196 F.2d 112 | 1st Cir. | 1952
Lead Opinion
Resting jurisdiction upon diversity of citizenship and the requisite amount in controversy, De Witt Knox and Frances K. MacEwan instituted in the United States Court for Utah this action against First Security Bank of Utah, as executor of the estate of A. C. Milner, deceased, and Milner Corporation to recover for breach of contract. It was alleged in the complaint that Frank Knox was
The first contention urged by plaintiffs is that the complaint stated a cause of action against the defendant Milner Corporation, and that the court erred in dismissing the action as against that defendant. It is argued in support of the contention that the original undertaking entered ’ into in 1909 was a promoters contract; that it was accepted and adopted by the defendant Milner Corporation; and that therefore such defendant is liable. It is well settled law in Utah that promoters or those contemplating the organization of a corporation do not have power to enter into a contract with binding effect upon the corporation after it is organized. They lack that power, either as agents or otherwise. But promoters or those contemplating the formation of a corporation may make- a contract in furtherance of the corporation and for its benefit; and if the corporation after it comes into existence accepts or adopts the contract, it thereupon becomes the contract of the corporation and may be enforced against it. Wall v. Niagara Mining & Smelting Co., 20 Utah 474, 59 P. 399; Tanner v. Sinaloa Land & Fruit Co., 43 Utah 14, 134 P. 586; Murry v. Monter, 90 Utah 105, 60 P.2d 960; Kahn v. Perry Zolezzi, Inc., Utah, 226 P.2d 118.
Under the law of Utah, a contract made by and with promoters which is en-tended to inure to the benefit of a corporation about to be organized is to be regarded as an open offer which the corporation may after its formation accept or adopt, as it chooses. And if- it does in the exercise of its own judgment accept or adopt the contract and retain the benefits of it, it cannot reject liability under it. Wall v. Niagara Mining & Smelting Co., supra. In the absence of acceptance or adoption of a contract of that kind, the corporation is not liable even though it may have-been entered into with the understanding that the corporation would be bound. Tanner v. Sinaloa Land & Fruit Co., supra. But it is not necessary that acceptance or adoption of a contract of that kind be by express action of the corporation entered in the minutes of the directors, or that it be effectuated in any other like formal manner. It may be inferred from acts, conduct, and acquiescence. Wall v. Niagara Mining & Smelting Co., supra.
The original undertaking was an agreement in. the nature of a promoters contract. And from what has been said it is manifest that defendant Milner Corporation is not bound by it to make payment of the $25,000 unless it was accepted-or adopted in an effective manner. Assuming for the moment that Milner, in his capacity as president of the corporation, was clothed with authority to act for it in accepting and adopting the undertaking, there can be little doubt that the letter written in 1924 constituted an effective acceptance and adoption. The letter referred at the beginning to the undertaking to pay $25,000 from the sale of the property or from profits derived from its operation. It stated in clear terms that the time when liquidation of the obligation would begin was dependent upon the volume of business done and the payment of advances made to an operating company. And it further stated without condition or qualification that the agreement was being kept in mind and would be reached at the proper time. Plainly, the last statement was intended to mean that the obligation would be reached for payment at the propentime. The letter constituted recognition of the original undertaking as an obligation on the part of the corporation to pay the amount specified in the contract at the proper time. And in the circumstances, that
It was not alleged in the complaint that the directors of the corporation 'by formal action accepted or adopted the undertaking, or that they authorized Milner as its president to accept or adopt it on behalf of the corporation. And the letter was silent in that respect. But it was alleged that Milner, then president of the corporation, made a new agreement and undertaking on behalf of himself and the corporation to perform the original undertaking. It was implicit in that allegation that Milner had authority to act for the corporation with binding effect. And his actual authority or the lack of it was an issue for determination at the trial, not on the motion to dismiss the action. Carroll v. Morrison Hotel Corp., 7 Cir., 149 F.2d 404. As against attack by motion to dismiss, the pleading was sufficient in respect tp alleging that in the writing of .the letter Milner acted for the corporation with authority . Bank of the Metropolis v. Guttschlick, 14 Pet. 19, 10 L.Ed. 335; Baltimore & Ohio Railroad Co. v. Foar, 7 Cir., 84 F.2d 67.
