Schreyer v. Turner Flouring Mills Co.

• Decision Date: 17 February 1896
• Citation: 29 Or. 1,43 P. 719
• Parties: SCHREYER v. TURNER FLOURING MILLS CO.
• Court: Oregon Supreme Court

43 P. 719

29 Or. 1

SCHREYER v. TURNER FLOURING MILLS CO.

Supreme Court of Oregon

February 17, 1896

Appeal from circuit court, Marion county; George H. Burnett, Judge.

Action by C.J. Schreyer against the Turner Flouring Mills Company for the recovery of money. From a judgment for plaintiff defendant appeals. Affirmed.

Tilmon Ford, for appellant.

G.G Bingham and P.H. D'Arcy, for respondent.

WOLVERTON J.

This is an action to recover for money loaned the defendant, and the case is here on its appeal. It appears from the complaint that the defendant is a corporation; that its articles of incorporation were executed on the 8th, and filed in the office of the secretary of state on the 11th day of April, 1893, and that it was on the said 8th day of April, ever since has been, and now is. a corporation, doing business at Turner, Marion county, state of Oregon, in its corporate name, the Turner Flouring Mills Company; that the purpose of the incorporation was to manufacture flour, and all and every kind of breadstuffs and other products of wheat and other cereals, and to do a general flouring-mill business, to buy and sell wheat and other farm products, and to enable it to effect such purpose it was authorized to borrow money, and give its notes, bonds, debentures, and other obligations therefor; that, prior to the incorporation, W. Dunbar, J.C. Robinson, and J.T. Brumfield were the owners of all the property acquired by defendant at its formation, and thereafter were its principal stockholders; that John Hallinan was an incorporator and stockholder, and ever since April 8, 1893, has been, and now is, the managing agent, and said Robinson the secretary, of the defendant, and that Dunbar was then and for a long time subsequent thereto its president; that on said 8th day of April, at the instance of Hallinan, who was acting for and in behalf of defendant, the plaintiff loaned defendant $1,000, and as evidence thereof Hallinan delivered to plaintiff the promissory note of Dunbar, Robinson, and Brumfield, bearing date April 8, 1893, payable to plaintiff or his order in six months, with interest at 8 per cent.; that no part of said note was paid at maturity, except the accrued interest, but was renewed October 16, 1893; that the sum of $100 was paid thereon May 3, 1894; that plaintiff has demanded of the defendant the payment of the balance due on account of the money so loaned, but, although defendant has promised to pay the same, it neglects so to do. A demurrer was interposed to the complaint, which being overruled, the action of the court in that regard is assigned as error.

The objection made to the sufficiency of the complaint is that it shows upon its face the money was loaned to the defendant at a time when it could have no corporate or legal existence, as it appears that the articles of incorporation were not filed with the secretary of state until the 11th day of April, 1893, three days after the loan was made. It may be premised that this is not an action upon the note executed as evidence of the indebtedness; but, disregarding the note, plaintiff sued for the money loaned to and received by the defendant. In this he is supported by settled law. Black v. Sippy, 15 Or. 575, 16 P. 418, is a case wherein it appeared that goods were sold, delivered, and charged to the husband, who, upon a statement of account, executed and delivered his note for the amount found due, which was assigned to plaintiff, who sued the wife upon the account for family supplies, and the action was maintained. In passing upon the complaint, Lord, C.J., says: "Nothing is better settled than that accepting a note is not payment of an account, nor is accepting one note in renewal of another payment of the old note, unless there is an agreement that the note should be accepted in payment." Conceding that the incorporation of defendant was not accomplished until its articles were duly filed with the secretary of state, and for that reason it had no legal existence on the 8th of April, 1893, is the objection vital to the complaint? In considering this question it must be observed that the defendant answered over, and trial was had under the pleadings and issues thus joined; so that all reasonable intendments must go in support of the judgment. Most certainly it is true that a corporation must have an existence before it can assume to act or carry on business. The statute prescribes how a private corporation like this may be formed and organized, and, prior to its lawful creation, it is idle to think of its entering into contractual relations. After its organization, it may transact such business as it is authorized and empowered to do by the articles of incorporation, which give it individuality and being. Now, the plaintiff alleges that he loaned to the defendant, through its managing agent, acting for and on its behalf, the money which it is sought to recover, and April 8th is named as the date of the transaction. The defendant, while it may not have been in esse at the date fixed by the complaint, yet it could, at any time after its organization, by adoption, make the contract its own. It has been said that the adoption of a former contract is the making of a contract as of the date of the adoption. McArthur v. Printing Co., 48 Minn. 322, 51 N.W. 216. In their primary signification, there is a manifest distinction between "adoption" and "ratification." The one signifies to take and receive, as one's own, that with reference to which there existed no prior relation, either colorable or otherwise; while the other is a confirmation, approval, or sanctioning of a previous act, or an act done, in the name or on behalf of the party ratifying, without sufficient or legal authority,--that is to say, the confirmation of a voidable act. But, as the terms relate to contracts, some lexicographers treat them as synonymous. Rapalje thus defines "adopt--adoption": "Of contract. To adopt a contract is to accept it

