Watts Mercantile Co. v. Buchanan

Calhoon, T., delivered the opinion of the court. Buchanan brought this suit against the Watts Mercantile Company on a promissory note for $200; the note itself reciting that it was “for his entire interest in the Alberta Hoop- Company.” This note was given before the Code of 1906 took effect. The note was signed, “Watts Mercantile Company, per S. Q. Donald.”, Two defenses are set up — the one being that S. Q. Donald had not been authorized by the Watts Mercantile Company to make this purchase, and the other that the whole transaction was ultra vires, in that it involved a purchase by the Watts Mercantile Company, which was a corporation, of an interest in the Alberta Hoop Company, which was also a corporation. If the transaction was intra vires, it is idle in this case to talk about Donald not having the power to sign the note for the Watts Mercantile Company. He was the general manager of that corporation, and that corporation got the benefit of the purchase. There were but three stockholders in that corpora [543] tion, and Donald was one of them;'and besides, which is absolutely conclusive, it appears that that corporation got the proceeds of the purchase, and in fact made payments on that note to the amount of $120. This payment was a ratification as pronounced as any ratification could be. In examining the question as to whether or not this contract was ultra vires, it must be borne in mind that Buchanan was a private individual. He simply sold his interest to the Watts Mercantile Company, which corporation, it is shown, had been part owner and stockholder in the Alberta Hoop Company, and when it bought from Buchanan it practically owned the Alberta Hoop Company. We are thus drawn to consider the bald proposition whether a corporation, which makes an ultra vires purchase from a private individual who has the power to sell, can set up -its own ultra vires act to defeat payment, and at the same time hold onto the proceeds of the contract. The point is made here that, granting all this, still the case should be reversed, because the action was on the note, and not on a quantum valebat; and in support of this the case of Fairly v. Nash, 70 Miss., 193, 12 South., 149, is cited. Hnder the circumstances we think the decision inapplicable. The only color of defense on the doctrine of ultra vires must be derivable from acts 1900, p. 127, c. 88, § 5, which is in the hollowing words: “Sec. o. No corporation shall directly or indirectly purchase •or own the capital stock, or any part thereof, of .any other corporation; nor directly or indirectly purchase, or in any manner acquire the franchise, plant or equipments of any other corporation, if such other corporation be engaged in the same kind of business and be a competitor therein. Any corporation offending against this provision shall forfeit its charter, if a do>mestie corporation, and if a foreign corporation, shall forfeit' its right to do business in this state, and shall be proceeded against by the attorney general in manner and form provided in section -4 of this act.” [544] It will be noted that this statute forbids the purchase by one corporation of the. capital stock of another, or the aquisition of the franchise, plant, or equipment of any other corporation. The penalty it inflicts is that the corporation so purchasing shall forfeit its charter and shall be proceeded against by the attorney general. It might be enough in the case before us to say that the penalty denounced is against the purchasing corporation, and that it would have to be stretched to cover a case as against an individual seller. However, we need not bother about this, but prefer to plant ourselves, in the particular case before us, on the decisions of various courts, notably, of New York, Massachusetts, and Wisconsin, and on the language of the New York court that “that kind of plunder which holds onto the property, but pleads the doctrine of ultra vires against the obligation to pay for it, has no recognition or support in the laws of this state.” We refer to 2 Cook on Corporations, p. 1608, and notes. We subscribe to that doctrine in the particular case we have in hand, and, if it be true that the federal courts would hold differently, we respectfully decline to follow them; but we do not think it would be so held in the federal courts on the facts of the case at bar. The view we have taken of this case does not at all affect the advisory opinion in Woodberry v. McClurg, 78 Miss., 836, 29 South., 514, which case had reference to the propriety of a charter being approved by the attorney general, which charter expressly authorized the purchase of the stock in other corporations. 'Affirmed.