Holt v. Winfield Bank

• Citation: 25 F. 812
• Court: U.S. District Court — District of Kansas
• Decision Date: 16 December 1885
• Parties: HOLT and another v. WINFIELD BANK. SAME v. McMULLEN.

25 F. 812

HOLT and another v. WINFIELD BANK.

SAME v. McMULLEN.

United States Circuit Court, D. Kansas.

December 16, 1885

G. W Beebe and Rossington & Smith, for plaintiff.

J. J Buck and C. F. McMillen, for defendant.

BREWER J.

These two cases are tried together. The first case presents this question: The Winfield Bank, by its president subscribed a thousand dollars towards the building of a creamery in Winfield. I think it immaterial to state the form in which the plan was to be carried out. The sum and substance of it was that the bank, by its president, subscribed a thousand dollars towards the building of a creamery; and the question is whether the bank is bound by that subscription.

Counsel for plaintiff have with great diligence found and submitted to me some 25 or 30 cases involving the question of the responsibility of a corporation for contracts which are not within the line of its corporate business. It may be considered as settled law to-day that where a corporation goes outside the scope of its legitimate business and makes a contract, and that contract is executed and the corporation has received the benefits of the contract, the courts will never listen to a plea of ultra vires. It also, I think may be laid down as within the limits of many decisions and good law that where the contract is within the general scope of the business of corporations of that character, though beyond the powers actually vested in the particular contracting corporation, parties who make the contract, in ignorance of the peculiar limitations in the special corporate powers of this individual corporation, are not prejudiced by them. It may also be laid down as a third proposition that wherever a contract has been entered into which is beyond the powers of the corporation, and other parties have acted upon the faith of that contract and parted with money or value, and the relations of parties have become so changed that the status ante the contract cannot be restored, the courts will not listen to a plea of ultra vires; but with these limitations and possibly some others, which, however, are not germane to this case or which do not now occur to me, the doctrine is still true that a corporation created with certain defined powers cannot go outside of those powers and make a contract to bind. A corporation created for banking purposes cannot go into the insurance business; and while the contract remains executory no contract of insurance can be enforced against it. And this is no technical, artificial, arbitrary rule. It is founded in the protection necessary to stockholders who invest their means in the corporation. They may be willing to trust their means in a certain class of business, and if the corporation is created for that class of business they have a right to rely upon the fact that it will not engage in any other business. No question of estoppel rises in this case upon the stockholders by reason of their personal action. This subscription was signed by the president with the assent of a majority of the directors. The answer, not put in issue alleges that the party who obtained this subscription, who was the active...