Whetstone v. Ottawa University

The opinion of the court was delivered by

Brewer, J.:

The findings of facts made by the court below on the trial of this action are as follows:

1st, That the plaintiff, the Ottawa University, and the defendants, the Board-of County Commissioners of the county of Franklin, and the Ottawa Town Company, are each corporations, created under the laws of the state of Kansas.

2d, The board of county commissioners of the county of Franklin, by deed, with full covenants, executed by the Ottawa Town Company, were seized of a good, absolute and indefeasible estate, in fee simple of and in all and singular, the 100 town lots in the town (now city)-of Ottawa, particularly described by number, lot, and block, in “ Exhibit A,” attached to and being a part of the petition.

3d, On the 12th of May, 1865,‘said board of county commissioners made and delivered to the Ottawa Town Company a bond in the sum of $15,000, conditioned that they or their successors in office should, before the first day of January, 1870, erect on block 85, in the city of Ottawa, a court-house, at a cost of not less than $15,000, or in default thereof to convey to the Ottawa Town Company the 100 lots described in said “ Exhibit A.”

4th, The deed mentioned in the second paragraph herein, and the bond mentioned in the third paragraph herein, were delivered simultaneously, that is, exchanged the one for the other.. There was no consideration whatever paid by said board of county commissioners, either directly or indirectly, to the Ottawa Town Company as a consideration for the lots described in the deed aforesaid, nor have the conditions of the bond aforesaid been complied with — that is, no courthouse has been erected, or money paid, or conveyance made, as provided for.

5th, At a meeting of the Ottawa Town Company held Monday, April 24th, 1865, the following proceedings were had: “Moved and seconded, that regular meetings of the company shall be held on Monday evening, at 7.30, and that five shall constitute a quorum — carried.” And at a meeting held Wednesday, January 10, 1866, it was “Moved and seconded, that hereafter votes of this company be taken by shares, and that each half-share be allowed one vote whenever present, by person or by proxy — carried.” These proceedings were recorded in a book furnished and kept by the company for that purpose, and in that book there is no record of any meeting after June 27th, 1867.

6th, The property of the Ottawa Town Company was divided into twenty shares, and on and before the 30th of December, 1868, the twenty shares of the Ottawa Town Company’s stock were held as follows: By C. P. Kalloch, one share; by E. J. Nugent, three shares; by J. C. Richmond, one half-share; by F. Cobb, one half-share; by E. Cobb, one half-share; by S. C. Pomeroy, one share; by J. T. Jones, one share; by W. Libby, one half-share; by T. J. Southard, one half-share; by J. B. Gordon, one share; by C. C. Hutchinson, one share; by R. D. Lathrop, four shares and one half-share; by C. T. Evans, one half-share; by G. S. Holt, one half-share; by S. T. Kelsey, one half-share; by A. S. Lathrop, one share, and by J. H. Whetstone, two shares and one half-share. The property of the Town Company originally consisted of all the land described by the town plat of Ottawa.

7th, On the 30th of December, 1868, the Ottawa 'Town Company held a meeting with the following shareholders, present or represented: C. P. Kalloch by I. S. Kalloch, C. C. Hutchinson, J. T. Jones, S. T. Kelsey, J. C. Richmond, E. J. Nugent, J. H. Lane by H. F. Sheldon, and G. S. Holt. The following proceedings were had: “ Holt elected secretary pro tem. * * * Voted, that a quitclaim deed be given to Atkinson for the benefit of Ottawa University, of 97 lots, previously donated to the county of Franklin. * * * Voted, that if anything accrues frc^m the lots traded to Lathrop, that also be given to Atkinson for the same purpose. * * * Voted, that the secretary pro tem. see that the deed be furnished this P.M., and have it signed by the president.” John H. Whetstone had notice of this meeting, and was present, just before, or just at the time of the opening, but on account of sickness withdrew, and did not participate.

