Jenson v. Toltec Ranch Co.

• Decision Date: 28 October 1909
• Docket Number: 3,020.
• Citation: 174 F. 86
• Parties: JENSON v. TOLTEC RANCH CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

174 F. 86

JENSON v. TOLTEC RANCH CO. et al.

No. 3,020.

United States Court of Appeals, Eighth Circuit.

October 28, 1909

(Syllabus by the Court.)

A corporation, like an individual, is bound to innocent third persons by the apparent authority with which it clothes its officer within the scope of his authority and within the powers of the corporation to the same extent as by the actual power it confers upon him.

Where without challenge by the other officers or by the stockholders of the corporation, an officer has exercised a power within the general scope of his actual authority and within the powers of the corporation to do certain acts in its name and on its behalf for such a length of time as to justify others in believing that his acts and management were within his lawful powers and approved by the corporation, the stockholders and the corporation are alike estopped from denying to the prejudice or injury of parties who have acted in reliance upon his apparent authority, that he had actual authority to do similar acts in its behalf.

An officer of a corporation, who was empowered to sell and convey its land without the signature of any other officer in its name bought and sold land, borrowed money, and secured its repayment by the pledge of its personal property and a land contract, and conducted all the business of the corporation for six years without protest or objection. He then borrowed money of a bank and secured its repayment by the conveyance of some of the land of the corporation.

Held the corporation and its officers and stockholders were estopped from denying that he had authority so to do.

It is no defense to an action upon a contract executed by the promisee that a divisible part of its consideration was without the powers of the promisor corporation, if the other part was valuable, legal, and within them; for the promisee may waive the part without the powers of the promisor and recover upon the consideration within its powers.

It is no defense to a suit to enforce a contract performed by the promisee to repay money loaned to or paid for a corporation and it is no defense to a mortgage to secure such repayment that the lender or payor knew that the borrower intended to use, or was using, the money thus paid for an illegal purpose, or for a purpose beyond its corporate powers, provided that the promisee did not combine to induce, and did not share in the benefits of, such use.

Equity restores to corporations property with which they have parted by means of conveyances or contracts beyond their powers only on condition that they first restore the property, or the value of the property, which they have secured thereby, pursuant to the rule that 'he who seeks equity must do equity.'

The T. Co., a corporation empowered to buy, sell, convey, mortgage, and deal in land and other property bought, without corporate authority so to do, stock of the P. Co., a corporation empowered to construct and operate an electrical plant and waterworks, and agreed to pay $18,750 therefor. The two corporations requested the bank to guarantee a proposed contract of the P. Co. for pipe to the amount of about $9,700, and to pay the checks of the P. Co. upon it for the expenses of improvements it was about to make to an amount not exceeding $18,750, in consideration that the T. Co. would convey to a trustee certain of its land and would pledge the stock it had bought to secure the repayment to the bank of the money so advanced. The bank granted the request, the T. Co. conveyed the land to a trustee and pledged the stock to secure the repayment of the money to be advanced, the bank paid out $16,386.30 on the checks of the P. Co. in reliance upon this security, and then sued the T. Co. to foreclose the mortgage upon the land.

(Ed. Note.-- For other cases, see Corporations, Dec. Dig. Sec. 440.*)

Held: (1) The contract of loan and the conveyance of the land by the T. Co. to secure the repayment of the money advanced by the bank were within the powers of that corporation and enforceable.

(2) Conceding that its purchase of the stock of the P. Co. was beyond its corporate authority, and that the bank knew it, those facts were not fatal to the contract of loan or to the mortgage.

(3) The fact that the indemnity for the guaranty of the contract of the power company with the pipe company was a part of the consideration of the loan contract was not fatal to a recovery by the bank thereon, because the loan of the money was a valid consideration for that contract, the agreement to repay it was within the corporate power of the T. Co., and the promisee might waive its contract of indemnity and rely upon the valid consideration.

