Omaha Hardwood Lumber Co. v. JH Phipps Lumber Co., 12254

• Decision Date: 01 June 1943
• Docket Number: No. 12254,12255.,12254
• Citation: 135 F.2d 3
• Parties: OMAHA HARDWOOD LUMBER CO. v. J. H. PHIPPS LUMBER CO. J. H. PHIPPS LUMBER CO. v. OMAHA HARDWOOD LUMBER CO.
• Court: U.S. Court of Appeals — Eighth Circuit

135 F.2d 3 (1943)

OMAHA HARDWOOD LUMBER CO. v. J. H. PHIPPS LUMBER CO. J. H. PHIPPS LUMBER CO. v. OMAHA HARDWOOD LUMBER CO.

Nos. 12254, 12255.

Circuit Court of Appeals, Eighth Circuit.

April 9, 1943.

Rehearing Denied June 1, 1943.

COPYRIGHT MATERIAL OMITTED

Yale C. Holland, of Omaha, Neb. (J. A. C. Kennedy and George L. DeLacy, both of Omaha, Neb., and G. Byron Dobbs, of Fort Smith, Ark., on the brief), for Omaha Hardwood Lumber Co.

Kenneth Teasdale, of St. Louis, Mo. (Bernal Seamster, of Fayetteville, Ark., on the brief), for J. H. Phipps Lumber Co.

Before SANBORN, JOHNSEN, and RIDDICK, Circuit Judges.

JOHNSEN, Circuit Judge.

Phipps Lumber Company, an Arkansas corporation, sued to cancel a written contract for the purchase of a wood manufacturing plant, located at Little Rock, Arkansas, from Omaha Hardwood Lumber Company, a Nebraska corporation. The purchase price was $15,000, which was to be paid by deductions of ten per cent from the invoices on such lumber and wood products as Omaha Hardwood thereafter ordered from Phipps Lumber. The trial court decreed cancellation, on the ground that Phipps Lumber's secretary and general manager had executed the contract without authority or knowledge of its board of directors and outside the scope, either actual or apparent, of the customary and reasonably necessary duties of a general manager of the corporation's regular business.

Omaha Hardwood has appealed from the decree of cancellation, contending that the court erred in denying its motion to quash the service of summons, and also that the findings and conclusions on the merits are erroneous. Phipps Lumber has cross-appealed from the court's allowance, in favor of Omaha Hardwood, of a wholesaler's discount of five per cent, upon some lumber, for which recovery also was sought in the action, purchased prior to the suit and on which payment had been withheld.

We find no error in the denial of Omaha Hardwood's motion to quash the service of summons.

After the contract involved was made, Omaha Hardwood had filed a certificate of withdrawal from Arkansas and ceased to do business in the state. This action was instituted more than four years after the withdrawal, and summons was served upon the State Auditor, under section 2250, Pope's Digest Ark., which provides: "In all suits hereafter brought in any of the courts of this State against any foreign corporation upon any cause of action, whether in contract or tort, or where any liability on the part of a foreign corporation shall accrue, and suits shall be brought thereon in any courts of this State having jurisdiction of the subject matter, and if such foreign corporation has not designated an agent in this State upon whom process may be served, or has no agent within this State upon whom service of process may be had so as to authorize a personal judgment, service of summons or other process may be had upon the Auditor of State, and such service shall be sufficient to give jurisdiction to any court of this State of the foreign corporation so served, whether such service shall be issued from any court sitting in the township or county where the Auditor is served or elsewhere in this State. It shall be the duty of the Auditor of State, immediately upon receiving any such summons or other process, to transmit the same to the foreign corporation so sued, by registered mail, at its home office or other place where service of process upon such foreign corporation may be had." The State Auditor had duly transmitted the summons served upon him to Omaha Hardwood, in accordance with the requirement of the statute.

Under the construction of this statute made by the Arkansas courts, service thereunder upon a foreign corporation that has been doing business in the state is valid, even after the corporation's withdrawal from the state, on any cause of action in favor of an Arkansas citizen arising out of the corporation's previous transaction of business in the state. Sydeman Bros., Inc. v. Wofford, 185 Ark. 775, 49 S.W.2d 363. See, also, Davis v. Kansas & Texas Coal Co., C. C. W.D. Ark., 119 F. 149; Collier v. Mutual Reserve Fund Life Ass'n, C. C. W.D. Ark., 119 F. 617. The fact that the present contract was made in Nebraska and not in Arkansas would not necessarily preclude the application of the statute, since the statute has been construed as applying to "any liability arising from or growing out of contracts made or business done in the state or necessarily incident thereto". (Italics added.) National Liberty Insurance Company v. Trattner, 173 Ark. 480, 292 S.W. 677, 680. See, also, Ark. Const. art. 12, § 11. A contract between a foreign corporation doing business in the state and an Arkansas citizen, no matter where made, which is intended to be performed in part within that state while the corporation is authorized to do business there, may, we think, in a sufficient sense, give rise to a "liability arising from or growing out of * * * business done in the state or necessarily incident thereto", to be within the operation of the statute. As the trial judge expressed it in his memorandum opinion, "Regardless of where the physical execution of the contract occurred, the obligations and liabilities upon which this cause is bottomed grew out of and occurred by reason of the defendant's doing business in the State of Arkansas."