8th, On the 30th of December, 1868, the Ottawa Town Company, by its president, I. S. Kalloch, and by its secretary pro tem., G. S. Holt, executed and delivered to Eobert Atkinson as treasurer of the Ottawa University, for the sole use and benefit of the Ottawa University, a quitclaim deed of the 97 lots referred to in the seventh, paragraph herein, being 97 of the 100 lots before that time conveyed by the said Ottawa Town Company to the board of county commissioners of Franklin county. That there was no consideration whatever paid by the Ottawa University, either directly or indirectly, to the Ottawa Town Company for the lots aforesaid, but the quitclaim deed so made was made as a donation to the Ottawa University to enable that corporation to complete a certain building then being erected as a school building outside of the limits of the town of Ottawa, and more than one-fourth óf a mile distant from the limits of the property and land held and owned by the Ottawa Town Company, and off from said property and land.

9th, On the 9th of August, 1870, the board of county commissioners of the county of Franklin made and delivered to John H. Whetstone a quitclaim deed to 100 lots mentioned and referred to in the second paragraph herein, but without any consideration paid therefor by the said Whetstone, or by any person for him, either directly or indirectly, to said board of county commissioners, or to any one, for the use and benefit of Franklin county, and -without any agreement or promise, either express or implied, to pay or cause to be paid at any time or in any manner any valuable consideration, except that on the same day the said Whetstone, with W. T. Pickrell as his security, executed and delivered to said board of county commissioners a bond in the sum of $15,000, conditioned that they will, in consideration of said quitclaim deed, save harmless the board of county commissioners of the county of Franklin from all liability, by way of damages or expenses incurred or which may be incurred or expended by reason of the giving of the bond by said board, referred to and described in the third paragraph herein.

10th, On the 10th of August, 1870, John H. Whetstone executed and delivered to W. T. Pickrell a quitclaim deed for lots 18 and 20 in block 72, and on the 15th of August 1870 said Whetstone executed and delivered to George S. Holt a quitclaim deed for lots 7, 9 and 11, in block 69, and on the 15th of August 1870 .said Whetstone executed and delivered to W. W. Eoller and J. L. Hawkins a quitclaim deed for lots--in block-, and on the 17th of August 1870 John H. Whetstone.executed and delivered to L. C. Wasson a quitclaim deed for lots 1, 3, 5, 7 and 9, in block 81, part of the lots described in quitclaim deed from board of county commissioners of the county of Franklin to said Whetstone, referred to and described in the ninth paragraph herein.; and all the deeds, bonds and writings herein referred to were duly recorded in the office of the register of deeds of Franklin county, in the order of their dates respectively.

11th, On the 30th of December, 1868, at the time of the meeting of the Ottawa Town Company, the following were resident stockholders or shareholders residing in and in the vicinity of the town of Ottawa: E. J. Nugent, J. C. Richmond, E. Cobb, J. T. Jones, C. C. Hutchinson, G. S. Holt, S. T. Kelsey, J. H. Whetstone and A. S. Lathrop. In all of the meetings of the Ottawa Town Company, A. S. Lathrop had represented the interest of R. D. Lathrop, and said A. S. Lathrop had no notice of the meeting above referred to, and protested in his own behalf, and for R. D. Lathrop, against the attempted conveyance or transfer of the interest of the Ottawa Town Company to Robert Atkinson, treasurer of the Ottawa University, of the property referred to. John H. Whetstone also opposed the conveyance last above mentioned, and made that fact known to other shareholders of the company, and to Robert Atkinson, and has never ratified the action of the Town Company.

The conclusions of law found by the district court on such trial are as follows:

1st, After the first of January, 1870, the Ottawa Town Company had an equitable interest in the 100 lots, and could elect to sue for the legal title, or for the recovery of the penalty of $15,000 fixed in the bond.

2d, The Ottawa Town Company claiming title to the 100 lots, could sell and convey its interest therein, though not in actual possession, and not holding the legal title, and the action of its grantee for the legal title, can be maintained by the grantee if it could have been by the grantor.

3d, The officers and a quorum of the stockholders of the Ottawa Town Company, could make a conveyance of the legal title or equitable interest of that corporation in the 100 lots, and no individual stockholder of the corporation can maintain an action to cancel or set aside such conveyance, though the same was made for an inadequate consideration.

