Case ID: dc_11/html/0001-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Mr. Justice Mao Arthur,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Crosby S. Noyes, Trustee, et al. vs. The Inland and Seaboard Coasting Co. and Wm. B. Todd, Jr., Trustee.
    Equity. No. 5,932.
    Decided January 27, 1879.
    1. If a bill in equity charges a fact which is in the defendant’s own knowledge, he must answer positively and not to his information and belief. Otherwise, where the facts are not within his own knowledge.
    2. Where a eoporation, organized under an act of Congress, (18 Stat., 513), received a note secured by trust deed on real estate, in payment of its stock, the proceeds of which were to be used in carrying on its business, it was held not to be the exercise of a power ultra vires, and a court of equity will not interfere to declare the transaction null and void.
    3. Where a contract has been executed a court of equity will not exercise the extraordinary power of declaring it void unless upon the. most palpable evidence that it is without authority of law.
    Statement oe the Case.
    The bill, filed November 14, 1877, stated that, on the said 1st day of October, A. D. 1872, the “ New York, Alexandria, Washington and Georgetown Steamship Co.,” in violation of its charter, and in excess of its corporate powers, undertook to and did loan unto the plaintiff', Mary L. Piper, the sum of nine thousand dollars for five years, and in violation of its charter, and in excess of its corporate powers, undertook to and did receive the promissory note of the said Mary L. Piper, payable to its order five years after date, with interest at ten per cent, per annum, payable semiannually, secured by a deed of trust from plaintiffs, which said trust purported to convey certain lots of ground in the city of Washington, the title of which was in said Noyes as trustee for Mrs. Piper, unto the said William B. Todd, jr., as trustee, with power to him upon the request of the holder of the said note, to sell the land at public auction in the event of the non-payment of said note or the interest thereon.
    That the said “New York, Alexandria, Washington and Georgetown Steamship Company,” as plaintiffs are iuformed and believe, has become merged into or in some way has been succeeded by the said defendant company, “ The Iuland and Seaboard Coasting Company of D. C.,” and the said last named company claim to be the owner and holder of the said promissory note ; and because of the non-payment of said note, and one instalment of interest at ten per cent., it has required the said Todd to advertise the said property for sale at public auction, and he has accordingly so advertised the same for sale.
    That it is no part of the bnsiness of said defendant company to purchase or hold notes secured by real estate, or to deal iu the same or similar transactions, or to loan moneys upon real estate or other securities; that no such power is expressly given nor necessarily incident to the powers granted to said company by its charter ; that no such power was expressly given nor necessarily incident to the powers granted the said “ New York, Alexandria, Washington and Georgetown Steamship Company,” by its charter; that the business of the said defendant is expressly limited by its charter, to running vessels propelled by steam, and to prosecuting a general coasting trade in the transportation of passengers and freight; and it cannot in law .be the holder and owner of the said promissory' note.
    Plaintiffs aver that said note and conveyance to Todd are absolutely void ; and that defendants are seeking to enforce a void contract by extra-judicial proceeding, and they pray for an account, and that said note and conveyance to Todd be decreed to be null and void, and that the same be vacated and annulled, and that defendants may be perpetually enjoined from proceeding to enforce the terms of said conveyance or advertising the said land for sale thereunder.
    The answer admits that the said New York, Alexandria, Washington and Georgetown Steamship Company did, on the 1st of October, make the loan to the said Mary L. Piper of said sum of $9,000, and received therefor the promissory note of the said Mary L. Piper, and that the deed of trust was delivered and recorded as charged in said bill.
    Defendants deny, however, upon information and belief, that the making of said loan and the acceptance of said note and deed of trust, were in violation of the law under which the said company was incorporated, or beyond its authority.
    They admit that the said Inland and Seaboard Coasting Company became, and is the holder and owner of said promissory note, and requested the said William B. Todd, jr., the trustee, to proceed to execute the said trust according to the conditions thereof; and that defendant, William B. Todd, jr., has, as such trustee as aforesaid, advertised said property for sale as charged in the plaintiff’s bill.
    That prior to the maturity of said note, and without any notice of any infirmity in the title of the said New York, Alexandria, Washington and Georgetown Steamship Company thereto, the said Inland and Seaboard Coasting Company, for full and valuable consideration, bought of the said New York, Alexandria, Washington and Georgetown Steamship Company the said note and certain other property, for the purpose of carrying on the business for which said Inland and Seaboard Coasting Company wras organized, and said purchase was made with the knowledge and assent of the boards of directors and stockholders of both said steamship companies, and that said note was acquired solely for the purpose of obtaining therefrom, on its maturity, money for the transaction of the legitimate and ordinary business of said company, and not with any intention of holding the same after it should become due. That the purchase of said note -was made by the said Inland and Seaboard Coasting Company on the 30th of May, 1877, and the consideration paid therefor was the stock of said company.
    The defendants aver that said original transaction between the said steamship company, and the said Mary L. Piper, was made in absolute good faith, and at her instance and request, and that there is justly due from her to this defendant, the Inland and Seaboard Coasting Company, the holder of said note, the repayment of the money actually received by her, with interest thereon according to the tenor of said note.
    The charter of the New York company is not made an exhibit to the bill, nor does the bill recite any of the provisions of the law of New York under which that company was organized. The Inland Seaboard Coasting Company was incorporated by act of Congress approved March 3,1875, 18 Stats., 513. A decree was passed December 27, 1878, denying injunction and dismissing the bill.
    After this decree was entered, the following stipulation was made and filed :
    “It is hereby stipulated and agreed that the above-entitled case shall and may be heard in the General Term as though set for hearing in the equity court, on bill, answer and replication ; and that neither party shall call in question the regularity of the order of the court in dismissing said bill.”
    Bradley & Duvall for complainants :
    Under the pleadings, the New York, Alexandria, Washington and Georgetown Steamship Company, a foreign corporation, must be taken to have had no authority or power to receive or transfer the note or security mentioned in the bill.
    It was incumbent upon defendant company, making its title through a foreign corporation, by them said to be incorporated in New York, to produce and plead the charter of said foreign corporation, especially where its powers and authority are denied. 1 Danl’s Chancery, 25; Angel & A. Corp’n, 570; 13 Peters, 521; 15 Wend., 314; Knapp vs. R. R., 36 Vt., 452, in Redf. R. R.
    Under their respective charters, the dealings of both of the corporations—the New York, Alexandria and Georgetown Steamship Company, and the Inland and Seaboard Coasting Company—in relation to the said note and security, are ultra vires, and absolutely null and void.
    A corporation derives all its powers from its incorporating act, and is capable of exercising its faculties only in the manner in which that act authorizes. The chief point of difference between the natural and the artificial person is, that the former may do whatever is not forbidden by law ; the latter can only do what is authorized by its charter. 12 Wheat., 68; 2 Cranch, 167; 12 Wall., 81.
    In deciding whether a corporation can make a particular contract, it must be considered—1st, whether its charter, or some statute binding upon it, forbids or permits it to make such a contract ; 2d, if its charter and valid statutory law are silent upon the subject, whether the power to make such a contract may not be implied as directly or indirectly necessary to enable it to fulfil the purpose of its existence, or whether the contract is entirely foreign to that purpose. A corporation has no other powers than such as are specifically granted, or such as are necessary for the purpose of carrying into effect the powers expressly granted. Weckler vs. Bank Hagerstown, 42 Md., 581
    Defendant corporation, as well as the New York, Alexandria and Washington Steamship Company, have their corporate existence as common carriers of freight and passengers ; banking, loaning money, buying real estate or other securities, is utterly foreign to the purposes of their incorporation. F. & M. Bank vs. Baldwin, 23 Minn., 198, reported in Albany Law Journal, Dec. 9, 1876; Matthews vs. Skinner, 62 Mo., 329, in Amer. Law Register, August, 1876; Beach vs. Fulton Bank, 3 Wend., 573, 583; P. D. & M. Steam Co. vs. Dandridge, 8 G. & J., 248; Abbott vs. B. & R. Steam Co., 1 Md. Chan., 549; Rock Bank vs. Sherwood, 10 Wis., 230.
    
