Stouffer v. Smith-Davis Hardware Co.

DOWDELL, J. The instruments sued on and described in the complaint, being commercial paper, are governed by the law merchant. The plaintiff sues as transferee. The defendant is a private business corporation, chartered to engage in and carry on a hardware business. The defendant filed two pleas to the complaint. By the first plea the defense of ultra vires the particular contract out of which the instruments sued on arose is sought to be made. The instruments do not show on their face for what they were given. It is not denied that the defendant corporation has power under its charter to issue commercial paper, and having done so, nothing otherwise appearing, the presumption in favor of innocent [305] purchasers for value is that it had such power. Having the authority to issue commercial paper for any purpose, and it not appearing upon the face of the paper for' what purpose it was issued, the defense of ultra vires the particular contract is not available as against an innocent purchaser for value before maturity of the commercial paper. The doctrine is thus stated in 29 Am. & Eng. Ency. of Law (2d Ed.) p. 60: “If the corporation is authorized to issue negotiable paper for any purpose, the defense of ultra vires will not be available to it in a suit by a bona fide indorsee, although the particular contract might have been really unauthorized; the reason being that the corporation, by giving the note, has virtually represented that it was given for some legitimate purpose, and the indorsee could not be presumed to know the contrary. This doctrine is applied to commercial paper made by a corporation for the accommodation of a third person when in the hands of a bona fide holder, who has taken it before maturity on the faith of its being business paper. But if the corporation is not authorized to issue negotiable paper under any circumstances, such paper is void, not only in the hands of the original payee, but in those of any subsequent holder as well; and this for the reason that all persons dealing with a corporation are bound to take notice of the extent of its charter powers.” See note 1 on page 67, where the cases are collated in support of the doctrine. See, also, the case of our own court, Florence Railroad & Improvement Co. v. Chase National Bank, 106 Ala. 364, 17 South. 720, where the same principle is decided. The present case was tried in the court below without the intervention of a jury, and it is apparent from the rulings of the trial court on the pleadings and evidence, as pointed out here by the assignments of error, that the trial as had and the judgment rendered was not in accordance with the principles above stated. [306] • By the second plea the defense of fraud in the particular contract out of which the paper sued on arose was sought to he set up, and the further defense in this same plea denying the assignment of the paper to the plaintiff. As a plea of fraud it was faulty in averment of facts showing fraud, and therefore open to the demurrer interposed. The plea was not verified, and for that reason, as a plea denying plaintiff’s ownership of the .instrument sued on, was subject to the motion to strike. What we have said sufficiently indicates the errors committed, and will be sufficient to guide the court on another trial. The judgment is reversed, and the cause remanded. Reversed and remanded. Tyson, C. J., and Anderson and McClellan, JJ., concur.