Case ID: iowa_51/html/0055-01.html
Source: Caselaw Access Project
Author: {"author": "Seevers, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Western Cottage Organ Company v. Reddish.
    1. Corporations: powers of. A corporation organized for the manufacture and sale of musical instruments was held to have the authority to purchase of an agent a note which he had acquired by the sale of an article manufactured by the corporation.
    
      Appeal from Polk Circuit Court.
    
    Saturday, April 26.
    Action on a promissory note executed by defendant to C. H. Edwards, and by him indorsed to the plaintiff. The defendant pleaded that the plaintiff was not the owner of the note because of a want of power in the corporation to “purchase or discount paper, it being expressly prohibited by the act under which it was organized from so doing.”
    There was a trial to the court, judgment for plaintiff, and defendant appeals.
    
      Finch, Sickmon é Snelling, for appellant.
    
      Barcroft, Given & Drabelle, for appellee.
   Seevers, J.

— The plaintiff is a corporation organized under the laws of Illinois, which provide that “corporations may be formed in the manner provided in this act for any lawful purpose, except banking, insurance, real estate brokerage, the operation of railroads, and business of loaning money.”

“The object” of plaintiff’s organization, as declared in the articles of incorporation, “is the manufacture and sale of musical instruments.” Edwards, the payee of the note, was the “general agent of plaintiff in tbe sale and disposition of organs,” and Lattimer & Brothers were aot'ng for him. The latter sold an organ to Alexander and took from him in payment a note payable in property. This note was exchanged for the one in suit, under an agreement that Lattimer & Brothers were to receive it back in case it proved uncollectible. Alexander proved to be insolvent and the note given by him uncollectible, and defendant demanded the note sued on of Lattimer & Brothers. In the meantime it had been delivered to Edwards, and the plaintiff had purchased it of Edwards, and counsel unite in saying that the sole question for determination is whether such purchase was illegal or ultra vires. The law under which the plaintiff was organized prohibits it from engaging in the “business of loaning money.” Does the transaction in question amount to such? We think not.

Between the plaintiff and Edwards the transaction was neither more nor less than a purchase and sale. Incident to the power to manufacture and sell musical instruments, is the further power to sell for cash or' on credit, and receive and hold the proceeds. If necessary for the proper transaction of the business, the right exists in the corporation to appoint agents and hold them responsible for all proceeds of sales of such instruments.

The note in suit constituted a part of the proceeds of an organ sold. Without doubt it could be received by the plaintiff in payment of an indebtedness from its agent. But the note was purchased of such agent, and we think the corporation may well purchase of its agent a note given for musical instruments manufactured by it and sold by such agent. This follows, it seems to us, the power to settle with the agent and adjust an indebtedness in such manner as might be deemed advisable. The plaintiff had the power, in every lawful manner, to promote sales and enlarge its business. To accomplish this result the right to sell on credit, as has been said, existed. The agent, of course, had the right to sell on '■credit, and account to the plaintiff in such manner as might ¡be agreed upon. By taking from the agent notes of parties to whom he had extended credit in payment of indebtedness, ■or-by purchasing the same, would, enable the agent to extend •credit to others, and thus increase the sales, to the profit and .■advantage of the plaintiff.

The foregoing view by no means authorizes the plaintiff to go into the market and purchase notes. No such case is before us, and we base our ruling on the peculiar state of facts .above stated. The power to purchase the note in question is not prohibited by the law under which the plaintiff was organized, nor is it expressly granted. In the absence of .such prohibition the power exists, if its exercise was necessary •and proper for the purpose of carrying out the objects of the corporation. Thompson v. Lambert, 44 Iowa, 239.

It is at least worthy of consideration whether the note or •contract sued on is tainted in any degree with illegality, or whether the only illegal contract (if there was one) is not the one between Edwards and the plaintiff, whereby the note was acquired. To this the defendant was not a party; and, it may with at least considerable force be said, the plaintiff is not seeking to enforce that contract. Finding the note on the market the plaintiff purchased it. Suppose the purchase to have been illegal. Should the defendant be permitted for that reason to avoid the note, which, but for that, he would be bound to pay? Without committing ourselves thereto, the foregoing view has been sustained in an elaborate opinion by the Supreme Court of Massachusetts in National Pemberton Bank v. Porter, 7 Central Law Journal, 324.

Affirmed.