Sylvester Watts Smyth Realty Co. v. American Surety Company of New York
| Decision Date | 14 March 1922 |
| Parties | SYLVESTER WATTS SMYTH REALTY COMPANY v. AMERICAN SURETY COMPANY OF NEW YORK, Appellant |
| Court | Missouri Supreme Court |
Appeal from St. Louis City Circuit Court. -- Hon. J. Hugo Grimm Judge.
Affirmed.
J. D Johnson for appellant.
(1) Marsix Company acquired no power under its charter to enter into said contract of lease with plaintiff for the term of ninety-nine years, and for the erection of the buildings on the demised premises, as provided in said lease, or to execute the bond in suit; and said contract of lease and bond was ultra vires of its corporate powers. Secs. 2872, 2990 3021, 3346, R. S. 1909; Sec. 5, chap. 32, R. S. 1855; Sec. 7, art. 12, Mo. Const.; Prairie Club v. Kessler, 252 Mo. 435; Comm. v. Property Co., 139 Ky. 689; School Board v. King, 127 Ky. 824; Proctor v. Board of Trustees, 225 Mo. 68. (2) Plaintiff company, under its charter had no power to purchase, and hold, the title in fee to the premises it leased to the Marsix Company for the term of ninety-nine years, nor to contract for said lease of said premises, and for the erection of the improvements thereon, or for the execution of the bond in suit and said transactions were ultra vires of plaintiff's corporate powers, and void. Authorities above. (3) If, on the other hand, plaintiff company and the Marsix Company each had power under their respective charters to acquire, hold, sell and deal in real estate, as a business for profit -- then the purposes for which they were incorporated, as declared in their articles of incorporation, did not give either of them power to enter into said contract of lease and bond, and by doing so they engaged in business not expressly authorized by their charters and the laws under which they were organized, and said contract of lease was void. Sec. 7, art. 12, Mo. Const.; Sec. 2990, R. S. 1909; State ex rel. v. Lincoln Tr. Co., 144 Mo. 562; Blair v. Ins. Co., 10 Mo. 559; Pacific Ry. Co. v. Seely, 45 Mo. 212; Carroll v. Campbell, 108 Mo. 555; Re Grand Union Co., 219 F. 353; Bowman Dairy Co. v. Mooney, 41 Mo.App. 665; Kansas City v. O'Connor, 82 Mo.App. 655; Orpheum Theatre Co. v. Brokerage Co., 197 Mo.App. 661; City v. Bank, 74 Mo.App. 365; Sexton v. Ry. Co., 194 S.W. 1081; Hanlan v. Tr. Co., 251 Mo. 575; State ex inf. v. Mo. Athletic Club, 261 Mo. 599; State ex rel. v. Murphy, 180 Mo. 10. (4) The contract of lease and bond in suit being ultra vires of both the plaintiff company and the Marsix Company, and said contract being executory, and this suit being for damages for the alleged breach of said contract of lease and bond, our courts will not aid plaintiff in the enforcement of said invalid contract. Shoe Co. v. Stores Co., 132 Mo.App. 513; Wilson v. Merc. Co., 167 Mo.App. 323; Bank v. Bank, 173 Mo. 153; Smith v. Richardson, 77 Mo.App. 430; Mining Co. v. Taylor, 247 Mo. 24; Millinery Co. v. Trust Co., 251 569; Central v. Pullman, 139 U.S. 24; Bank v. Owens, 2 Peters, 526; Miller v. Ammon, 145 U.S. 421; 10 Cyc. 1161. (5) Plaintiff company having held title in fee and possession of the lot of land leased by it to the Marsix Company for more than six years next before said lease and bond in suit were executed, and said lot of land not being "necessary and proper for carrying on its legitimate business," plaintiff company was not "expressly authorized by its charter or the laws under which" it was "organized" to enter into the contract of lease and bond respecting said lot of land, and its action in that behalf was void. Sec. 7, art. 12, Mo. Const. (6) The contract of lease and bond in suit having been ultra vires of both plaintiff company and of Marsix Company, this defendant was entitled to plead the invalidity of said contract in defense of plaintiff's said cause of action. Fishing Club v. Kessler, 252 Mo. 436; Orpheum Co. v. Brokerage Co., 197 Mo.App. 661. (7) Marsix Company having had an authorized capital of only three thousand dollars, had no power, under its charter and the laws creating it, to enter into the contract of lease and bond with the plaintiff company by which it incurred an indebtedness of several hundred thousand dollars, and rendered itself financially insolvent. In these circumstances said contract of lease and bond was contrary to public policy and the laws of Missouri. Secs. 2245, 2981, 2990, R. S. 1909; Sec. 7, art. 12, Mo. Const. (8) If plaintiff was entitled to recover against appellant in the case, then, under the pleadings and evidence adduced at the trial, plaintiff would have been entitled to nominal damages only, and not for the sum or the value which the new building would, if erected, have added to the leased premises, nor for the amounts of the cash rents, taxes, insurance premiums and interest specified in plaintiff's petition. Bonding Co. v. Inv. Co., 150 F. 17; Smith v. Shepard, 15 Pick, 150; Trustee v. Miller, 3 Ohio 261; Grommes v. Tr. Co., 147 Ill. 634; Campbell v. Nixon, 2 Ind.App. 463; Kramer v. Amburg, 53 Hun, 427; Ins. Co. v. Sherman, 46 N.Y. 370; Curtiss v. Miller, 17 Barb. 479; Watson v. Merrill, 136 F. 362.
