Lyons-Thomas Hardware Co. v. Perry Stove Manuf'G Co.

• Decision Date: 16 November 1893
• Citation: 24 S.W. 16
• Court: Texas Supreme Court
• Parties: LYONS-THOMAS HARDWARE CO. et al. v. PERRY STOVE MANUF'G CO. et al.

Page 16

24 S.W. 16

LYONS-THOMAS HARDWARE CO. et al. v. PERRY STOVE MANUF'G CO. et al.

Supreme Court of Texas.

November 16, 1893.

Certified questions from court of civil appeals of second supreme judicial district.

Action by the Perry Stove Manufacturing Company and others against the Lyons-Thomas Hardware Company and others to set aside a deed of trust. From a judgment for plaintiffs, defendants appealed. Questions certified from the court of civil appeals.

Maxey, Lightfoot & Denton and Dudley & Moore, for appellants. Hale & Hale and T. S. Hill, for appellees.

STAYTON, C. J.

The questions submitted by the court of civil appeals for decision are: "(1) Whether or not a preferential deed of trust executed by a private trading corporation (chartered in July, 1884, under general law) after it has become insolvent, and consequently ceased to carry on its business, without any intention of resuming the enterprise, is void as against the unsecured creditors of such corporation. (2) If a private corporation, under such circumstances, has the same power to prefer its creditors as an individual, whether such preferential deed is void in law because of the fact that the stockholders, directors, and other officers of the corporation, who executed in the name of the corporation, are liable as sureties and indorsers on the preferred claims." Both questions present a case in which, on account of insolvency, the corporation had ceased to carry on business, and had no intention at any time to resume, when the instrument was executed through which preference was intended to be given.

The corporation was one having no powers other than such as are given by the laws of this state regulating incorporation under the general law, which of course will embrace powers, although not expressly given, that are necessary to the exercise of those which are. It is contended, however, that such corporations have all the powers to give preferences which a person has, so long as the corporate existence continues, unless such power is denied by the common law or by the statutes of this state; and, in support of this proposition, reference is made to the opinion in case of Riche v. Iron Co., L. R. 9 Exch. 263, in which the court was considering the powers conferred on corporations created under general acts of parliament. In the course of the opinion, referring to the case of Sutton's Hospital, 10 Coke, 30, it was said that was "an express authority that at common law it is an incident to a corporation to use its common seal for the purpose of binding itself to anything to which a natural person could bind himself, and to deal with its property as a natural person might deal with his own; and, further, that an attempt to forbid this, on the part of the king, even by express negative words, does not bind the law. * * * I take it that the true rule of law is that a corporation, at common law, has, as an incident given by law, the same power to contract, and subject to the same restrictions, that a natural person has." The question involved in that case was whether a certain transaction was ultra vires, and its solution depended on the question whether corporations incorporated under the general law had the same powers as what may be termed "common-law corporations." On appeal to the house of lords, it was held that a company created a corporation under the general law providing for voluntary incorporation was not a corporation possessed of inherent common-law rights, but was limited to the powers properly embraced under the law in the memorandum of association. Iron Co. v. Riche, L. R. 7 H. L. 633. The English acts regulating incorporation, as do the acts in force in this state on that subject, prescribe the powers corporations organized under them may exercise, and it ought to be deemed settled law that they have only such powers as the acts under which they are created confer upon them. Attorney General v. Great Northern Ry. Co., 1 Drew. & S. 154; Eversfield v. Railway Co., 3 De Gex & J. 286; Green Bay & M. R. Co. v. Union Steamboat Co., 107 U. S. 100, 2 Sup. Ct. 221; Thomas v. Railroad Co., 101 U. S. 81. In the case last cited it was contended, as in this, that a corporation created as suggested in the questions submitted may do any act not expressly or impliedly prohibited by its charter, as might corporations at common law, but in reply to this it was said: "We do not concur in this proposition. We take the general doctrine to be, in this country, though there may be exceptional cases and some authorities to the contrary, that the powers of corporations organized under legislative statutes are such, and such only, as those statutes confer. Conceding the rule applicable to all statutes, that what is fairly implied is as much granted as what is expressed, it remains that the charter of a corporation is the measure of its powers, and that the enumeration of these powers implies the exclusion of all others." In Head v. Insurance Co., 2 Granch, 127, it was said: "An individual has an original capacity to contract and bind himself in such manner as he pleases. * * * But, with those bodies which have only a legal existence, it is otherwise. The act of incorporation is to them an enabling act. It gives them all the power they possess. It enables them to contract." In Davis v. Railroad Co., 131 Mass. 259, it was said that a corporation "is not vested with all the capacities of a natural person, or of an ordinary partnership, but with such, only, as its charter confers;" and it may be doubted if the English decisions assert any other rule, except as to corporations existing by prescription, whose existence, as well as powers, must be determined by long and uninterrupted exercise of corporate franchise. If the power thus used be for sufficient length of time as unrestricted in business as is that of a natural person, the same reason exists for presuming that a grant of such power was at some remote period made as for presuming the existence of a grant of corporate franchise from its exercise for a great number of years. It is probably true that English courts, in speaking of "corporations by the common law," refer only to those that have exercised corporate powers from time immemorial, and it may be safely assumed that no mere trading corporation was ever thus classified. Although requested to do so, if possible, counsel have been unable to furnish any decision by an English court, except the one before referred to, — which, as we have seen, was expressly overruled, — in which it was held that a corporation created under the acts of parliament regulating the formation and business of companies with corporate powers had any such powers as are here claimed for trading corporations created under the general laws of this state; and, in view of the learning and industry of counsel, we feel authorized to conclude that no such decision exists.

