169 A. 76 | Pa. | 1933
Argued October 9, 1933. This action is brought by plaintiff, a surety company, to recover from defendant, a lumber company, the loss which the former was required to pay, under the terms of a bond guaranteeing the completion of a large apartment building. The jury found a verdict in plaintiff's favor for $72,500. The court entered judgment for defendant non obstante veredicto and plaintiff appeals.
The facts necessary to an understanding of the controversy are these: Zehner, Harris and Kramer were three of the five directors of the Ellwood Lumber Company. They were also directors of the Aiken Apartments, Inc., a corporation organized to build a large apartment house. The officers of the latter corporation entered into an agreement with the F. H. Smith Company to finance the building of the apartment house. Kramer, who was also a contractor, had the contract for erection of the building. He was to purchase the necessary lumber from the lumber company. The Smith Company required a completion bond and Aiken Apartments applied to plaintiff for it. Not being satisfied with the financial responsibility of Kramer, the contractor, the plaintiff insisted upon being indemnified against any loss and thereupon Zehner as vice-president of the lumber company, joined in the application with Kramer. The application contained a contract of indemnity by which Zehner, purporting to act for the lumber company, and Kramer, as an individual, agreed to indemnify plaintiff against any liability under the bond. The bond was furnished, signed by Aiken Apartments, Inc., by the Ellwood Lumber Company through Zehner, vice-president, attested by Harris, secretary, and by Kramer as principals and by plaintiff as surety. It was in the sum of $700,000. Work on the building was abandoned by the *137 contractor before the excavation was completed. After the default, plaintiff paid the Smith Company $67,500 in settlement of its liability on the bond. To recover that amount from the lumber company this suit was brought.
The defense interposed was that the undertaking by the vice-president and secretary of the lumber company was ultra vires and that no action warranting the execution of the agreement was taken by the board of directors of the lumber company. The lumber company was formed, as its charter exhibits "for the purpose of the manufacture of lumber or any article of commerce from wood or metal or both." The financial statement of the company showed its capital to be $229,600, its surplus $46,848.71, with debts amounting to $98,253.92. The contract price for the erection of the building was $1,047,825. The amount of the bond was many times the net worth of the lumber company. The lumber company was to furnish all the lumber to the building and in addition kitchen cabinets and ironing boards, although apparently there was no formal contract. It actually furnished lumber amounting to $4,475.45 and received in payment on account thereof $2,684.67. Plaintiff argues that defendant cannot avail itself of the defense of ultra vires, because it received the benefit of plaintiff's performance, but all that plaintiff actually received was the sum of $2,684.67, and it did not receive that from plaintiff, but from the Aiken Corporation.
We have held to the principle that the law will not sanction the effort of a corporation to divert its capital to a different purpose from that for which it was created or to risk it in guaranteeing the obligations of another. "It was not contended by the plaintiff's counsel that the officers had power to bind the company as surety for another's debt. That a contract for that purpose is wholly beyond the powers of the corporation, expressly granted or implied by the statutes relating to mining companies, is so clear as not to be gainsaid": Culver v. Reno Real Estate Co.,
Safe Deposit Trust Co. v. Federal Street Pleasant Valley Passenger Ry. Co.,
Concluding, as we do, that the contract entered into by the lumber company is ultra vires, the judgment is affirmed. *140