Henry S. Caulfield for respondent.
(1) (a) The respective purposes for which the plaintiff company and the Marsix Company were organized are expressly authorized by Subdivision 11, Sec. 3346, R. S. 1909. State ex rel. v. Corkins, 123 Mo. 67; Dairy Co. v. Mooney, 41 Mo.App. 672; Bank v. Texas Inv. Co., 74 Tex. 421; Building Assn. v. Barnes, 39 Neb. 834. (b) The purpose of said companies are not forbidden, but are sanctioned by Sec. 2990, R. S. 1909. Cahall and Pond v. Bldg. Assn., 61 Ala. 232. (c) They are not forbidden by Sec. 7, art. 12, Mo. Const. Ry. Co. v. Hellman, 109 Cal. 590; Williams v. Express Co., 184 S.W. 1146; State ex rel. Rhodes v. Pub. Service Com., 270 Mo. 547; State ex rel. v. Board of Curators, 268 Mo. 598; Commonwealth v. Property Co., 139 Ky. 689. (2) The declared purpose of the plaintiff company and of the Marsix Company contemplated the lease and bond involved herein. 9 C. J. p. 684; Gidley v. Lovenberg, 35 Tex. Civ. App. 203, 209; 3 Wash. Real Prop. (6 Ed.), secs. 2299-2301. (3) (a) The granting by the plaintiff company of a term of ninety-nine years did not evidence an intention on its part to hold the reversion for that period, or for any period contrary to law. State ex rel. v. Gas Light Co., 102 Mo. 472; People v. O'Brien, 111 N.Y. 1; St. Ry. Co. v. Detroit, 64 F. 628; Nicholl v. Railroad Co., 12 Barb. 460; Tate v. Neary, 52 App.Div. (N.Y.) 78; Weeks v. Trust Co., 125 F. 370; Brown v. Schleier, 118 F. 981. (b) Neither the lessee nor its surety can deny the lessor's title, by showing that the lessor (a corporation) has no power to hold the land. (4) The appellant surety cannot question, because it waranted, the capacity of its principal to make the bond. 32 Cyc. 27; Maledon v. Leflora, 62 Ark. 38; Machine Co. v. Maxwell, 63 Mo. 486. (5) The Marsix Company was not without power to obligate itself beyond the amount of its capital stock. 10 Cyc. 1098; Miller v. Paper Co., 39 Pa. S.Ct. 538. (6) The instructions given by the court were correct. (a) Even if the bond were construed to be for liquidated damages the only benefit to appellant that would have accrued from liquidating the damages would be to limit the amount of recovery against it to a specified sum. And this was done here. (b) But the bond in suit is not to be construed to be for liquidated damages. It was rightly construed by the court to be for a penalty so that plaintiff had to prove its damages. Stillwell v. Temple, 28 Mo. 156; Moore v. Platte County, 8 Mo. 467; Basye v. Ambrose, 11 Mo. 39; Parlin Co. v. Boatman, 84 Mo.App. 74; Gower v. Saltmarsh, 11 Mo. 271; O'Brien v. Surety Co., 203 F. 436; Long v. Towl, 42 Mo. 545; Lansing v. Dodd, 45 N.J.L. 526; Hammer v. Breidenbach, 31 Mo. 49. (c) The forfeiture of the lease did not defeat plaintiff's right to recover for the breach of the bond, the breach having occurred and become complete prior to the forfeiture. O'Brien v. Surety Co., 203 F. 436; Bonding Co. v. Inv. Co., 150 F. 17; Rock v. Bldg. Co., 100 N.E. 887; Herboth v. Radiator Co., 145 Mo.App. 493. (d) The measure of damages was correctly stated by plaintiff's third instruction. Shelton v. Durham, 7 Mo.App. 585; Lloyd on Building (2 Ed.), sec. 68; Real Est. Co. v. McDonald, 140 Mo. 605. (c) If the court erred in declaring that the amount of damages should not exceed the amount due for rents, etc., the error was favorable to appellant and did not prejudice him. O'Brien v. Surety Co., 203 F. 436.
This is a suit on a bond given to insure the performance of certain covenants of a lease on the part of the lessee. Plaintiff, the obligee in the bond, was incorporated under the laws of this State April 5, 1905, for the purpose, according to its articles of association, of "purchasing, owning and renting buildings and other property in this State and elsewhere, now owned or acquired by it; and to sell or exchange such property." Defendant, Marsix Realty and Construction Company, the principal obligor, was also a Missouri corporation, having received its certificate of incorporation May 3, 1912. It had a capital stock of $ 3000 and its charter recites that the purposes for which it was formed were:
On March 6, 1906, the plaintiff acquired the title in...
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