4th, The conveyance by the Board of County Commissioners to John H. Whetstone vested in the grantee no greater title or interest than that held by the county at the time; and the bond for re-conveyance, and the deed to the Ottawa University being duly recorded, said Whetstone had full knowledge of the equities in favor of the Ottawa Town Company and Ottawa University, and the Ottawa University can therefore maintain the action against said Whetstone, if the Ottawa Town Company could maintain a like action against the Board of County Commissioners.

The court therefore finds for the plaintiff.

The first finding of fact sets forth, among others, that the Ottawa Town Company is a corporation created under the laws of the state of Kansas. The following is a copy of the article of incorporation filed with the secretary of state, on the 6th of September, 1864, which by stipulation of the parties is to be taken as one of the facts found in this case:

“This is to certify that the undersigned have formed themselves into an association or body corporate, for the purpose of locating and laying out a Town Site, and making improvements therein. The particular tracts of land to be obtained as a Town Site, are the east half of section thirty-five (E.-| sec. 35), and the west half of section thirty-six (W.f sec. 36,) both of township seventeen south, (T. 17 s.,) and range nineteen east (R. 19 e.,) upon what is known as the Ottawa Reservation, in the county of Franklin, in the State of Kansas. The name of the Company or body corporate, shall be ‘The Ottawa Town Company/

“In witness whereof, we the undersigned, have hereunto interchangeably set our hands and seals this first day of September, Eighteen Hundred and Sixty.-Four.

Clinton C. Hutchinson, [Seal.]

John C. Richmond, [Seal.]

Isaac S. Ka^loch, [Seal.]

Charles T. Evans, [Seal.]

Asa S. Lathrop, [Seal.]”

As none of the testimony is before us, except so far as it is shown by the stipulation just cited, the only question is, whether upon the pleadings and findings of fact the defendant in error, the Ottawa University, ought to have recovered a judgment against the plaintiff in error. Upon this the plaintiff in error makes the following points:

“ 1st, That the deed of December 30th, 1868, under which plaintiff below claims, is ultra vires of the corporation, and therefore void.

“ 2d, That it is void as against any shareholder not assenting to its execution.

“ 3d, That as a deed of quitclaim, it places neither a legal nor equitable interest in the grantee, and especially as against the plaintiff in error.

“ 4th, That the findings of the court as matter of law, on the rights of the obligee in the bond, or the grantee in the quitclaim deed, are erroneous.”

