Simmons National Bank v. Dilley Foundry Company

• Decision Date: 13 June 1910
• Citation: 130 S.W. 162,95 Ark. 368
• Parties: SIMMONS NATIONAL BANK v. DILLEY FOUNDRY COMPANY
• Court: Arkansas Supreme Court

130 S.W. 162

95 Ark. 368

SIMMONS NATIONAL BANK v. DILLEY FOUNDRY COMPANY

Supreme Court of Arkansas

June 13, 1910

Appeal from Jefferson Circuit Court; Antonio B. Grace, Judge affirmed.

Judgment affirmed.

Young & Rowell and N. T. White, for appellant.

Accommodation paper of a corporation is good in the hands of a bona fide holder if the corporation had, under any circumstances authority to issue commercial paper. 28 Minn. 291; 156 Ind 487; 101 Mass. 57. Appellant is a bona fide holder. 97 Mass. 494; 62 Ark. 41; 3 Thomps. on Corp. 141; 26 N.Y. 505; 26 Barb. 23; 69 Ark. 147; 65 Ark. 204; 2 Mo.App. 299. Stockholders and directors having knowledge of the corporation's indorsement are estopped to complain. 3 Cook on Corp. 2072; 97 F. 723; 122 N.Y. 165; 110 U.S. 7. And the same rule prevails in Arkansas. 62 Ark. 42; 65 Ark. 543; 69 Ark. 141; 67 Ark. 542; 85 Ark. 185.

Bridges, Wooldridge & Gantt, for appellee.

The contract was ultra vires and therefore void. 21 How. 441; 131 U.S. 371; 139 U.S. 56; 101 U.S. 83; 130 U.S. 22; 167 U.S. 362; 160 U.S. 514; 165 U.S. 538; 10 C. C. A. 415; 62 F. 356; 185 Ill. 37; 50 L. R. A. 765; 70 Ia. 541. A plaintiff must prove actual authority on the part of the corporation defendant to indorse the paper before he can recover. 95 U.S. 558; 98 Am. St. R. 949; 117 Wis. 569; 94 N.W. 293; 116 N.Y. 284; 72 A. 44; Id. 439; 97 F. 723; 30 C. C. A. 409; 86 F. 742. The same rule applies to partnerships. 129 U.S. 372; 18 Wend. 466; 159 N.Y. 194; 17 Ia. 567; 40 Ark. 551; 52 Ark. 556.

OPINION

FRAUENTHAL, J.

This was an action instituted by the Simmons National Bank to recover upon two promissory notes. One of these notes was for $ 3,000, and was dated November 2, 1908, and was signed by F. L. Dilley as the maker thereof. The other note was for $ 5,000, and was dated December 31, 1908, and was signed by Leola Lumber Company as the maker thereof. Both notes were made payable to the order of the Simmons National Bank four months after date, and were indorsed in blank by the Dilley Foundry Company by F. L. Dilley, treasurer. The latter note was also indorsed by F. L. Dilley. The action was instituted against the makers and indorsers of the notes; but no defense was made thereto except by the Dilley Foundry Company. The Dilley Foundry Company in its answer alleged that it was a corporation organized under the laws of the State of Arkansas, and that the indorsement of its name upon said two notes was made without authority; that the notes were executed without benefit or consideration to it; and that it was solely an accommodation indorser thereon. It pleaded that said indorsements were ultra vires, and that it was not legally bound thereby. The uncontroverted testimony adduced upon the trial presents substantially the following case:

The Dilley Foundry Company was a domestic corporation organized in 1892 for the following purpose as set out in its articles of incorporation: "The general nature of the business proposed to be transacted by this corporation is to manufacture iron and brass work and to repair and sell machinery." F. L. Dilley was the secretary and treasurer of said corporation, and from the date of its organization had complete control and management of its assets and business. He was held out to the world by its board of directors as having, and the testimony tended to show that he actually had, authority to transact all business and make any and all contracts for the corporation in carrying out the purposes for which it was formed. But he did not have any authority to execute in its name any contract by which it became surety or guarantor for any other person or corporation, or to make or indorse commercial paper for the mere accommodation of another person or corporation. F. L. Dilley was the president of the Leola Lumber Company, which was also a domestic corporation, but it was an entirely separate and distinct corporation, and the evidence does not indicate that any person other than F. L. Dilley was a shareholder in the two corporations. The Dilley Foundry Company, F. L. Dilley and the Leola Lumber Company had been doing the greater part of their banking business for several years prior to the execution of the notes herein sued on with the plaintiff, but their business and accounts with it was done and were kept separate and distinct.

