Taylor Feed Pen Co. v. Taylor Nat. Bank

• Decision Date: 20 October 1915
• Docket Number: (No. 5468.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 181 S.W. 534
• Parties: TAYLOR FEED PEN CO. et al. v. TAYLOR NAT. BANK.
• Court: Texas Court of Appeals

181 S.W. 534

TAYLOR FEED PEN CO. et al. v. TAYLOR NAT. BANK.

(No. 5468.)^*

Court of Civil Appeals of Texas. Austin.

October 20, 1915.

Rehearing Denied December 22, 1915.

Appeal from District Court, Williamson County; C. A. Wilcox, Judge.

On petition for rehearing. Rehearing granted, and judgment of trial court affirmed.

Former opinion (177 S. W. 176) withdrawn.

White, Cartledge & Graves, of Austin, and Wilcox & Graves, of Georgetown, for appellant. H. C. Mantor, of Taylor, and Batts & Brooks, of Austin, for appellee.

Findings of Fact.

JENKINS, J.

1. Appellant's charter was filed with the Secretary of State July 5, 1910. The declared purpose of said corporation was to buy, feed, and sell cattle. Its capital stock was stated to be 90 shares of $100 each, fully paid up.

2. The only consideration received by appellant for its capital stock was a deed to the land in controversy from F. E. Ripley and wife. The market value of the land at the time was $9,000.

3. F. E. Ripley, by virtue of the execution of said deed, was entitled to all of the stock of said company; but, in order to comply with the statute requiring at least three stockholders to organize a corporation, he gave to E. B. Martin and J. B. Wills each one share of said stock, and they were named in the charter as directors.

4. There was never any part of said stock issued, never a meeting of the stockholders, no election of officers, and said corporation never transacted any business, except to execute the notes and mortgages hereinafter mentioned, and to collect from the assignee in bankruptcy of the Taylor Oil Works its pro rata portion of the debt assigned to it by appellee.

5. S. E. Ripley owned $15,000 of the stock of the Taylor Oil Works and was its general manager upon a salary of $300 per month. He was not personally liable on the indebtedness of the Oil Works for the debt for the payment of which the money was borrowed by appellant, but he was personally liable upon other debts owing by said oil works to the amount of about $45,000, and the oil works was indebted to him to the amount of from $40,000 to $50,000. The $6,500 paid with the money borrowed by appellant was due appellee by the oil works on open account, but was amply secured by a mortgage on the property of the oil works. Appellee desired said debt paid, in order to reduce the amount owing by the oil works within the amount which it was permitted by the national bank law to loan to one person. Ripley was anxious to pay the $6,500 to appellee, but could not borrow the money except by mortgaging the land in controversy, which he offered to do; but, having stated to appellee that it was his homestead, appellee declined to take a mortgage thereon. It was thereupon agreed between appellant and appellee that Ripley would obtain a charter for a feed pen company, deed the land to the corporation for its capital stock, and that the corporation would borrow the money from appellee, execute a mortgage on said land to secure the same, and pay said money on the open account indebtedness of the oil works to appellee. This was done; that is to say, on July 26, 1910, appellant executed to appellee a note for $6,500, and a deed of trust on the land in controversy to secure the same. March 6, 1911, said note being unpaid, it executed a renewal note for said amount with the interest added, and executed another deed of trust on said land to secure the same.

6. In order to comply with the statute requiring at least three stockholders in order to obtain a charter, Ripley requested E. B. Martin and J. B. Wills to join him in the application for the charter, stating that they were each to be the owners of one share of stock of the par value of $100, but that the same would be paid for by him. They consented to this and were named in the charter together with Ripley, as directors.

7. Prior to the execution of said note and mortgage, Ripley and Martin signed what in terms was a written resolution of the board of directors of the Taylor Feed Pen Company authorizing the execution of the note and mortgage. Wills was temporarily absent at the time.

8. Upon the execution of the note and mortgage by appellant, appellee placed $6,500 to the credit of appellant, which amount appellant immediately had transferred to the credit of the oil works, and the oil works was credited with that amount on its indebtedness to appellee. The oil works charged itself on its books with that amount in favor of appellant, and said charge was so carried on the books of the oil works up to the time it became bankrupt.

