Orpheum Theater & Realty Co. v. Seavey & Flarsheim B. Co.

• Decision Date: 05 November 1917
• Docket Number: No. 12506.,12506.
• Citation: 197 Mo. App. 661,199 S.W. 257
• Parties: ORPHEUM THEATER & REALTY CO. v. SEAVEY & FLARSHEIM BROKERAGE CO.
• Court: Missouri Court of Appeals

199 S.W. 257

197 Mo. App. 661

ORPHEUM THEATER & REALTY CO. v. SEAVEY & FLARSHEIM BROKERAGE CO.

No. 12506.

Kansas City Court of Appeals. Missouri.

November 5, 1917.

Rehearing Denied December 3, 1917.

Appeal from Circuit Court, Jackson County; C. A. Burney, Judge.

Action by the Orpheum Theater & Realty Company against the Seavey & Flarsheim Brokerage Company. Judgment for plaintiff, and defendant appeals. Reversed.

Grant I. Rosenzweig, of Kansas City, for appellant. Hadley, Cooper, Neel & Wright, of Kansas City, for respondent.

ELLISON, P. J.

Plaintiff and defendant are corporations organized under the laws of this state; the former as a theater, and the latter as a brokerage company. The former was in the course of preparation for the erection of a large theater building in Kansas City, and the latter was engaged in what is commonly known as the brokerage business in such city. Its articles of incorporation stated that it was organized for the purpose of carrying on and doing "a general brokerage business." Just prior to the origin of the present controversy the plaintiff corporation desired to change its location from West Ninth street in said city to a new place on Baltimore avenue, if it could receive sufficient financial encouragement from property holders in the latter vicinity. To that end subscriptions were started among interested property holders, who it was thought would be led to subscribe with a view to the increased value of their holdings likely to follow the erection of a large and handsome building.

Defendant was located in the brokerage business in a distant part of the city, but its stockholders, three in number, as individuals, jointly owned a 25-foot lot in the vicinity of the proposed theater building. It was solicited to subscribe and did make a subscription in the sum of $1,000 as a bonus for the erection of the building, duly signed in its corporate name, by its vice president. The building was thereafter erected, and defendant refusing to pay, this action followed, the plaintiff recovering judgment in the trial court. More than one reason has been assigned for refusing to pay, among others, no consideration and fraud, but we put these aside and proceed to consider the main controversy which relates to the power or authority of the defendant corporation to make a subscription for the foregoing purposes in the circumstances stated. It involves the doctrine of ultra vires. It will be observed that defendant is a corporation doing a brokerage business not in the vicinity of the proposed new building, and that it did not own any property in that neighborhood, and could not be said to be benefited by the improvement. Doubtless defendant was approached because its stockholders owned the lot spoken of above near the new building, but as for defendant itself it had no interest in the matter which could be subserved.

Corporate existence, power to transact business and incur obligations, come from a grant by the state; in this state by public law. Our statute forbids an incorporation when, as here, the corporate name is that of a person or firm, unless the business be named, followed by the word "company" or "corporation." Section 2978, R. S. 1909. In this case the business was named "Seavey & Flarsheim Brokerage Company." The statute also requires the purpose for which the corporation is formed to be stated. Section 3339, R. S. 1909, subd. 7. Finally it is provided in section 2990 of the statute, as is specified in section 7, art. 12, of the Constitution:

"That no corporation shall engage in business other than that expressly authorized in its charter, or the law under which it may have been or may hereafter be organized."

Every one dealing with the corporation is bound to take notice of this law. Franklin Co. v. Lewiston Sav. Bank, 68 Me. 43, 28 Am. Rep. 9.

It is a fundamental rule of corporation law that the law of its nature "is such and only such as its charter confers." N. Y. F. Ins. Co. v. Ely, 5 Conn. 560, 13 Am. Dec. 100; Scott v. Bankers' Union, 73 Kan. 575, 585, 85 Pac. 604. The Supreme Court of Illinois said that:

"A corporation has no natural rights or capacities, such as an individual or an ordinary partnership, and if a power is claimed for it, the words giving the power or from which it is necessarily implied must be found in the charter or it does not exist." Nat. Home Bldg. Ass'n v. Bank, 181 Ill. 35, 40, 54 N. E. 619, 64 L. R. A. 399, 72 Am. St. Rep. 245.

The Supreme Court of the United States in Central Trans. Co. v. Pullman Car Co., 139 U. S. 24, 48, 11 Sup. Ct. 478, 484 (35 L. Ed. 55) said that:

"The charter of a corporation, read in the light of any general laws which are applicable, is the measure of its powers, and the enumeration of those powers implies the exclusion of all others not fairly incidental."