Endeavoring to sustain the judgment dismissing the action against it, the defendant Milner Corporation urges that the contract was not one between Knox and the coiporation and was not intended directly or indirectly to benefit the corporation; that it was an undertaking on the part of Milner to fix upon the corporation a liability for the enrichment of Knox, with no consideration of benefit to the corporation; that the only consideration for the execution of the undertaking passed to Milner, not the corporation; and that there is no room for an inference that the corporation received or was intended to receive any consideration or benefit from the agreement. It is well settled in Utah and elsewhere that a corporation cannot bind itself as guarantor or otherwise to discharge an obligation solely for the benefit of another, unless that be one of the purposes for which the corporation was organized. In the absence of a statute or a provision in its charter authorizing it to do so, an undertaking on the part of a corporation to discharge the obligation of another in which it has no interest and from which it derives no benefit is ultra vires and therefore unenforceable. Tracy Loan & Trust Co. v. Merchant’s Bank, 50 Utah 196, 167 P. 353; Louisville, New Albany & Chicago Railway. Co. v. Louisville Trust Co., 174 U.S. 552, 19 S.Ct. 817, 43 L.Ed. 1081; Williams v. Sawyer Bros., 2 Cir., 45 F.2d 700; Pantaze v. Murphy, 5 Cir., 54 F.2d 895, certiorari denied, 287 U.S. 599, 53 S.Ct. 10, 77 L.Ed. 522. And it is elementary that unless authorized by statute or effective charter provision expressly creating the power, a corporation organized solely for conventional business or commercial purposes may not alien its property by gift or indirect channels of diversion without consideration and not in furtherance of its pecuniary interests. 6 Fletcher Cyclopedia Corporations, §§ 2938, 2939. The alienation or disposition of property of a corporation in that manner constitutes a violation of the rights of the stockholders and is ultra vires.
But the complaint was not fatally infirm and therefore open to attack by motion to dismiss on either of these well recognized principles of law. Rule of Civil Procedure 8(a), 28 U.S.C., requires that a complaint shall contain a short and plain statement of the claim showing that plaintiff is entitled to relief and a demand for the relief to which he deems himself entitled. The purpose of the rule is to eliminate prolixity in pleading and to achieve brevity, simplicity, and clarity. And all doubts or ambiguities concerning the intendment and meaning of the pleaders language must be resolved in favor of the claim attempted to be stated when the complaint is attacked by motion to dismiss the action. Clyde v. Broderick, 10 Cir., 144 F.2d 348; Porter v. Karavas, 10 Cir., 157 F.2d 984. Viewed in that manner, the.complaint alleged by fair intendment and meaning that Knox sustained detriment and the defendant Milner Corporation received benefit in the transaction as a whole which had its source in the original undertaking. A valuable consideration passed from Knox and that constituted detriment. The corporation acquired the mining property and
The further contention of plaintiffs is that the complaint stated a cause of action against the defendant bank as executor of the estate of A. C. Milner, and that therefore the court erred in dismissing the action as against that defendant. The argument is that the original contract disclosed on its face an intention on the part of Milner to become personally liable. It is said that he obligated himself to cause the formation of the corporation, to cause the properties to be conveyed to the corporation, to cause the corporation to execute an agreement to pay the father of plaintiffs $25,000 out of the proceeds derived from the property, and to instigate and supervise payment from that source. The agreement did in clear terms obligate Milner to cause the corporation to be formed, to cause the property to be conveyed to the corporation, and to cause the corporation to execute the obligation to the father of the plaintiffs. But it failed to disclose any personal obligation on the part of Milner to pay any amount. And it will be read in vain for any implied undertaking on .his part to instigate or supervise payment by the corporation out of the proceeds arising from the property. The agreement was clear, complete, and free from ambiguity; and it is not the function of a court in a case of this kind to read language into an unambiguous contract or add a provision imposing personal liability, no matter how reasonable and appropriate it may appear. Elggren v. Snyder, 75 Utah 370, 285 P. 640.
