Franklin Co. v. Lewiston Inst. for Sav.

• Decision Date: 18 December 1877
• Citation: 68 Me. 43
• Parties: FRANKLIN COMPANY in equity v. LEWISTON INSTITUTION FOR SAVINGS.
• Court: Maine Supreme Court

68 Me. 43

FRANKLIN COMPANY in equity v. LEWISTON INSTITUTION FOR SAVINGS.

Supreme Judicial Court of Maine.

December 18, 1877

W P. Frye, J. B. Cotton & W. H. White, with whom was N. Webb, for the plaintiffs.

N Morrill, for the defendants.

WALTON J.

The claim which we are required to pass upon originated in this way:

In April, 1875, the trustees of the Lewiston Institution for Savings subscribed for $50,000 worth of the capital stock of the Continental Mills, one of the manufacturing corporations doing business at Lewiston. The savings bank had no money with which to pay for the stock, and in July following the Franklin Company, another corporation doing business at Lewiston, agreed to pay the $50,000 to the Continental Mills take the notes of the savings bank for the amount, and hold the stock as security. Five notes for $10,000 each, payable in one year from date, with interest semi-annually, were prepared and signed by the treasurer of the savings bank, and sent to William B. Wood, at Boston; and he, being treasurer of the Continental Mills as well as treasurer of the Franklin Company, paid the money in his latter capacity to himself in his former capacity, and afterwards, (when does not appear) made a certificate, signed by himself and the president of the Continental Mills corporation, stating that the Franklin Company was the " proprietor of five hundred shares in the Continental Mills, as collateral." It does not appear that this certificate was ever delivered to the savings bank, or offered to them, or that any of its officers ever knew of its existence. And it does not show upon its face that the savings bank has any interest in the stock, or connection with it whatever. The Lewiston Institution for Savings having become insolvent, in May, 1876, commissioners were appointed to receive and decide upon all claims against the institution. The Franklin Company presented for allowance the five notes above described, and afterwards filed a claim for $50,000 and interest, as so much money paid out by the Franklin Company at the request and for the benefit of the savings institution. Both claims were rejected by the commissioners, and the case is before the law court on report agreed to by counsel. There is no other consideration for the notes, and no other basis for the claim for money paid, than the payment to the Continental Mills above described. The claims, therefore, are one in substance, although presented in two forms.

I. The first question is whether it is competent for the trustees of a savings bank, at a time when there are no funds in the bank for investment, to agree to take shares in a manufacturing corporation, and thereby create a debt binding upon the bank.

We think not. It is familiar law that a corporation possesses such powers, and such only, as the law of its creation confers upon it. The rule is stated with great uniformity.

" A corporation has only such powers as are specifically granted, or such as are necessary for carrying the former into effect; and these powers can only be exercised for the purposes contemplated by its charter." Brightley's Federal Digest, citing Humphreville Copper Co. v. Sterling, 1 West. L. Mo. 126. Beaty v. Knowler, 4 Pet. 152. S. C. 1 McL. 41. Perrine v. Chesapeake & Del. Canal Co., 9 How. 172. Farnum v. Blackstone Canal Co., 1 Sum. 46.

" A corporation can do no acts, and make no contracts, either within or without the state which created it, except such as are authorized by its charter." Br. Fed. Dig., citing Bank of Augusta v. Earle, 13 Pet. 519. Tombigbee R. R. Co. v. Kneeland, 4 How. 16. Runyan v. Coster's Lessee, 14 Pet. 122.

" A corporation, being the mere creature of law, possesses only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence." Marshall, C. J., in Dartmouth College v. Woodward, 4 Wheat. 518, 636.

" An incidental power is one that is directly and immediately appropriate to the execution of the specific power granted, and not one that has a slight or remote relation to it." Hood v. N. Y. & N. H. Railroad, 22 Conn. 1, and 502.

As corporations are created by public acts of the legislature, and all their powers, duties and obligations are declared and clearly defined by public law, parties dealing with them must take notice of those powers and the limitations upon them, at their peril; and will not be allowed to plead ignorance of those powers and limitations in avoidance of the defense of ultra vires. Pearce v. Mad. & Ind. Railroad, 21 How. 441. Andrews v. Ins. Co., 37 Me. 256.

" In the United States, corporations cannot purchase, or hold, or deal in the stocks of other corporations, unless expressly authorized to do so by law." Green's Brice's Ultra Vires, 95, note, citing a large number of authorities.

" It certainly needs no argument or authority to show that a corporation created for the purpose of insurance has no power to advance its moneys or obligations to sustain another corporation in a similar or dissimilar business." Opinion of the court in Berry, receiver, v. Yates, 24 Barb. 199.

" When the directors of the company subscribed for stock in a building corporation, whatever may have been their motive, they transcended the powers conferred upon them, and departed from the legitimate business of the company, as much as if they had subscribed for stock in a manufacturing or steamboat company; and such subscription, in our opinion, is not binding upon the defendants, and any payments made upon it to the plaintiffs would be money received without consideration." Opinion of the court in Mutual Savings Bank v. Meriden Agency Co., 24 Conn. 159.

If a corporation can purchase any portion of the capital stock of another corporation it can purchase the whole, and invest all its funds in that way, and thus be enabled to engage exclusively in a business entirely foreign to the purposes for which it was created. A banking corporation could become a manufacturing corporation, and a manufacturing corporation could become a banking corporation. This the law will not allow; and it has been held that notes given by a manufacturing corporation for the purchase of shares in a bank are not collectable. Sumner v. Marey, 3 W. & M. 105. That the notes given by a railroad corporation, for the purchase of a steamboat to be run in connection with its road, are not collectable. Pearce v. Railroad, 21 How. 441.

It would seem, therefore, upon principle as well as authority, that it is not within the authority of the trustees of a savings bank to invest its funds in the stock of manufacturing corporations, unless expressly authorized so to do by its charter, or the public laws of the state.

But we do not rest...