      Where a railway company established a steamboat line to run in connection with the road, and gave notes for the purchase of a steamboat, which was delivered to the company and converted to their use, on suit by indorsee of the notes, the court say : “ The only question is, had the corporation the capacity to make the contract in the fullfilment of which they were executed ? The opinion of the court is, that it was a departure from the business of the corporation, and that their officers exceeded their authority.” Pierce vs. M. & I. R. R., 21 How., 444.
    The defendant company never advanced complainant any money. It bought the note more than two years after its incorporation. It does not even attempt to justify by averring that the purchase was necessary to carry into effect the purposes of the act of incorporation, but virtually claims under its charter (18 Stat. at Large, 518), the right to exercise banking franchises without any limitation whatever— a right denied the very species of incorporations created for banking purposes.
    The bill, sec. 6, avers that the New York, Alexandria, Washington and Georgetown Steamship Company “ has become merged into or in some way has been succeeded ” by the defendant company. This averment is not answered ; it is to be taken as confessed.
    But without express authority in that behalf contained in the constating instruments, a corporation cannot purchase or by any means acquire the whole concern of another corporation. Green’s Ultra Vires, 101.
    It is no answer to say that defendant company “ bought of that company the said note and certaiu other property,” for then it is obvious that the transaction thus set up was part of the merger or purchase.
    Nathaniel Wilson for defendant:
    No copy of the charter of the New York, Alexandria, Washington and Georgetown Company is filed with the bill; nor does the bill contain any recital of those provisions of the charter which are supposed to invalidate the contract between the company and the plaintiff.
    