The Toltec Ranch Company was a corporation of the state of California, empowered to buy, sell, mortgage, and deal in land, live stock, and general merchandise. Its home office was in San Francisco; but all its property was situated and all its business was conducted in the state of Utah by D. P. Tarpey, who was its president, general manager, and treasurer, who was authorized to buy, sell, and convey land for it, and who, from 1896, when it was organized, had conducted all its business under five directors, who held one share of stock each, and who acquiesced in all that he did. Its capital stock consisted of 1,000 shares, of which M. F. Tarpey of San Francisco, a brother of its president, held 995 shares as trustee to secure the repayment to him of a debt of about $57,000.

Joseph M. Jenson, the complainant, was one of the owners of a private bank called the Bank of Brigham City, and acted as its president. The Toltec Company had an account with that bank, in which it had deposited funds and against which it had drawn checks that were honored for more than six years. It had borrowed money of that bank about 50 times, and had given its notes, a land contract, and notes of third persons to it as security for the repayment of the money it borrowed at various times. The Box Elder Power & Light Company was a corporation authorized to buy and lease land, and to buy, sell, operate, and deal in machinery and appliances to generate and distribute light and power. It was anxious to construct a new pipe line, an electric plant, and other improvements for the purpose of furnishing power and light to Brigham City, and to that end it had negotiated a contract of purchase of pipe and other materials for about $9,735.08 from the Excelsior Wooden Pipe Company; but the latter company had refused to enter into the contract of sale until the Power Company's promise to pay the purchase price was guaranteed. The capital stock of the Power Company consisted of 1,000 shares, each of the par value of $100.

Thereupon the Toltec Ranch Company and one Chase agreed with the Power Company that each of them would purchase of that company 298 of its shares, and that in consideration of the delivery of that stock to them they would pay to the Power Company $18,750, to be used by that corporation in the construction of its pipe line and electric plant, and Chase agreed with the Toltec Company to deliver his share of this stock to the Toltec Company and to authorize it to pledge it to secure the repayment of money it was to borrow. Chase performed his part of this contract, so that the Toltec Company acquired the control of 498 shares of the stock of the Power Company. The Toltec Company, Chase, and the Power Company then made this contract with the bank. The bank, at the request of the Toltec Company and the Power Company, agreed, in consideration of the conveyance by the Toltec Company to Jenson as trustee of certain lands, which are the subject of this suit, and of its pledge of the 498 shares of stock of the Power Company, to secure the repayment to it of the moneys to be advanced by it, to guarantee the payment by the Power Company of the purchase price of the pipe and materials to be bought by it of the Excelsior Company, and to pay its checks on account of this purchase price and on account of other expenses of constructing its pipe line and electric plant, to an amount not exceeding $18,750, and the Toltec Company agreed to convey the land and to pledge the stock to secure the repayment to the bank of the moneys it should expend, either on account of this guaranty or on account of the payment of the checks of the Power Company. In fulfillment of this agreement the Toltec Company conveyed the land and the 498 shares of stock to Jenson as trustee on June 25, 1903, the bank guaranteed the payment of the purchase price of the pipe and materials on July 3, 1903, and thereafter paid upon the checks of the Power Company $9,735.08 for the pipe, and other sums for other expenses of construction, so that the whole amount thus advanced by it was $16,386.30. On November 2, 1903, the bank had paid out $14,000 of this amount, and it then requested the Power Company to execute, and it did make, its promissory notes for that amount, and it paid interest thereon for about two years, but it has never paid more, and it now denies liability thereon.

The Toltec Company refused to repay to the bank any part of the $16,386.30, and Jenson, who had become the sole owner of the claim of the bank, brought suit against the Toltec Company and the Power Company, and prayed for a judgment against each of them and for the sale of the land to pay the debt. The Toltec Company denied all the material averments of the bill and filed a cross-bill in which it alleged that the deed of the Toltec Company was beyond the powers of that corporation, because it was made to secure the payment of a guaranty of another's debt and to borrow money to pay the purchase price of the stock of another corporation, and it prayed that the complainant be required to reconvey...