The Kansas Wheat Growers Association v. Rowan

• Decision Date: 07 April 1928
• Docket Number: 27,982
• Citation: 266 P. 101,125 Kan. 710
• Parties: THE KANSAS WHEAT GROWERS ASSOCIATION, Appellant, v. J. C. ROWAN, Appellee
• Court: Kansas Supreme Court

266 P. 101

125 Kan. 710

THE KANSAS WHEAT GROWERS ASSOCIATION, Appellant, v. J. C. ROWAN, Appellee

No. 27,982

Supreme Court of Kansas

April 7, 1928

Decided January, 1928

Appeal from Sumner district court; OLIVER P. FULLER, judge.

Judgment reversed and cause remanded.

SYLLABUS

SYLLABUS BY THE COURT.

1. CORPORATIONS--Scope of Corporate Power--Notice of Persons Dealing With Corporation. Every person dealing with a corporation is bound to take notice of the power possessed by such corporation and of the purposes for which it was created. (Scott v. Bankers' Union, 73 Kan. 575, 85 P 604.)

2. AGRICULTURE -- Marketing Agreement -- Fraudulent Representations Outside Scope of Corporate Authority Cannot Be Relied on as Defense. In an action by a wheat growers' association to recover from one of its members for failure to deliver wheat to the association in accordance with his contract, the record considered, and held, that the member who had signed a written application for membership, stating that "he had read the articles of incorporation, by-laws, original association agreement and standard marketing agreement of the association, that he understands and approves them and accepts them as binding upon him in all their terms," is bound to take notice of the limitations of the corporation's powers, and that it was not within its powers to loan him money to liquidate preexisting indebtedness.

T. A. Noftzger, George W. Cox, W. J. Masemore, J. L. Weigand, all of Wichita, and Ed. T. Hackney, of Wellington, for the appellant.

E. L. Foulke, James B. Nash and Roy H. Wasson, all of Wichita, for the appellee.

OPINION

HOPKINS, J.:

The action was one to recover damages for breach of a marketing agreement and to enjoin the defendant from disposing of wheat then on hand. The defense was that the contract had been procured through the fraudulent representations of plaintiff's agent. The defendant prevailed, and plaintiff appeals.

The representations of which the defendant complained consisted of statements by plaintiff's agent, William Leslie, that the plaintiff had money, borrowed from the War Finance Corporation, for the purpose of loaning it to its members to pay their debts, and the promise that if the defendant became a member of plaintiff association, it would loan him money at the rate of six per cent to pay debts on which he was then paying interest at the rate of eight per cent. That is to say, the real basis of defendant's claim of fraud was the promise that if he became a member of the association, it would loan him money to pay his debts. The plaintiff contends that the defendant was bound to know that such a promise was not within the scope of the plaintiff's powers as a corporation.

The defendant contends that Leslie was hired for the purpose of getting members for the association; that he was acting within the scope of his employment, and that the association is therefore liable for his acts.

The defendant's application for membership in the association reads:

"The undersigned wheat grower hereby applies for membership in the Kansas Wheat Growers Association. The undersigned states that he has read the articles of incorporation, by-laws, original association agreement and standard marketing agreement of the association, and that he understands and approves them and accepts them as binding upon him in all their terms. The undersigned agrees to perform all of the obligations of the by-laws and marketing agreement.

"Dated at Anness, Kan., December 28, 1921."

The purposes of the association set forth in the charter and referred to in its by-laws, read:

"(a) To promote, foster and encourage the business of marketing wheat cooperatively; to minimize speculation and waste in the production and marketing of wheat and wheat products; to stabilize wheat markets; to handle cooperatively and collectively the problem of wheat growers.

"(b) To engage in any activity in connection with the harvesting, grading, handling, processing, storing, shipping, warehousing and marketing of wheat or wheat products of the association and of its members and in the financing of any of said operations.

"(c) To purchase and sell any wheat or wheat products of its members and to purchase and to sell to its members machinery, equipment or supplies used in any of the above-mentioned activities, either by the association or by the members thereof.

"(d) And to do each and everything necessary, suitable or proper, in the judgment of the directors of this association anywhere throughout the world, for the accomplishment of any of the purposes or attainment of any one or more of the objects herein enumerated, or which shall at any time appear conducive to or expedient for the interests or benefit of this association and the members thereof, and to contract accordingly."

The law under which the plaintiff was organized (R. S. 17-1601 et seq.) specifically enumerates its powers. By no reasonable interpretation thereof can the association be construed to have the right to loan money to its members for the purpose of liquidating previous or existing indebtedness. The plaintiff is by the statute (R. S. 17-1604) expressly prohibited from engaging in the banking business.

In 14a C. J. 251 the rule is stated that--

"Every person dealing with a corporation is bound to take notice of the limits of its powers as imposed by its charter or governing statute."

In Scott v. Bankers' Union, 73 Kan. 575, 85 P. 604, this court said:

"Every person dealing with a corporation or with its obligations is bound to take notice of the power possessed by such corporation and of the purpose for which it was created." (Syl. P 2.)

"Whether a given corporation has such power or not will depend upon the express provisions of its charter and the purpose it was intended to accomplish." (p. 586.)

In Attleboro Steam and Electric Co. v. Narragansett Electric Lighting Co., 295 F. 895, it was held:

"One who deals with a corporation, whether he be a citizen of the same or another state, is chargeable with knowledge of the corporate power." (Syl. P 1.)

In Citizens' & Marine Bank v. Mason, 2 F.2d 352, the court said:

"Persons are charged with knowledge of limitations and restrictions contained in the duly recorded charters of corporations with which they deal." (Syl. P 1.)

The plaintiff, of course, denied that its agent made such representations or promises claimed by the defendant, but the jury by its verdict found as a fact that he did. It must, therefore, be treated as a fact in the case. We are of opinion, however, that the defendant had no right to rely on a promise made by the plaintiff which it did not put in the contract and which plainly was ultra vires. He was bound to take notice that the promise was beyond the plaintiff's powers. The defendant's application was an offer from him to the plaintiff association to become a member according to the terms of the agreement. In it he stated that he had read the articles of incorporation, by-laws and the marketing agreement, and that he understood and approved them. Such being the case, his statement that he believed the misrepresentations about the War Finance Corporation is not reasonable. Before he had a right to rely on the representations, he must have had a legally adequate reason to believe that the agent was authorized to make them.

"As a general rule, every person who undertakes to deal with an alleged agent is by the mere fact of the agency put upon inquiry, and must discover at his peril that it is in its nature and extent sufficient to permit the agent to do the proposed act and that its source can be traced to the will of the alleged principal, particularly where he is dealing with an agent whose authority he knows to be special, or where it is his first transaction with the agent." (2 C. J. 562.)

The defendant and Leslie were strangers. The latter presented to the defendant a blank...