Case ID: ad_3/html/0273-01.html
Source: Caselaw Access Project
Author: {"author": "Hatch, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William B. Powell, Respondent, v. Edward F. Murray, and David Morey, Appellants.
    
      Manufacturing corporation—liability of stockholders thereof where the, stock is not paid, in full — the purchase of a license to sell the product of a foreign corporatiori is ultra ñires—it is not “property necessary for their business."
    
    In an action brought to charge the defendants with a personal liability as stockholders of a manufacturing corporation, organized under the General Manufacturing Act (Chap. 40" of the Laws of 1848), it appeared that the defendants," .. who were the only stockholders of the company, had paid nothing for the shares of stock issued to them, but that two of the defendants had entered.into a-contract with a foreign corporation by which they acquired the exclusive right to sell its product in this, and other States, and sold the contract to the trustees of the manufacturing corporation, which, in consideration thereof, issued to said defendants the remainder of its capital stock.
    This contract, in which the trustees purchased the rights of the defendants, who had secured the exclusive agency, did not provide for the furnishing, of any .material for the purposes of manufacture, but only contemplated the organization of a company which should sell the manufactured product of the foreign corporation.
    
      JEeld, that such a purchase was not a purchase of property necessary to the business of the corporation, within the meaning of chapter 883 of the Laws of 1833;
    That the contract was ultra vires,, as the business, proposed to be carried on under it, was entirely foreign to the scope of that , for which the corporation was created.
    Appeal by the defendants, Edward F. Murray and another, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Kings on the 6th day of November, 1895, upon the decision of the court rendered after a trial at the Kings County Special Term.
    
      Hmeivport <& Hollister, for the appellants.
    
      O. JB. Gould, for the respondent.
   Hatch, J.:

This action seeks to charge a personal liability upon the defendants as stockholders of the National Electric Manufacturing and ■Construction Company of New York, a corporation organized, as .appears by its charter, .- for <( the manufacture of electric lamp ¡sockets, safety cut-outs and the appliances connected with and used in the setting up and perfecting of electric machinery and electric light and electric motor plants for public and private uses and purposes.” Its capital stock was $50,000, divided into 500 shares of :$100 each. The defendants were the only stockholders of the ■company, and there was issued to each defendant 100 shares of ¡stock of the par value of $10,000, for which they paid nothing. 'The company was organized in May, Í890. On April first of the ¡same year the defendants Murray and Latshaw entered into a contract-with the National Electric Manufacturing Company of Eau ■Claire, Wisconsin, whereby they acquired the exclusiye right and license, as agents, for the sale of electrical supplies manufactured by said company, in a portion of the State of New York,, and in three other eastern States. The trustees of the New York corporation purchased this contract of the defendants Murray and Latshaw, and .as consideration therefor issued to said defendants the remainder of its capital stock; It does not appear that the contract was ever assigned or delivered to the corporation. The corporation did business until 1893, when it became insolvent, petitioned for its dissolution and was placed in the hands of a receiver. Ro money was paid for any of the stock issued, and by section 10 of chapter 40 of the Laws of 1848, under which the corporation was organized, liability against the stockholders would be created unless they are relieved by other •considerations. Appellants meet this by the claim that the transfer ■of the contract was a purchase of property by the corporation authorized by Laws of 1853, chapter 333, which amended the act under which it was incorporated. This act provides: “ The trustees •of such company may purchase mines, manufactories and other property necessary for their business, and issue stock to the amount •of the value thereof in payment therefor, and the stock so issued shall be declared and taken to be full stock and not liable to any further calls; neither shall the holders thereof be liable for any further payments under the provision of the tenth section of the said •act.”

This claim is the sole question presented by this appeal. By the terms of this amendment the property purchased must be such as is necessary for the business of the corporation, and it has been held that whether the property purchased was in fact necessary for the purposes of the corporation, was to be determined in the same manner as other controverted questions. (Schenck v. Andrews, 46 N. Y. 589 ; 57 id. 133.)

This contract did hot ¡mo vide for furnishing any material for purposes of manufacture by the corporation. The company which executed it proposed to furnish a manufactured article, and constituted the defendants agents to sell, and by its terms the defendants agreed to organize a company for the purpose of placing the manufactured article upon the market in the specified localities. In what view then can it be said that it was necessary for the business of this •corporation which was organized solely to manufacture? An agency to sell is in ho sense a business of manufacturing. (People ex rel. U. P. T. Tel. Co. v. Roberts, 145 N. Y. 375.)

It is doubtful if this license to sell is property within the meaning of the section invoked. It is not necessary, hóweveiy tó determine that question, and we express no opinion thereon. Rot only was this license to sell the manufactured article of another company not necessary for any business which could' be lawfully carried on by this corporation, but the contract was ultra vires of it to make. The charter of a corporation is the measure of its power, and the enumeration of those powers implies, the. exclusion of all others. (Thomas v. Railroad Co., 101 U. S. 71.)

. The business proposed to be carried on. under this contract was entirely foreign to the character and scope of the business for which the corporation was chartered. As was said' by Judge Eabl in speaking of a similar case: It could- not lawfully, engage in this foreign business simply because it could make a profit therein. A corporation may foster its legitimate business by all the usual and appropriate means. But it cannot, under the pretense of fostering, engage in transactions entirely ultra vires.” .(Holmes v. Willard, 125 N. Y. 75.) "

In, the present case nearly the entire corporate stock was devoted to making a market for the manufactured article of another concern, in which, by the use of its property for that purpose, this corporation was wholly unable to carry on the. manufacture of those articles for which it was brought into being, and thus was wholly destroyed the purpose of its creation. The following cases are abundant authority for the view here taken: Thomas v. Railroad. Co. (supra); Minturn v. Larue (64 U. S. 435); Alexander v. Cauldwell (83 N. Y. 480); Diligent Fire Co. v. Commonwealth (75 Penn. St. 291); Westinghouse Machine Co. v. Wilkinson (79 Ala. 312); Chewacla Lime Works v. Dismukes (5 Law. Rep. Ann. 100, and note).

It is true that corporations, like individuals, have capacity to contract, and.it may be said generally that there is this difference,the latter may make all contracts which are not forbidden by law, or opposed to the general welfare of society, while the former possess- only those powers which are expressly granted, and ■ the contract which they make must, be directly connected, with these purposes, and those which are necessary to accomplish the object of their creation. It is by no means certain that this .contract. could be assigned to this corporation. By its terms.the defendants who executed it agreed to organize a stock company with a. bona fide paid in capital of not less than $25,000, and with that to thoroughly canvass, the territory allotted to them for the sale of. the systém of electricity and supplies manufactured. That was" a part of the contract, and it does not appear that defendants were authorized to assign it upon any other terms. The corporation to whom it is claimed that it was ..transferred in" no sense answered 'its terms.-' But "whether we say'it was' never" assigned, or could be assigned, it is clear for reasons already stated that the contract Was not property necessary for the iise óf the corporation; that the contract by Which it was transferred to it was ultra, vires', and the issue of the stock therefor was unlawful. It follows-that the judgment appealed from should he affirmed, with costs.. • .

All concurred, except Cullen, J,, not sitting.

Judgment affirmed, with costs.