12 Ga. App. 818 | Ga. Ct. App. | 1913
The Canal-Louisiana Bank and Trust Company sued the Savannah Ice Company, a corporation, upon a promissory note made by the Crescent Ice' Company to its own order and indorsed by that company and the defendant. The defendant pleaded that its indorsement was merely for the accommodation of thp maker; that it had no charter authority to indorse for accommodation, and that these facts were well known to the plaintiff. A demurrer to this plea was overruled and exceptions pendente lite were filed by the plaintiff.. The case was submitted to the judge without the intervention of a jury and he rendered a judgment in favor of the plaintiff. The defendant has filed a bill of exceptions complaining of this judgment, and the plaintiff excepts to the overruling of its demurrer to the defendant’s plea. The judgment of the trial judge in favor of the plaintiff was based upon the following facts: The Central Ice Company was incorporated under the laws of New Jersey and organized for the purpose of holding and owning stock in a number of subsidiary companies engaged in the business of the manufacture and sale of ice. It owned all of the capital stock of the Savannah Ice Company except one share issued to each of the directors to qualify them to act as officers of the company. In like manner it owned all the shares except the directors’ shares in several other subsidiary companies. It owned two thirds of the stock of the Crescent Ice Company, the other third being held by the Electric Corporation of Boston. Each of these various sub
The charter of a ■ corporation, whether granted directly by'the General Assembly, or by the• executive or judicial department of. the government under authority delegated by the General Assembty, is a contract between the State and the shareholders, and between the shareholders themselves. The obligation of the State 'is that it will permit the shareholders to exercise the powers and enjoy the privileges granted in the charter, and 'that the contracts of the corporation, made in pursuance of the charter, will not be impaired 'by the State. The shareholders on their part contract with the State that they will not exceed the powers granted in the charter, and agree with each -other that they will-devote the assets of the corporation to the objects and purposes of the charter and not otherwise. Central Railroad Co. v. Collins, 40 Ga. 583, 624; Midland City Hotel Co. v. Gibson, 11 Ga. App. 829 (76 S. E. 600). No principle is better settled in this State than that the stockholders in a corporation are granted no rights and clothed with no powers' except such as are expressly set forth in the charter or as' arise therefrom by necessary implication. 3 Enc. Dig. Ga. Rep. 641. This principle has been embodied in the statutory law of this State in reference to corporations chartered by the superior court. “Corporations thus created may exercise all corporate powers necessary to the purpose of their organization, but shall make no contract, or purchase or hold any property of any kind, -except such as is necessary in legitimately carrying into effect such' purpose, or for securing debts due to the company.” Civil Code, § 2823 (5). Under the present law of this State, corporations exercising a public or quasi-public function are chartered by the Secretary of State,
The Supreme Court of this State has held that a bona fide purchaser for value of a note indorsed by a corporation for accommodation only, and without notice of the real character and purpose of the indorsement, will be protected even though the corporation had no authority to make the indorsement. Jacobs Pharmacy Co. v. Southern Banking & Trust Co., 97 Ga. 573 (25 S. E. 171). That decision is based upon the theory that, since a corporation has the power to make and indorse negotiable instruments -in the course of its business and in furtherance of its enterprise, one who acquires for value such an instrument, made or indorsed by a corporation, has the right-to assume that it was executed or negotiated in due
It is also contended that the indorsement of the Savannah Ice Company was in due course of business and for its own benefit, and not for the mere accommodation of the Crescent Ice Company. It is urged that the Central Ice Company and the Savannah Ice Company were substantially one and the same, that the money supplied by the bank was diréctly for'the benefit of the Central Ice Company,
It is next insisted that the indorsement should not be regarded as merely for accommodation, because it was made in accordance with a system of financing the subsidiary companies which the parent company had been conducting for many years. It is argued that the holding companjr was really the head, having the will, and the subsidiary companies were but the members of the body acting in response to this will; that in the past, other members of this body had loaned their credit for the benefit of the Savannah Ice Company, and that the ice company’s- indorsement was really in return for similar favors of this kind which had been extended to it. The fact that these other companies had exceeded their charter powers and indorsed for the Savannah Ice Company and for each other .could not render legal an act of the ■ Savannah Ice Company in excess of its'charter power. If two corporations ■ should exchange indorsements in order to raise the same amount of money to be applied for the benefit of each, the one indorsement might be re
Many of the adjudicated cases speak of two classes of ultra vires acts of corporations,—one which is in excess of charter power, and the other where an officer of a corporation undertakes to do an act within the charter power which he has no' authority to per-1 form. In reality it is a misnomer to speak of the latter character of acts as ultra vires, because such acts are within the power of the corporation, and are simply in excess of the authority of the officer ■or agent attempting to perform them. ' Strictly speaking, an ultra vires act of a corporation is one which it,has no power under its charter to perform. Some confusion has arisen in the decided cases on account of what seems to be a misapprehension of the distinction between these two classes of acts. Where a corporation has charter authority to do an act, it will always be estopped to question the authority of one whom- it held out as having the power to act for • it, or whose act has been ratified by the corporation after its performance. Hazlehurst v. Savannah &c. R. Co., 43 Ga. 14, 55; City Fire Ins. Co. v. Carrugi, 41 Ga. 660, 673. A corporation can act only through an agent, and the law of principal and agent is applicable to it in substantially the same way as it is applied to natural persons. In reference to acts which are strictly ultra vires, the Supreme Court of the United' States holds broadly that neither consent of nor ratification by all the stockholders can estop a corporation from pleading its want of power. Thomas v. Railroad Co., 101 U. S. 71, 83 (25 L. ed. 950). In First National Bank of Concord v. Hawkins, 174 U. S. 364 (19 Sup. Ct. 739, 43 L. ed. 1107), the court said: “A contract of a corporation which is ultra vires in the proper sense, that is to say, outside the object of its creation as defined in the law of its. organization, and therefore beyond the powers conferred' upon it by the legislature, is not voidable only, but wholly void and of no legal effect. The objection
The serious question in the present- case, and the one with which we have had most difficulty, is whether consent of all the stockholders of a private corporation to the performance of an ultra vires act, upon- the faith of which another has parted with his money, would estop the corporation from pleading the illegality of the act. Of course, it would estop the individual stockholders who consented. And it is argued with a great deal of force that, since the corporation represents and acts for the stockholders, if all of them are estopped the corporation -should likewise be estopped, unless the interest of the public or of creditors of the corporation
In Dublin Fertilizer Works v. Carter, 6 Ga. App. 835 (65 S. E. 1082), in a discussion of the subject of ultra vires acts of corporations, the court said: “None of the reasons' upon which the doctrine of ultra vires is based apply to this contract. It is simply a contract made by a private trading corporation with an individual, opposed to 'no public policy, prohibited by no law of the State, and in which the public has no interest whatever; and to strike down a •contract of this character, as being ultra vires, it seems to us would be to encourage dishonesty and a want of fair dealing as to private ■contracts, without subserving any public benefit. We think, as .above stated, that the contract now under consideration was not' an ultra vires contract, but even if it was, under the facts of this case it would seem to be inequitable and unjust to permit such a defense.” In that case it was held that the act in question was not ultra vires, and therefore the discussion as to the rule which would have prevailed had the act been beyond the corporate power was •obiter. It is to be observed that in the above*quoted extract from Cook the author says that fifty years ago the courts would summarily have declared it illegal for a business corporation to become .an accommodation indorser on commercial paper, but that to-day, if all the stockholders assent and creditors are not injured, such
Judgment on main bill of exceptions reversed; on cross-bill affirmed.