The next position taken by plaintiffs is that even though the original agreement did not create any personal liability on the part of Milner, the letter written in 1924 created it. In this connection emphasis is placed upon the fact that at several places throughout the letter the pronoun “we” was used; and that when the letter as a whole is considered with the use of the pronoun “we” therein, it is clear that the intent and effect of the instrument was to create a personal obligation on the part of Milner to make payment of the $25,000 referred to in t)he original agreement. In determining whether the letter created a personal obligation on the part of Mi'lner, its context must be subjected to critical analysis, and it must be viewed in the light of the background against which it was written. As already said, the original agreement did not create any personal obligation on the part of Milner to pay any sum to Frank Knox. The letter made specific reference to the original agreement, and it stated that such original agreement would be kept in mind and reached at the proper time. But nowhere in the letter did Milner make a specific personal promise or commitment to discharge the obligation. And when read in the light of the background it is clear that he did not intend or
While Milner did not bear any personal liability to pay any sum under the agreement of 1909 or that of 1924, he was obligated by the original agreement to cause the corporation within a reasonable time after its organization to execute the instrument in favor of Frank Knox; and he failed to discharge that obligation. The breach of that obligation took place sometime in 1909 — within a reasonable time after the organization of the corporation; and the cause of action for such breach accrued at that time. With exceptions having no material bearing here, section 104-12-23, Utah Code 1943, provides that any action upon contract, obligation, or liability founded upon an instrument in writing shall be commenced within six years after the cause of action shall have accrued. Therefore any cause of action based upon Milner’s breach of obligation to cause the corporation to execute the instrument in favor of Knox became barred sometime in 1915. The letter from Milner, written in 1924 on behalf of himself and the corporation, constituted an acknowledgment of the undischarged obligation under the original undertaking to cause the execution and delivery of the instrument in favor of Knox, or his successors in interest; and it had the effect of removing the bar of the statute of limitation upon the cause of action for the breach of that obligation. Cf. Weir v. Bauer, 75 Utah 498, 286 P. 936; Salt Lake Transfer Co. v. Shurtliff, 83 Utah 488, 30 P.2d 733; Hottell v. Kemp, 139 Kan. 239, 31 P.2d 64. But the statute started running anew in 1924, and the cause of action again became barred in 1930. The suit was filed long after that time and therefore any cause of action against Milner, or the executor of his estate, for such breach was barred by limitation at the time of the institution of the action.
The judgment, insofar as it dismissed the action against the defendant Milner Corporation, is reversed and the cause remanded; and the judgment, insofar as it dismissed the action against the defendant First Security Bank of Utah, as executor of the estate of A. C. Milner, deceased, is affirmed.
Concurrence Opinion
I fully concur in that part of the opinion which affirms the judgment as to the defendant, First Security Bank of Utah, Executor of the Estate of A. C. Milner, Deceased.
With respect to that part of the complaint which undertakes to allege that in writing the letter of November 4, 1924, addressed to De Witt Knox and signed by A. C. Milner, Milner acted as the authorized agent of the Milner Corporation and that part of the complaint which undertakes to allege that the Milner Corporation received benefits from the contract of March 16, 1909, sufficient to support an agreement on the part of the Milner Corporation to adopt such contract, it is my opinion that only by a most liberal construction can we say the pleading was good against a motion to dismiss. Nevertheless, I am willing to concur in the holding that the pleading was sufficient and that the motion should have been overruled as to the Milner Corporation.
However, with respect to that portion of the opinion which seems to me to imply that mere proof by the plaintiffs that subsequent to the making of the contract of March 16, 1909, the mining properties were conveyed to the Milner Corporation, would establish that the Milner Corporation received sufficient benefits from the contract of March 16, 1909, to support a binding adoption of such contract by the Milner Corporation, I cannot agree. The recitals of the contract of March 16, 1909, show that all of the consideration moving from Frank Knox was received by A. C. Milner. The facts and circumstances under which the mining properties were conveyed to the Milner Corporation by the heirs or beneficiaries of the estate of Stanley B. Milner are not reflected on this record. It may well be that the Milner Corporation negotiated directly with all such heirs or beneficiaries
A. C. Milner was obligated to cause the Milner Corporation to enter into a contract with Frank Knox to pay Knox $25,000 out of net proceeds or profits from the mining properties. A. C. Milner was interested in having that obligation on his part discharged by the Milner Corporation adopting the contract of March 16, 1909. His interests were adverse to the Milner Corporation, and that being so, he could not bind the corporation under his general authority as president. See Fletcher, Corporations, Permanent Ed., Vol. 3, § 922 et seq.; Kahn v. Perry Zolezzi, Utah, 226 P.2d 118, 123; Elggren v. Woolley, 64 Utah 183, 228 P. 906.
I think we should leave open for trial on remand the issue of whether the Milner Corporation received any real and substantial benefit from the contract of March 16, 1909, and the issue of whether Milner was duly authorized as the agent of the Milner Corporation, other than by the general authority reposed in him as its president, to write the letter of November 4, 1924.