Kellogg-Mackay Co. v. Havre Hotel Co.

WOLVERTON, District Judge (after stating the facts as above). The question for consideration is whether the trial court erred, first, in granting a nonsuit in favor of all the defendants except the Broad-water-Pepin Company, the corporation; and, second, in directing a verdict for the said Broadwater-Pepin Company. There can scarcely be a question that as to all the defendants, except the Havre Hotel Company, the nonsuit was properly granted. No evidence was adduced to show that either the Broadwater-Pepin Company, a copart [732] nership, or E. T. Broadwater or E. C. Carruth, individually, signed the letter of November 7, 1904. Hence they, or either of them, cannot be held liable upon such alleged guaranty. [1] The testimony of Broadwater, Carruth, and Brader tends very strongly to establish the fact, if there can be a question about it, that the letter of November 7th was written in behalf of the Havre Hotel Company, and was signed by Broadwater, president, and Carruth, secretary and treasurer, they acting in their official and not in their individual capacity; and whatever liability or obligation was entered into or incurred by the writing was the liability or obligation of the Havre Hotel Company, and not that of Broadwater or Carruth individually. This is, in effect, alleged in the answer; but it is further averred as a defense that the Havre Hotel Company was not authorized to bind itself by contract of guaranty. There is evidence tending to show that Broadwater-Pepin Company, the corporation, was the active agent in the construction of the Havre Hotel, and that company concedes, as plainly as can be, writing the letter of November 7th, as witness its letter of April 3d, signed “Broad-water-Pepin Co., by E. T. Broadwater, Sect’y & Treas.,” although the fact appears that it did not sign such letter. The. letter of April 3d states, “We have not paid Mr. Brader up in full for his work on the hotel, and will not do so until we hear from you,” which would seem to confirm its agency in the affair, while denying liability. It appears further, however, that Broadwater-Pepin Company had no interest — “not one cent,” as expressed by Broadwater on the witness stand — in the Havre Hotel Company. What Donovan said as to the ownership of the hotel by Broadwater-Pepin Company is merely his own opinion or conclusion, without the statement of any facts to support it. Broadwater could not have signed the letter of November 7th for the Broadwater-Pepin Company, as he was not president, but secretary and treasurer, of' that company, but was president of the Havre Hotel Company. [2J But it is urged, notwithstanding, that the Broadwater-Pepin Company is bound by the alleged warranty, as evidenced by the letter of November 7th, through estoppel in remaining silent and thereby inducing plaintiff to act upon it, which is the real issue here. It will be noted that the letter of April 3d was written subsequent to the time that plaintiff had acted in filling the order of Brader for the materials, hence the letter could not have induced plaintiff in any way to extend credit to Brader. The legal question involved is whether the Havre Hotel Company and the Broadwater-Pepin Company, or either of them, are bound or may be held liable upon a contract of guaranty. This is the second time the case has been here; the first coming up on the sufficiency of the complaint, which was held good. The corporations here represented were organized under the general laws of the state of Montana, and a corporation so organized has the power, “to enter into any obligations or contracts essential to the transaction of its ordinary affairs, or for the purposes of the corporation.” [733] Section 3889, Rev. Codes of Montana. Section 3890 provides that “no corporation shall possess any corporate powers except such as are necessary to the exercise of the powers so enumerated,” having reference to the previous section. 13] As to the Havre Hotel Company, it may be assumed, as we have reached the conclusion that the trial court is in error in granting a nonsuit as to it, that it was not empowered by its articles of incorporation to enter into contracts or obligations of guaranty. And as to the Broadwater-Pepin Company, it appears, at least inferentially, that it also was not so empowered, by reason of the fact that it was a mercantile concern, and the authority to guarantee the obligations of others is not usual or common to the business. It is a well-settled principle of law that: “A contract of a corporation, which is ultra vires, in the proper sense, that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond the powers conferred upon it by the Legislature, is not voidable only, but wholly void, and of no legal effect. The objection to the contract is, not merely that the corporation ought not to have made it. but that it could not make it. The contract cannot be ratified by either party, because it could not have been authorized by either. No performance on either side can give the unlawful contract any validity, or be the foundation of any right of action upon it.” It is unnecessary to state the reason upon which the principle is founded. Central Transp. Co. v. Pullman Car Co., 139 U. S. 24, 59, 11 Sup. Ct. 478, 35 L. Ed. 55; Thomas v. Railroad Co., 101 U. S. 71, 25 L. Ed. 950; Penn. Co. v. St. Rouis, Alton, etc., R. R., 118 U. S. 290, 6 Sup. Ct. 1094, 30 LO. Ed. 83; Humboldt Min. Co. v. American Manuf’g, Mining & Milling Co., 62 Fed. 356, 10 C. C. A. . This is clear logic, and it has been held that a contract of guaranty, which is beyond the express or implied authority to execute, is void and unenforceable. M., W. & M. Plank Road Co. v. W. & P. Plank Road Co., 7 Wis. 59. The rule has application to railroad companies. They have no power to guarantee the bonds of another company, unless authorized by the act of incorporation or by other statutes to do so. Rouisville. etc., Ry. Co. v. Rouisville Trust Co., 174 U. S. 552, 567, 19 Sup. Ct. 817, 43 LO. Ed. 1081. [4] But this doctrine, which is referred to by Mr. Thompson in his work on Corporations as the strict doctrine of ultra vires, may not be invoked to defeat justice or work a legal wrong. 