      The answer denies, in the most express terms, the averments and the equity of the bill. No injunction could therefore be granted.
    If it clearly appears, from the bill and answer, that the New York Steamship Company had no power under its charter to make the loan, and that the Inland and Seaboard Coasting Company had no power to become the endorser, the plaintiff, who has had the benefit of the contract, cannot be permitted to question its validity.
    It is the settled law, that in an action by a corporation to recover money loaned, the defendant is not at liberty to avail himself of the defence that the plaintiff was precluded by the terms of its charter from making such a loan. Field on Corporations, sec. 267, p. 301; Sedgwick on Con. and Stat. Law, p. 90; The Steam Nav. Co. vs. Weed, 17 Barb., 378; Mott vs. U. S. Trust Co., 19 Barb., 568; Argenti vs. City of San Francisco, 16 Cal., 255.
    The language of the court in The Steam Navigation Company vs. W eed, cited above, may well be applied to the case now before this court. The court says: “ I am happy to come to the conclusion that the law will not sustain this most unconscionable defence. It ill becomes the defendants to borrow7 $1,000 for a single day, to relieve their immediate necessities, and then to turn around and say: ‘I will not return you this money, because you had no power by your charter to lend it.’ Let them first restore the money, and then it w'ill be time enough for them to discuss with the sovereign power of the State of Connecticut the extent of the plaintiffs’ chartered privileges. We shall lose our respect for the law, w'hen it so far loses its character for justice as to sanction the defence here attempted.
    “ Lex plus laudaiur, quando ratione probatur.
    
    “ The judgment rendered on the report of the referee must be reversed, and a new trial awarded.”
    The execution of the deed of trust by the plaintiff to secure the repayment of the money borrowed, is an admission of the authority of the corporation to make the loan, and, being under seal, is conclusive.
   Mr. Justice Mao Arthur,

after reciting the facts, delivered the opinion of the court.

The doctrine has been very carefully stated in repeated decisions, that a corporation can only exercise such powers as are conferred upon it by its charter, and that its acts and contracts outside of this limitation are. illegal and void. This proposition was dwelt upon in argument, and is so well established that it is no longer necessary to cite the authorities upon the point. This ruling does not, however, dispose of this case, for the question here is to be determined upon the state of the pleadings.

The charter of the Hew York company is not before the court, nor is it- made an exhibit to the bill, and there is no proof upon the subject as to whether it could loan money upon bond or mortgage, or on a note secured by trust deed upon real estate. The bill alleges that it had no such power, but this is denied positively in the answer on information and belief. It is said that a denial in this form is an admission of the averment in the bill. In general, if a fact is charged which is in the defendant’s own knowledge, as if it were an act done by himself, he must answer positively, and not to his information or belief. But as to facts which have not happened within his own knowledge, he is only called upon to answer as to his information and belief. We cannot see that the defendant had necessarily any special means of knowledge as to the contents and provisions of the act of the New York legislature organizing the New York company. The defendant, therefore, states it upon information and belief as any resident or citizen in the District of Columbia might who is not supposed to know the laws of a foreign corporation. The denial is responsive to the bill, and is not only sufficient to raise an issue, but it has the effect of testimony for the defendant until overcome by other proof.

The Inland and Seaboard Coasting Company was incorporated by act of Congress, and the bill alleges that it had no power or authority to receive or accept a transfer of the note and trust deed, and that ’ question is referred in the answer to the judgment of the court upon the construction of the statute. It was not produced or read upon the hearing. By reference to the statute, vol. 18, page 513, wre ascertain that the business of this corporation was the transportation of passengers and freight between the cities of Washington, Georgetown, Alexandria and New York, and it was also authorized to purchase, hold and convey such real estate as may be necessary to carry into effect the purposes of its charter, and to purchase and construct such docks, wharves and buildings as may be necessary for its own use. But it shall not issue any instrument to be used as currency. The answer avers that the defendant, the Inland and Seaboard Coasting Company, accepted this note prior to its maturity for a full and valuable consideration, for the purpose of carrying on the business for which it was organized ; that the consideration paid for said note was the stock of said company, and that said note was acquired solely for the, purpose of obtaining therefrom on its maturity money for the transaction of the legitimate and ordinary business of said company, and not with any intention of holding the same after it should become due. Now, in the absence of all evidence to the contrary, we cannot escape accepting this explanation as the true character of the transaction. The company can dispose of its stock' for the purpose of obtaining the means for conducting the business allowed by law, and in the present case it received a well-secured note, all the payments on which were to be devoted exclusively to that purpose. The company may hold real estate for the accommodation of its business, and build and equip vessels, and construct docks and wharves, and so long as the proceeds of the note were to be employed in their business, and Dot for the purpose of speculation, it is difficult to see how the provisions of its charter have been seriously infringed upon. At all events, there is not apparent upon the pleadings such atotal want of authority as would justify the court in holding the transaction illegal. This would seem to dispose of the case upon the pleadings.