9. Subsequent to the execution of said note and mortgage, the oil works was adjudged a bankrupt; just when this occurred, the record does not show; and Ripley, for appellant, filed its claim for $6,500 and was paid its pro rata share of the estate of said bankrupt, which was $390. This money has never been tendered by appellant to appellee.

10. Appellant filed this suit to cancel its note and mortgage to appellee, alleging that said mortgage constituted a cloud upon its title. The original petition is not in the record, and it does not appear when it was filed, further than that appellees' original answer, which was filed November 5, 1912, alleges that the original petition was filed in 1912.

11. Appellee, in addition to a general demurrer, a general denial, and a plea of estoppel, filed a cross-action to recover on the note and to foreclose the mortgage.

12. Mrs. Willie Ripley, wife of F. E. Ripley, intervened, and claimed the land in controversy as her homestead. Her husband refused to join her in such intervention.

13. The case was tried by the court without a jury, and judgment was rendered that the appellant and the intervener take nothing by their suits, and that appellee recover upon its cross-action.

14. As to the homestead claim of intervener, we find the following facts: In January, 1901, F. E. Ripley, the husband of the intervener, purchased 320 acres of land, of which the land in controversy is a part. He owned no homestead at the time and has not since acquired one. He intended at the time of the purchase to establish his home on some portion of this tract whenever he felt able to build such a house as he desired, and he had not abandoned that intention when the mortgage to appellee was executed. Subsequently, he sold all of said tract except the 58.42 acres in controversy. When he deeded this land to the appellant, he expected it to deed it back to him in consideration of the surrender of his stock, as soon as the note here in question was paid. The intervener and her husband had frequently gone over the land and had tentatively selected several places as suitable for a building site when they were able and ready to build, but otherwise they had done nothing to dedicate the land to homestead purposes. They have never resided on the land or any part thereof.

Opinion.

In our former opinion herein (177 S. W. 176) we held, in effect, that a mortgage executed by a corporation to secure the debt of another corporation in which it had no interest, which debt was not incurred for its benefit, and the payment of which did not inure to its benefit, was ultra vires. We have no doubt as to the correctness of this holding where there are no qualifying or limiting facts which would estop the corporation; but, upon further consideration, we have concluded that we fell into error in applying this doctrine to the facts of this case, for which reason our former opinion is withdrawn, and this opinion is substituted in lieu thereof.

The doctrine of ultra vires was invented by the courts (Bell v. Kirkland, 102 Minn. 213, 113 N. W. 271, 13 L. R. A. [N. S.] 795, 120 Am. St. Rep. 621), and, in a proper case, we think that it is a salutary one. For instance, a public corporation whose only function is governmental, and that derives its revenues from taxation, ought not to be permitted to engage in enterprises beyond the scope of its authority; neither should a public service corporation be permitted by contract to deprive itself of the power to discharge the duties which by the charter that gave it existence it owes to the public. Again, it is held, and we think properly so, that a corporation cannot be compelled to perform a contract which it had no capacity to make under any circumstances. This for the reason that every one is charged with constructive notice of the provisions of charters, which are public documents, or granted under the provisions and limitations of general statutes, as is the case with municipal corporations in this state.

As to private corporations created for business purposes, the doctrine of ultra vires has been so limited by applying to them the doctrine of estoppel as to almost destroy it. This has arisen from necessity brought about by modern conditions, and in order to avoid injustice being done. The original common-law conception of a corporation was a body politic for municipal, ecclesiastical, or eleemosynary purposes; but it has been extended, especially in recent times, until it embraces practically every known form of business enterprise. Why should those artificial persons be permitted to repudiate their contracts to the detriment of third parties, where natural persons are not permitted to do so? There is no want of mental capacity, as is the case with minors; but, on the contrary, they are usually managed with business sagacity.

As to public and quasi public corporations, the reason is as above stated; in suits by stockholders against the corporation, they are permitted to restrain the corporation from engaging in enterprises except for the purposes and in the manner provided by its charter, for the reason that the corporation is their business agent with limited authority, and has in effect contracted with them that it will not use their money, which was paid into its treasury for its stock, except as provided in the charter.

The foregoing observations are sustained...