3 Thompson on Corporations (2d Ed.) § 2778. In Railway Co. v. McCarthy, 96 U. S. 258, 267, 24 L. Ed. 693, Mr. Justice Swayne says: "The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail, where it would defeat the ends of justice or work a legal wrong.” In San Antonio v. Mehaffy, 96 U. S. 312, 315, 24 L. Ed. 816, the distinguished jurist gave expression to the same principle in this wise: "The doctrine of ultra vires, whether invoked for or against a corporation, is not favored in the law. It should never be applied where it will defeat the ends of justice, if such a result can be avoided.” [734] Perhaps the doctrine as announced by Mr. Justice Swayne, which is one really of estoppel, is not strictly applicable, unless in exceptional cases, where the corporations involved are of a public or quasi public character; but it would seem to be suited with strong reason and emphasis to the operation of merely private corporations, when such corporations have received the benefits of the obligations which they are seeking to repudiate, and has been so applied in a variety of cases. Butler v. Cockrill, 73 Fed. 945, 953, 20 C. C. A. 122; In re Waterloo Organ Co. (D. C.) 128 Fed. 517; Quinby v. Consumers’ Gas Trust Co. (C. C.) 140 Fed. 362; Wayte v. Red Cross Protective Society (C. C.) 166 Fed. 372; Burke Land & Live Stock Co. v. Wells Fargo & Co., 7 Idaho, 42, 60 Pac. 87; Meholin v. Carlson, 17 Idaho, 742, 107 Pac. 755, 134 Am. St. Rep. 286; Carson City Sav. Bank v. Carson City Elevator Co., 90 Mich. 550, 51 N. W. 641, 30 Am. St. Rep. 454; Whitney Arms Co. v. Barlow et al., 63 N. Y. 62, 20 Am. Rep. 504; Timm v. Grand Rapids Brewing Co., 160 Mich. 371, 125 N. W. 357, 27 L. R. A. (N. S.) 186; Iowa Drug Co. v. Souers, 139 Iowa, 72, 117 N. W. 300, 19 L. R. A. (N. S.) 115; Marshalltown Stone Co. v. Des Moines Brick Mfg. Co., 149 Iowa, 141, 126 N. W. 190; First National Bank of Kansas City v. Guardian Trust Co., 187 Mo. 494, 86 S. W. 109, 70 L. R. A. 79; Whitehead v. American Lamp & Brass Co., 70 N. J. Eq. 581, 62 Atl. 554; Earle v. American Sugar Refining Co., 74 N. J. Eq. 751, 71 Atl. 391; First Nat. Bank of Line-ville v. Alexander, 152 Ala. 585, 44 South. 866. [5] To apply the principle here, the Havre Hotel Company, a corporation merely private in its organization and business relations, was engaged in the construction of a hotel building. Brader was a contractor for putting in the plumbing appliances, and ordered his materials and supplies from the plaintiff company. Along with the order was transmitted to the plaintiff the letter of November 7th. The plaintiff company furnished the materials on the strength of the letter. The Havre Hotel Company got the benefit of the materials, and, while the Hotel Company may have paid Brader in full of his contract, it was in a position at all times to protect itself against its guaranty by withholding from Brader sufficient to pay plaintiff its demand. It did not do this, and, having received the benefit of the materials furnished by the plaintiff upon its guaranty that the price thereof should be paid by Brader, it would work a palpable injustice to the plaintiff if the Hotel Company was not required to pay the demand. In other words, it would defeat justice and work a legal wrong to permit the Ho.tel Company to escape on. the plea that its contract of guaranty was beyond its power to make. We are of the opinion that under the conditions attending the transaction the Hotel Company is es-topped to deny its liability under the guaranty. It is quite different with the Broadwater-Pepin Company. It did not sign the guaranty, although it might have inferentially, by the letter of April 3d, admitted responsibility under it. The materials were not furnished on the Broadwater-Pepin Company’s [735] responsibility, for they were furnished on the guaranty of November 7th, which was the contract of the Havre Hotel Company. The former company has no interest in the latter, and received no benefit from the materials furnished by plaintiff for the construction of the hotel building. With it, the elements of estoppel against insisting that the contract of guaranty is ultra vires and void are entirely wanting. It was engaged in mercantile business, and the power of guaranteeing the obligations of others would appear, as previously indicated, to be foreign to the usual purposes of such a business. We are of the opinion, therefore, that the Broadwater-Pepin Company is not estopped to deny liability under the alleged guaranty, and the trial court was not in error in directing a verdict in its behalf. But for the error in granting the nonsuit as to the Havre Hotel Company, the judgment rendered must be reversed, and the cause remanded, for such other proceedings as may seem proper not inconsistent with this opinion.