1. Articles of incorporation. Powers of corporation. 2. Donations of company.™ 3. when dona-ultra vires. The first is the principal question, and it is one of no little difficulty. It is insisted that there is no express power conferred to donate the property of the corporation, nor to use ^ f°r the purpose of making improvements elsewhere than within the limits of the town site, nor jg p0wer necessary and incidental to the carrying out of the specific purpose for which the corporation was created. Looking simply at the articles of incorporation, and regarding the words used therein as selected by the corporators with especial reference to a limitation of the powers of the corporation, arid this argument is strong. Power is given to locate and lay out a town site and make improvements thereon. A town can be located and laid out, and improvements made in it, without the donation of a single lot, and without the use of a single dollar’s worth of property in making of outside improvements. We are fully aware of the rule that corporations take nothing by implication, and that it is the duty of courts, especially in this day, when so much of the business of the country is carried on by corporations and so much of its wealth held by them, to see to it that the powers of a corporation are not exercised beyond its charter, but are kept within the limits which the legislature has prescribed. Only in this way can the rights of the stockholders be protected against the illegal action of the directors, or of the minority of the stockholders against similar action of the majority. On an examination we find that the words used in the articles of incorporation under consideration were taken from the statute, where they stand as descriptive of the general purposes of such a corporation. (Comp. Laws, 372, ch. 44, § 37.) This section reads: “ When any number of persons * * * associate themselves together for the purpose of locating and laying out a town-site and mailing improvements therein, they shall under their hands and seals make a certificate,” etc., and when incorporated “shall have the same general corporate powers as are provided in the twentieth section of this act, and subject to all the restrictions hereafter provided.” It would seem then from the adoption of the words of the statute that the corporators intended thereby, not so much a special limitation on the powers of this town-site corporation, as the creation of one of the nature and with the general powers specified in the statute. If special limitations had been sought, additional words would have been used. Turning now to § 20 of the same chapter of the statutes, (the section referred to,) we find that it empowers them to “ contract and be contracted with, acquire and convey at pleasure all such real and personal estate as may be necessary and convenient to carry into effect the objects of the incorporation, to make and use a common seal, and the same to alter at pleasure, and do all needful acts to carry into effect the object for which it was created; and such company shall possess all the powers and be subject to all rules and restrictions provided by this act.” And by § 45 of said act it is provided by way of restriction that “no company or association incorporated under the provisions of this act shall employ its stock, means, assets or other property, directly or indirectly, for any other purpose whatever than to accomplish the legitimate objects of its creation.” Now, town-site companies are neither novel nor rare in Kansas. Every county has been the home of several, and the manner of their working and the means employed to accomplish their purposes, are familiar to us all. Nor is Kansas peculiar in this respect. Every western state is full of them. They are private corporations, organized for the purposes of gain. They take real estate, lay it off into lots and blocks, streets and alleys, induce people to settle and purchase, and by the sale of lots make their profits. Their object is to make gain by the sale of lots, and they may “convey at pleasure such real estate as may be necessary and convenient to carry into effect this object.” If by the donation of one ■ lot they can double the value of the remainder, is not the one lot used directly to accomplish the legitimate object of the corporation? If by donating 100 lots to the county they can secure the county-seat and the erection of county buildings, are they not furthering the very purpose of building up a town? This the counsel for plaintiff in error seem to concede, for thus, they say, they secure improvements on the town-site. Here the improvements, to secure which this donation was made, were to be placed from one-fourth to one-half of a mile away from the town. And if there, why not anywhere, urge counsel. The purpose of securing improvements on the town-site is not simply that the improve.ments be there, but that thereby the property the corporation has to sell may be enhanced in value. And if the lots were donated to secure the erection of a hospital or school at a remote place, as suggested by counsel, there would be no resultant benefit to the corporation of enhanced value of its unsold lots. It seems to us that this must be the test: If the direct and proximate tendency of the improvements sought to be obtained by the donation is the building-up of the town and the enhanced value of the remaining property of the corporation, the donation is not ultra vires. The purpose of the corporation is to build up a town and make gain by the sale of lots. This purpose is directly furthered by such a donation. See as bearing upon the questions here discussed the late case from California (40 Cal., 84,) of Vandall vs. The Dock Co., reported in 10 Am. Law Reg. (N.S.) 506, which in many respects is similar to this. The donation in this case was to aid the Ottawa University in erecting a school building near the town site. It will hardly be doubted that the direct and proximate tendency of such an improvement was to enhance the value of property in Ottawa. Hence the donation was not ultra vires.

4. Acts of corporation bind stockholders. The donation being within the powers of the corporation, having been made by the proper officers, and having been fully authorized by a vote of the corporation at ... __ _ . - ah a regularly called meeting, it follows that all the stockholders are bound by the act. The proceedings on the part of the corporation appear to have been regular. At least no defect is pointed out in them.

5. Conveyance; deed. The Ottawa Town Company had an interest in these lands, such an interest as is created by a bond to convey. interest in land may be conveyed by deed, quitclaim or otherwise. (Gen. Stat., 185, § 3.)

„ „ „. alternative, The county had given a bond with penalty to build a court-house before the first of January, 1870, or reconvey the lots. The time to build the court-house had passed. It then left the contract of the county a simple bond with a penalty to convey. Equity always treats this as a contract to convey which may ordinarily be specifically enforced, and does not leave the party to his legal remedy on the bond. (Waynick v. Richmond, 11 Kas., 488.)

We see no error in the judgment, and the same will be affirmed.

All the Justices concurring.

Case Details

Case Name: Whetstone v. Ottawa University

Court Name: Supreme Court of Kansas

Date Published: Jul 15, 1874

Citation: 13 Kan. 320

Court Abbreviation: Kan.