In October, 1907, the plaintiff made a loan to the Leola Lumber Company and to F. L. Dilley. Thereafter there came on a general financial depression throughout the country, and in February, 1908, when the financial panic had somewhat subsided, the Leola Lumber Company applied to plaintiff for an additional loan. On February 15, 1908, plaintiff loaned to the Leola Lumber Company $ 5,000, and therefor took a note signed by that corporation as maker with the indorsement thereon in blank by F. L. Dilley and Dilley Foundry Company. The cashier of plaintiff testified that this money was borrowed by the Leola Lumber Company, and was paid to that corporation by placing same to its credit, and that this was drawn on from time to time by its checks. On February 4 plaintiff loaned to F. L. Dilley $ 3,000, for which it took a note signed by F. L. Dilley as maker with the indorsement thereon in blank by the Dilley Foundry Company. The Dilley Foundry Company received no benefit or consideration for the indorsement of these two notes, but its indorsements thereon were solely for accommodation. Subsequently these two notes were renewed from time to time in the same manner, and this suit is instituted on such renewal notes.

Upon the trial of the case the lower court directed the jury to return a verdict in favor of the Dilley Foundry Company, which was done. The plaintiff has appealed to this court from the judgment entered upon that verdict.

F. L. Dilley was the manager of the Dilley Foundry Company, and he had authority to transact generally the business of that corporation, and to bind it by the execution of any contract within the scope of the purposes for which it was created; but he had no power, and, under the evidence, no authority, to bind it by any contract made for any other purpose. Ordinarily, a corporation itself can only do those things which are necessary to carry into effect the purposes for which it was organized. It may enter into contracts that may be fairly regarded as incidental to carrying out those purposes; but it can do no act, and can make no contract, which is not authorized by its charter, either expressly or by fair implication. In the case of Thomas v. West Jersey Rd. Co., 101 U.S. 71, 25 L.Ed. 950, it is said: "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 the case of Central Trans. Co. v. Pullman's Palace Car Co., 139 U.S. 24, 35 L.Ed. 55, 11 S.Ct. 478, after reviewing the various decisions of the Supreme Court of the United States relative to the powers of corporations to make contracts, Mr. Justice Gray, speaking for the court, sums up the result as follows: "The charter of a corporation, read in the light of any general laws which are applicable, is the measure of its powers, and the enumeration of those powers implies the exclusion of all others not fairly incidental. All contracts made by a corporation beyond the scope of those powers are unlawful and void, and no action can be maintained upon them in the courts, and this upon three distinct grounds: the obligation of every one contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders not to be subjected to risks which they have never undertaken; and above all the interest of the public that the corporation shall not transcend the powers conferred upon it by law. * * * These principles apply equally to companies incorporated by special charter from the Legislature and to those formed by articles of association under general laws." The general rule is well settled that the power of a corporation to make and take contracts is restricted to the purposes for which it is created, and can not legally be exercised by it for other purposes. City Elec. St. Ry. Co. v. First Nat. Bank, 62 Ark. 33, 34 S.W. 89; Pittsburgh, C. & St. L. Ry. Co. v. Keokuk Bridge Co., 131 U.S. 371, 33 L.Ed. 157, 9 S.Ct. 770; McCormick v. Market Nat. Bank, 165 U.S. 538, 41 L.Ed. 817, 17 S.Ct. 433; California Bank v. Kennedy, 167 U.S. 362, 42 L.Ed. 198, 17 S.Ct. 831.

The statutes of this State, under which the corporation was formed, and which specify its powers, provide (Kirby's Digest, § 839): "The purpose for which every such corporation shall be established shall be distinctly and definitely specified by the stockholders in their articles of association, and it shall not be lawful for said corporation to direct its operations or appropriate its funds for any other purpose."

It follows from this that no corporation has the power to divert its funds or assets from the purposes for which it was created, and it therefore has not the power by any...