121 Ky. 355 | Ky. Ct. App. | 1905
Opinion by
Affirming.
This case is here for the second time. The opinion
“Appellant instituted this action to recover of appellee, Middlesborough Town & Lands Co., the sum of $420, alleged to be due her as dividends on. certain shares of stock issued by the Investment Co. of Middlesborough, which dividends were guaranteed for 10 years at 7 per cent, by the Middlesborough Town Co. It is alleged that, in consideration of 200 shares of stock in the Investment Co. the Town Co., a corporation duly organized and created, with power to sue and be sued, to contract and be contracted with, by a writing on the back of the stock issued by the Investment Co. — the Middlesborough Town Co. — guaranteed the payment of dividends for a fixed period. The written guaranty is as follows: ‘For value received, the Middlesborough Town Co. guaranties to the holder hereof payment of a dividend at the rate of 7 per cent, per annum, payable semi-annually on the 1st day of January and July, at the Coal & Iron Bank of Middlesborough, Kentucky, for a period of ten years from the first day of July, 1891.’ ”
Upon the first trial in the circuit court a general demurrer to the petition was sustained, and, the appellant declining to plead further, her petition was dismissed. Upon the appeal from that judgment to this court it was reversed, in an opinion holding that the petition stated a cause of action; and in replying to the contention of the corporation that the.pleading contained no allegation sufficient to warrant the inference that the Middlesborough Town Co. was authorized by its charter to make the guaranty sued on it was held that the plea of ultra vires was a defense, and must be presented by proper pleading.
In order to simplify matters, we say now that we. concur with the circuit judge in his conclusion that the Middlesborough Town & Lands Co. and the Middlesborough Town Land Co. are merely reorganizations of the Middlesborough Town Co., and they are, each responsible for any debt owed by the Middles-borough Town Co. This reduces the issue involved here to the question, was the Middlesborough Town Co. authorized by its charter and its amendments to guaranty the stock of the Investment Co. of Middlesborough?
The Middlesborough Town Co. was organized under chapter 56 of the Gen. Stats., and so much of the articles of incorporation as is pertinent hereto is as follows: “To have perpetual succession, to sue and be sued by the corporate name, to have a common seal and alter the same at pleasure, to render the shares of interest of stockholders transferable and to prescribe the mode of making such transfers, to exempt the private property of members from liability for corporate debts, to make contracts, acquire and transfer property, possessing the same powers in such respects as private individuals now enjoy, to establish by-laws and make all rules and regulations deemed expedient for the management of our affairs not inconsistent with the Constitution or laws of this State or the United States. It is further especially
By an amendment made in 1890 this power was added: “(3) That this corporation is empowered to take and hold stock in any corporation which in its judgment will promote the interests of this corporation or of the town of Middlesborough. ’ ’
And by an amendment of 1891 the following power was added: “(6) This company shall have power to take and hold stock in any corporation which, in the; judgment of the board of directors, will promote the interests of this company or of the city of Middlesborough, It may promote and assist any person or corporation proposing to locate and conduct business in the city of Middlesborough, by donating lands to such person or corporation.”
The foregoing provisions constitute the authority of the corporation to do business, and it is clear that there is nothing expressed or implied of authority to guarantee the stock of another corporation. Counsel for appellant lay great stress upon the language in the original articles of incorporation, that the corporation “shall have power to make contracts, acquire and transfer property, possessing the samo powers in such respects as private individuals now
Nor do we think that it alters matters that, as a consideration for the guaranty of the stock of the Investment Co. of Middlesborough, the Middlesborough Town Co. received $20,000 par value of its stock. If the act to be done was ultra vires, the consideration in no wise changed the quality of the act. It is true that, if the guarantying company received a. valuable consideration for the ultra vires act, it. would have to surrender what it had thus unlawfully obtained; but this record shows by the undenied allegations of appellant’s petition that the Investment. Co. ’s stock was never of any value, and the evidence shows that these worthless shares have long since been returned to the corporation which issued them,, so that as a matter of fact the Middlesborough Town Co. has never received, and is not now retaining, anything of value belonging to the Investment Co. of Middlesborough.
In Humboldt Min. Co. v. American Manufacturing, Mining & Milling Co., et. al., 62 Fed., 356, 10 C. C. A., 415, United States Circuit Court of Appeals for the Sixth Circuit, speaking through Judge Taft, said: “The general rule in this country and in England is that one corporation is impliedly prohibited from guarantying the contract or debt of another. (Authorities omitted.) The objection to the guaranty is that it risks the funds of the company in a different enterprise and business, under the control of another and different person or corporation, contrary
In the case of Louisville Railway Co. v. Louisville Trust Co., 174 U. S., 567, 19 Sup. Ct., 823, 45 L. Ed., 1081, the rule is thus laid down: “A railroad corporation, unless authorized by its act of incorporation or by other statutes to do so, has no power to guarantee the bonds of another corporation; and shch a guaranty, or any contract to give one, if not authorized by statute, is beyond the scope of powers of the corporation, and strictly ultra vires unlawful and void, and incapable of being made good by ratification or estoppel.”
In the case of Kentucky Citizens Building & Loan Association v. Lawrence, 106 Ky., 88, 20 Ky. Law Rep., 1700, 49 S. W., 1059, where it was sought by
In Rhorer, Receiver v. Middlesborough Town & Lands Co., above cited, on the subject under consideration we laid down the rule as follows: “Usually one-corporation can not acquire or guaranty stock in another corporation, because the State which conferred, the franchise, as well as the stockholders who invested their capital in the enterprise and the creditors who advanced their money on the faith of it, have the-right to rely on the company’s not engaging its funds or risking its property in any business which is not expressly or impliedly permitted by its charter.”
The rule is that corporations must have authority-to guarantee the obligations of other corporations or-persons. This grows out of the general principle that the State confers in the charter all the authority it desires the corporation to possess. The charter thus-, constitutes a guide to those who may desire to purchase the stock of the corporation; for by examination they can be advised as to its limitations and pow
For these reasons the judgment is affirmed.
Petition for rehearing by appellant overruled.