this doctrine has been extended to permit it to guarantee the obligations of others where the purpose is to promote or protect its own rights or property interests, or to accomplish some legitimate object of financial benefit to it, and not merely to aid the primary obligor. The cases are cited and analyzed in Woods Lumber Co. v. Moore, 183 Cal. 497, and in the annotation found in 11 A. L. R. 554.”
Midland Telegraph Co. v. National Telegraph News Co., 236 Ill. 476. In that case the defendant corporation had guaranteed the lease of another corporation and, when
First Nat. Bank v. Guardian Trust Co., 187 Mo. 494. The trust company had indorsed the note of a railroad company to the bank and, when sued, pleaded ultra vires, that it was a mere accommodation maker or indorser which the statute did not authorize. It was held, however : ■ “The evidence shows that the trust company did not place its name on the back of the railroad company’s note as a matter of accommodation but that it was induced to do so by reason of its interest in the railroad company, not only as a stockholder, but as a creditor, it having largely financed it, and sold its stock and loaned it money, and these facts were known by the bank. It was further shown that the money loaned to the railroad company on the note upon which the trust company is sued was used to pay pressing indebtedness, and that that payment was not only to the interest of the trust company as a stockholder, but increased its chances of finally realizing upon the debts due it from the railroad company. Held, that, under the circumstances, the defense of ultra vires will not avail.”
Richeson v. National Bank of Mena, 96 Ark. 594. A lumber company owed the bank $11,650 and about $10,000 to other creditors, and procured a loan from the Hancock Land, Loan & Investment Company for $22,000, which executed a written obligation by which, in consideration of the loan made by it to the lumber company and the agreement on the part' of the bank to extend the time of the payment of its indebtedness against the lumber company, it assumed and guaranteed the payment of the lumber company’s debt to the bank, and when sued upon the guaranty pleaded ultra vires. The court said: “The loan company was engaged in loaning its money, and for its compensation it received the interest which accrued thereon. This benefit it actually received by the
Armour & Co. v. Rosenberg & Sons Co., 36 Cal. App. 773. In this case the defendant corporation guaranteed the account of the American Packing Company to the plaintiff, and in holding the contract intra vires the court said: “The American Packing Company, a customer, was in its (corporation defendant) debt to a considerable amount, which debt without the arrangement was a total loss. The agreement for the payment of the debt, and the promise of Lawton (the president of the packing company) to purchase exclusively from the defendant all the bottles required in his business, establish this fact. In both of these particulars the corporation was benefited by the agreement.” It was further said: “The question presented by the different assignments of error is whether or not the general manager of a trading corporation has the implied power to guarantee debts or obligations of a customer or other person when such course is deemed by him necessary for the promotion of the business of the corporation. The obligation here guaranteed had relation to the corporation’s own interest, and was designed to promote its own business. In such a case the rule now seems to be firmly established that
Modoc County Bank v. Ringling, 7 Fed. (2d) 535. That was an action against the bank on a guaranty of the performance of a contract by one of its depositors; the defense was ultra vires. In the opinion the court said: “The bank having already made the advance to a depositor, it. was manifestly for the interest of the bank as a business transaction, and in the conduct of its affairs, to secure reimbursement, if possible, and to do this it was presumably deemed advantageous to place itself behind Carter in the transaction. In other words, the agreement of guaranty, so far as appears in this record, was made by the bank in good faith and as incident to the transaction of its ordinary affairs and for its own benefit.” And it was held that the bank had the power, as incident to its express power of loaning money, to guarantee the obligations of its own debtors in order to make its own loan more secure.
Second Nat. Bank v. United States Fidelity & Guaranty Co., 266 Fed. 489. In this case it was held that the bank had the power to execute a bond of indemnity to a surety company against loss by reason of its suretyship for a bankrupt on its contract, to enable the trustees in bankruptcy to proceed with and complete the work; and it was said: “The question as to the wisdom of the directors in entering into an agreement of this kind is not involved; the real question being as to whether the banks at that stage of the proceedings had the power to enter into an agreement of this kind for the purpose of self-protection in the collection of their debts. In other words, were they not warranted in taking such steps as were necessary to conserve the assets of the banks, and could their acts in this respect be said to be ultra vires?”
A number of other cases are cited as illustrating the implied or incidental powers of corporations in the prosecution of their business. For example: Horst v. Lewis,
On the other hand, the defendant cites the case of Johnson v. Johnson Bros., 108 Me. 272, which holds “that a defendant corporation was a large creditor of another company does not show such interest as to constitute a valid consideration for defendant’s indorsement of the company’s paper.” In that case Johnson Brothers, a corporation, had indorsed a number of notes of the Monson Company, and the court having found that there were no such business relations between Johnson Brothers and the Monson Company as should be held to be a consideration for the indorsement of the paper in question, held the indorsements ultra vires, and in the opinion it is stated: “Johnson Brothers indorsed the notes to enable the Mon-son Company to receive the proceeds to use in its business in which, at the most, the indorser had no other interest than that of a voluntary creditor. The suggestion is made in some cases that a corporation may be impliedly authorized to loan its credit to its debtor if by so doing it could make available a debt due it, arising out of a reasonable exercise of its corporate powers, and which otherwise would be lost. It is not necessary, however, here to consider if that suggestion has merit, for it seems clear to us that the facts and circumstances of this case do not bring it within the reach of an application .of such a doctrine. The inference seems justifiable that the prac
We think it must be conceded that the nature of the business of Ferguson & Company, as set forth in its charter, covers substantially all of the activities of the commercial world, from dealing in dairy products to the manufacture of brick, from dealing in merchandise and commodities of every class and description to the conduct and management of farms, the lending of money, and the dealing in grain, stocks and bonds, and, as already noted, the charter expressly provides; “The company shall have
Under the provisions of the charter quoted, the corporation is given power to do any act in the prosecution of its business to enhance the value of its property or rights that an individual may do; this subject, of course, to the restriction implied from the terms quoted, that the contract must have some relation to the purposes and
It appears from the evidence that the defendant indorsed the note of the Adams Company to the Omaha National Bank for the sum of $10,000, and another for $2,-000, and the individual note of Adams to one Ingles for $6,000. These transactions were of the same character as the one under investigation, having for their basis no connection with the business of the defendant except the indebtedness to it of the Adams Company and Adams. In each of these instances there was a resolution by the directors of the corporation authorizing the transaction; it would therefore seem that the corporation considered such transactions within its legitimate powers, thus placing a construction upon its own charter, which is a fact proper to be considered. People v. Merchants Protective Corporation, 189 Cal. 531. The absence of specific authorization by the board of directors is not material if the contract was within the general powers of the corporation, the authority of the president or general manager being sufficient. Woods Lumber Co. v. Moore, 183 Cal. 497. We think that the corporation is in no position to plead ultra vires.
In view of our holding upon the first point, it will not be necessary to discuss the question of estoppel. The judgment of the district court is
Reversed.