Whether such transactions as are set out in the questions propounded are consistent with rules recognized by courts of law as well as by courts of equity, and by them enforced for the preservation of rights and redress of wrongs, will be considered hereafter.

The broad proposition that a corporation created under the general laws of this state may do any act in reference to its property which a natural person may do with his is expressly negatived by the statute. The memorandum of association termed by the statute the "charter" is required to state "the purpose for which it is formed." Rev. St. art. 567. This requirement is not solely that evidence may be thus furnished that the company is one intending to pursue a business for which the statute permits incorporation, but is also intended for the protection of those who may become stockholders or creditors, who are entitled to know in what business the corporation may engage, for without this they cannot know the extent of its powers, nor the hazards to which they may be legally exposed. The statute further provides that "no corporation created under the provisions of this title shall employ its stock, means, assets or other property, directly or indirectly, for any other purpose whatever, than to accomplish the objects of its creation." Rev. St. art. 589. The objects of its creation are none other than such as are named in the charter. A natural person may make any disposition of his property not forbidden by law, and may make any contract lawful within itself; but, under the plain terms of the statute referred to, a private corporation has no such power. The statute enumerates the powers of private corporations existing under it, and they will be here noticed. It declares that they shall have power "to hold, purchase, sell, mortgage or otherwise convey such real and personal estate as the purposes of the corporation shall require, and also to take hold and convey such other property real, personal or mixed as shall be requisite for such corporation to acquire in order to obtain or secure the payment of any indebtedness or liability due or belonging to the corporation." Rev. St. art. 575. No such restrictions upon the power of natural persons to acquire, hold, or dispose of property exist; and the manifest purpose of this statute was not so much to confer power on such corporations to hold, purchase, sell, or mortgage property necessary for the proper transaction of the business named in the charter as to restrict the power of corporations to hold, buy, sell, or mortgage, subject to one exception, — to such property as may be reasonably necessary to the legitimate business of the particular corporation; for without such an express grant of power the incorporation of a company, with authority to carry on a specified business, would carry with it power to hold, purchase, sell, mortgage, or otherwise convey property necessary to that business. Power to hold, purchase, and sell property would be absolutely necessary to the business of any trading corporation,...