as binding, notwithstanding some defect which entitles the party to repudiate it. Thus, when a person affirms a voidable contract, or ratifies a contract made by his agent beyond his authority, he is said to adopt it." See Rap. & L.Law Dict. 31. See, also, And.Dict.Law, 36. Now, as regards a contract made or an obligation incurred by the promoters of a corporation in the name of, or for and in behalf of, a contemplated corporation it would seem that an adoption or a ratification thereof by the corporation after it had developed into a legal entity would mean one and the same thing, and would be accomplished by one and the same process. True, the promoters cannot be the agents of an unborn corporation; but, where they have assumed to act for it, and to contract in its name, the approval and confirmation of such acts by the corporation, when organization has been duly accomplished, are but the ratification of the acts of an unauthorized agent. And the result is the same, whether we call it "adoption" or "ratification." But it is not very material here to determine whether, as relating to contracts, these terms are synonymous, or are capable of being thus distinguished, as they might be were the statutes of frauds or limitations involved. Suffice it to say, authorities are not wanting which hold them to mean one and the same thing. See 4 Thomp.Corp. § 5321, and Stanton v. Railroad Co., 59 Conn. 285, 22 A. 300. The time of entering into the contract is not a necessary ingredient to the maintenance of this action. Bliss, Code Pl. § 284. Mr. Thompson, in his excellent and elaborate treatise on the Law of Corporations (volume 4, § 5325), says: "It has been held that, in an action against a corporation upon a contract, it is not necessary for plaintiff to plead that the corporation has ratified the making of the contract in order to introduce evidence of a ratification,"--citing Collins v. Association, 3 Mo.App. 586.

Now, to the main question. Although there is some conflict in the authorities, it has been maintained and settled, in some jurisdictions, that while a corporation is not bound by engagements made for and in its behalf, by its promoters before it has been duly organized, it may, after its organization, make such engagements its own. This it may do in manner and form, and precisely as it may make similar original contracts. A formal action of the board of directors is, however, indispensable in all cases where it would be necessary if the corporation was acting in the first instance. But it is not necessary that such adoption, ratification, or acceptance be expressed, as it may be inferred from acts or acquiescence on the part of the corporation, or by its authorized agents in its behalf, as similar original contracts may be established. Battelle v. Pavement Co., 37 Minn. 89, 33 N.W. 327; McArthur v. Printing Co., supra; Stanton v. Railroad Co., supra; Buffington v. Bardon, 80 Wis. 639, 50 N.W. 776; and Mor. Priv. Corp. § 548. We adopt this exposition of the rule, as we believe it to be sustained by the weight of authority, as well as founded upon the better reason. It will have to be conceded that the agreement must be one which the corporation itself could enter into, and one which the usual agents of the company have express or implied authority to make. But where, with full knowledge of all the facts, the corporation assumes the contract, and agrees to pay the consideration, or accepts and retains the benefits, it will be bound thereby. Buffington v. Bardon, supra; Leonard v. Loan Ass'n, 55 Iowa, 594, 8 N.W. 463; Paxton Cattle Co. v. First Nat. Bank, 21 Neb. 621, 33 N.W. 271; Bridge Co. v. Rollins, 13 Colo. 4, 21 P. 897. It is alleged here, not only that the contract was made for and in behalf of the corporation, but that it had promised to pay...