B ut the counsel for complainant, assuming that the defendant had no power to make the purchase of the note in question, argued that a court of equity would interfere to set it aside. The doctrine of ultra vires is well established, and even executed contracts have sometimes been declared null and void. The true rule upon this subject is, and must be, that where a contract has been executed, the court will not exercise this extraordinary power, except upon the clearest and most palpable evidence that it is without authority of law, and the case ought to be free from doubt, in which a court of equity will declare in behalf of a party who has received the fruits of a contract, that he may refuse to perform it, and invoke our interference to declare it void without requiring him to make restitution.

Mr. Sedgwick, on Statutory and Constitutional Law, page 90, says :

“It must be further borne in mind that the invalidity of contracts made in violation of the statutes is subject to the equitable exception, that although a corporation, in making a contract, acts in disagreement with its charter, where it is a simple question of capacity or authority to contract, arising either on a question of regularity of organization, or of power conferred by the charter, a party who has had the benefit of the agreement cannot be permitted in an action founded on it to question its validity. It would be in the highest degree inequitable and unjust to permit the defendant to repudiate a contract the fruits of which he retains. And the principle of this exception has been extended to other cases. So a person who has borrowed money of a savings institution upon his promissory note, secured by a pledge of bank stock, is not entitled to an injunction to prevent the prosecution of the note upon the ground that the "savings bank was prohibited by its charter from making loans of that description.”

A number of authorities are cited in support of this doctrine from Massachusetts, Pennsylvania and New York. The citation from Sedgwick is quoted in the opinion of the Supreme Court in Township of Pine Grove vs. Talcott, 19 Wallace, 678, with approbation ; and similar view’s have been repeatedly expressed by the same court. Supervisors vs. Schenk, 5 Wall., 772; 16 Id., 698; Lexington vs. Cutler, 14 Id., 283; 13 Id., 298; Lind vs. The County, 16 Wall., 6; and Id., 644; and, finally, in R. Co. vs. McCarthy, 6 Otto, the court uses this language : “ 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.” The complainant has received nine thousand dollars upon the execution of this note, and surely in the absence of all proof that the corporation had no power to receive the note, would it not clearly defeat the ends of justice to permit her to retain the money and abjure the contract, by virtue of which she obtained so large a sum ? I think we may pass from this point without further remark.

On the ai’gument, it was very justly contended, that a natural individual was permitted to enter into any contract, or to do any act which was not forbidden by law, and that a corporation could only contract or act in matters allowed by law. While this distinction is conceded, there is another principle equally well settled, and that is, that neither of them will be presumed to act without authority. The contract of a corporation will be held valid unless it is apparent on the face of the instrument that it exceeds the law. Railway Co. vs. McCarthy, 6 Otto, 267. There is no part of the charter of the New York company which appears to be infringed upon by the provisions of the contract, and it is, therefore, presumably within the legitimate exercise of its authority.

We have been cited to Matthews vs. Skinner, 62 Mo., 329. That was a case arising under the national banking law. A note and deed of trust on real estate were transferred to a banking institution, organized under the act of Congress, to secure a loan of fl 5,000, and it was decided that the bank had no power to receive a deed of trust on real estate as security for a contemporaneous loan, and an injunction was issued to prevent the sale by the bank under the deed. The banking law permits an association formed under it to purchase, hold and convey real estate in certain enumerated cases, viz., when it is necessary for the transaction of its business, or as security for debts previously existing, or in satisfaction of debts previously contracted, or to secure debts due to it, and in no other eases ; and upon that ground the court might perhaps properly hold that the bank had no power to receive the trust deed as collateral security for a present advance of money. We have no such case before us. We have already seen that there is no absolute prohibition in the charter of the Inland company, organized under the act of Congress, and that the answer in this respect shows that it received the securities in question in exchange for its stock, and for the purpose of procuring means to carry on its legitimate business.

Upou the whole, we are clearly of opinion that the present is not a case in which a court of equity would be justified in declaring an executed contract a nullity, on the ground that the party had no authority to make it. The bill is dismissed.