The same is said in Best Brewing Co. v. Klassen, 185 Ill. 37, 57 N. E. 20, 50 L. R. A. 765, 76 Am. St. Rep. 26. We cite also Davis v. Old Colony Railroad and Davis v. Smith American Organ Co., 131 Mass. 258, 276, 41 Am. Rep. 221, for an exhaustive discussion of the subject, though the necessities of the case before us do not require that we approve of the application of the law to the facts of those particular cases.

To legalize transactions purporting to be the act of a corporation (apart from any question of estoppel or ratification) one must find its express authorization in the law (and so our statute says), or show a necessary implication of authority in order to enable it to fully carry out, or exercise, the functions for which it has been brought into existence. Franklin Nat. Bank v. Whitehead, 149 Ind. 560, 49 N. E. 592, 39 L. R. A. 725, 63 Am. St. Rep. 302. It is said in Stacy v. Glen Hotel Co., 223 Ill. 546, 552, 79 N. E. 133, 136 (8 L. R. A. [N. S.] 966) that:

"Where an act is not ultra vires for want of power in the corporation, but for want of power in its agents or officers or because of the disregard of mere formalities which the law requires to be observed or is an improper use of one of the enumerated powers, it may be valid as to third persons; where, however, the contract of a corporation is ultra vires in the proper sense, that is to say, beyond the object of its creation as defined in the law of its organization and therefore beyond the powers conferred upon it by the Legislature, the contract is not only voidable, but is wholly void and without any legal effect. The objection to the contract in such case is not merely that the corporation ought not to have made it, but that it could not make it. Such a contract cannot be ratified by either party, because it could not have been authorized by either party. No performance on either side can give the unlawful contract validity or be the foundation of any right of action upon it. When a corporation is acting within the general scope of the powers conferred upon it by the Legislature, the corporation, as well as persons contracting with it, may be estopped to deny that it has complied with the legal formalities which are prerequisites to its existence or to its action, because such prerequisites might, in fact, have been complied with; but when the contract is beyond the powers conferred upon it by existing laws, neither the corporation nor the other party to the contract can be estopped to show that it was prohibited by those laws by consenting to it or acting upon it."

The same thing is stated in Central Trans. Co. v. Pullman Car Co., 139 U. S. 24, 59, 60, 11 Sup. Ct. 478, 35 L. Ed. 55, and is reasserted in McCormick v. Market Nat. Bank, 165 U. S. 538, 539, 17 Sup. Ct. 433, 41 L. Ed. 817, and Cal. Bank v. Kennedy, 167 U. S. 362, 367, 17 Sup. Ct. 831, 42 L. Ed. 198. The later cases in this state do not conflict with these. However, there are cases to be found that are not in harmony with them. Some have likened cases involving ultra vires to actions involving the statute of frauds where performance deprives the statute of application. We said of such suggestion in Kansas City v. O'Connor, 82 Mo. App. 655, 662, that cases of ultra vires could not be likened to those under the statute of frauds, "for the former are prohibited from being made, and the corporation cannot make them. A thing void cannot be made valid by relation. While the latter are not prohibited from being made, but are only prohibited from being enforced, and they are not void, they are simply unenforceable. The language of the statute of frauds is that `no action shall be brought to charge,' etc., while the language of the law is that no contract beyond the chartered power can be made." We further stated in that case that where the contract has been performed on both sides, neither could rely on ultra vires, since to do so would require a plea of one's own violation of the law. We further said, quoting from Central Trans. Co. v. Pullman Car Co., 139 U. S. 60, 11 Sup. Ct. 488, 35 L. Ed. 55, that:

"A contract ultra vires being unlawful and void, not because it is in itself immoral, but because the corporation by the law of its creation, is incapable of making it, the courts, while refusing to maintain any action upon the unlawful contract, have always striven to do justice between the parties, so far as could be done consistently with adherence to law, by permitting property or money, parted with on the faith of the unlawful contract, to be recovered back, or compensation to be made for it. In such case, however, the action is not maintained upon the unlawful contract, nor according to its terms; but on an implied contract of the defendant to return, or, failing to do that, to make compensation for, property or money which it has no right to retain. To maintain such an action is not to affirm, but to disaffirm, the unlawful contract."

A comparison of controlling Missouri cases with those referred to we think does not disclose the radical difference as plaintiff undertakes to make out. Indeed they are without...