The contract relationship contemplated that Omaha Hardwood should turn over to Phipps Lumber, in Arkansas, its manufacturing plant and activity in that state. Whether the disposition of the plant was to be a mere incident in the continued conduct of business within the state, or whether it was intended only to facilitate the corporation's subsequent withdrawal from the state, is, under the liberal interpretation made of the statute by the Arkansas courts in favor of its citizens, in our opinion immaterial, since, in either situation, part of the necessary performance, at least, was to involve a direct exercise of the corporation's then-authorized powers within the state and the cause of action could properly be said to be related to and to grow out of the transaction of business which the corporation was licensed to conduct therein.

The argument that the statute is unconstitutional may be disposed of by the statement that the grounds on which a corresponding Arkansas statute was previously declared unconstitutional in Cella Commission Co. v. Bohlinger, 8 Cir., 147 F. 419, 78 C.C.A. 467, 8 L.R.A.,N.S., 537, have been cured in the present statute, by the legislative requirement that the State Auditor must transmit the summons served upon him to the corporation, and by the declaration of the Arkansas Supreme Court that the statute has no application to a foreign corporation engaged merely in doing an interstate and not a local business See Vaccinol Products Corp. v. State, 203 Ark. 302, 156 S.W.2d 250, 251; H. J. Heinz Co. v. Duke, 196 Ark. 180, 116 S.W.2d 1039, 1041; Graysonia, N. & A. R. Co. v. Newberger Cotton Co., 170 Ark. 1039, 282 S.W. 975, 982.

The validity of the service of summons has been attacked only as to the action as an entirety, and not separately as to the portion of the recovery sought for materials purchased by Omaha Hardwood subsequent to its withdrawal from the state. Whether these purchases, treated as a separate cause of action, would otherwise have been within the operation of the process statute, we are not asked to decide. On the issues and contentions presented to it, the trial court properly held the service of summons valid.

As to the contentions made on the merits, the record in our opinion amply supports the findings of the trial court that the general manager of Phipps Lumber had no actual authority from the corporation to make the contract; that his act in executing such a contract was "not usual, customary and reasonably necessary in the conduct of the ordinary business of plaintiff", so as to be impliedly within his general manager's powers; that the corporation had not held him out as possessing any such apparent authority; and that there was nothing in the previous business relationships between the two corporations that would reasonably justify Omaha Hardwood in assuming that he possessed such authority.

The general manager of a business, unless otherwise agreed, has authority to make such contracts only as are incidental to the business, are usually made in it, or are reasonably necessary in directing or conducting its ordinary operations. See Restatement, Agency, § 73; 2 Fletcher Cyclopedia Corporations, Permanent Edition, § 667; United States Bedding Co. v. Andre, 105 Ark. 111, 150 S.W. 413, 414, 41 L.R.A.,N.S., 1019, Ann.Cas. 1914D, 800; Dale v. Donaldson Lumber Co., 48 Ark. 188, 2 S.W. 703, 3 Am.St.Rep. 224; Carroll-Cross Coal Co. v. Abrams Creek Coal & Coke Co., 83 W.Va. 205, 98 S.E. 148; Spann v. Commercial Standard Ins. Co. of Dallas, Tex., 8 Cir., 82 F.2d 593, 597. Purchasing the plant and site of a competitor, in order to eliminate it from the producing field, or for other business policy purpose, is not ordinarily within the implied powers of a general manager of a manufacturing corporation. Compare Restatement, Agency, § 73, Comment b.

Omaha Hardwood argues, however, that the contract should have been held to be within the implied authority of the general manager, on the ground that, under the ten per cent invoice deduction provision, the transaction was simply equivalent to a sale of $150,000 worth of Phipps Lumber's products to Omaha Hardwood, and that the transfer of the Little Rock plant was merely a payment incident. But this construction seems to us strained and tenuous, and it ignores the express recitations of contractual purpose in the instrument and the effect of its plant-price acceleration provision. Furthermore, even if the trial court had chosen to adopt such a construction, it would still have been entitled to find that, since Omaha Hardwood had not agreed to order any...