#### MAHONEY, Respondent, *v.*BUTTE HARDWARE COMPANY, Appellant.

(No. 1,364.)

(Submitted February 24, 1903.

Decided March 6, 1903.)

*Corporations*— Ultra *Vires*— Law *of the Case.*

1. Statement on a former appeal that it was not *ultra vires*for defendant, a corporation, to purchase from plaintiff certain claims against a third party, constitutes the law of the ease.

■2. It is not *ultra vires*for a corporation in the hardware business to purchase a claim against a third party secured by lien, where the purchase is made in good faith and for the protection of its own interests.

*Appeal from District Court, Silver Bow County; John Lindsay, Judge.*

Action by E'cLward L. Mahoney against the Butte Hardware Company. From a judgment for plaintiff, and from an order ■denying a new trial, defendant appeals.-

Affirmed.

*Mr. Bernard, Noon,*and *Messrs. McBride & McBride,*for Appellant.

The ratification of an unauthorized contract, to be effectual and binding on the one sought to be bound as principal, must be shown to have been made by him- with full knowledge of all the material facts connected with the transaction to which it relates, and that the existence of the contract^ its nature and consideration, were known to him. *(Wheeler v. N.*W. *S. Co.,*39 Fed. 347-350; *Owens*v. *ILutl,*9 Pet. 607-629; *Benneck*v. *Ins. Co.,*105 U. Si 360; *Blue & Field*v. *Bank,*121 U. S. 135; *Bolling Mill*v. *B. B. Co.,*5 Fed. 852; *McLennan*v. *Whitely,*15 Fed. '322; *Dickinson*v. *Conway,*12 Allen, 487-491.)

The burden is upon plaintiff asserting ratification, to show that a ratification was made under such circumstances as to be binding upon the party claimed to> be bound as principal, and *464tliat all material facts were known to' Mm. *(Gombs*v. *Scott,*12 Allen, 493, 496; *Ha/rdmum*v. *Ford,*12 G-a. 205; *Wheeler*v. *N.*17. *S. Go.,*39 Ned. 347-350.)

The burden was on plaintiff to sbow Ms authority. *(First National Banh*v. *Occam. National Banh,*60 N. T. 290; *Finch*v. *Kent,*61 Pac. 652; *Bank of Deer Lodge*v. *Hope Mining Go.,*3 Mont. 146; *Helena National Bank*v. *Bochy Mt. Tel. Go.,*20 Mont. 379; *B. S B. Go.*y. *M. O. P. Co.,*21 Mont. 539.)

Instructions stating the law correctly should not be given if they would mislead the jury. *(Huntoon*v. *Lloyd,*7 Mont. 365-372; *Boucher*v. *Mulvehill, 1*Mont. 379; *Goodkind v. Gilliam,*19 Mont. 388.)

Instructions should not be given unless applicable, and warranted by the testimony. *(Dupont*v. *McAdow,*6 Mont. 230; *Brownell*v. *McCormack,*1 Mont. 65; *Kelly*v. *Gable Go.,*7 Mont. 70; *Walsh*v. *Muller,*16 Mont. 188.)

It is a well established principle in the law of agency that one person cannot make himself the- agent of another so as to bind the other by merely representing that he is such agent; but that the party to whom he malíes a proposal for contract in behalf of his alleged principal is bound at his peril to inquire and find out whether he has authority so to1 contract. *{New Harten & G. Go.*v. *Hayden,*107 Mass. 525.)

Third parties dealing with an agent are put upon their guard by the fact that they are dealing with an agent and do1 so at their own risk. *(Bust*v. *Baton,*24 Ped. 830; *Johnson*v. *Alar bama Gas & Mfg. Go.,*8 So. Hep. 101; *Baring*v. *Pierce,*40 Am. Dec. 534.)

A principal is responsible for the acts of his agent while acting within the scope of his authority, but courts will not enlarge his liability. *(Banh of Deer Lodge*v. *Hope Mining Go.,*3 Mont. 146; *First Naif l Banh*v. *Hall,*8 Mont. 341-346.)

To charge a corporation upon the act of an officer or agent it must be shown directly or presumptively either that the act was performed while in the discharge of his ordinary duty in the usual course of business, and was within the general scope *465and apparent sphere of sncb duty, or that it was° expressly authorized, or that it was performed with the knowledge and implied assent of the directors of -the corporation or its authorized officers or was subsequently authorized by them. (Abbott’s Trial Evidence, page 32, Sec. 29; *First Nafl Bank*v. *Ocean Nát’l Bank,*60 N. Y. 278-290.)

There could be no ratification except by the act of the board of directors after full knowledge of all material facts; *(0wr-ings*v. *Hall,*9 Pet. 629; *DesMomes Co.*v. *Tilford M. Co.,*70 N. W. 839, 841; Pac. *Rolling Mill*v. *D. 8. & C. R. Ry. Co.,*5 Fed. 852, 858; *Lyndon Mill Co.*v. *Lyndon L. & B. Co.,*22 Atl. 575, 577.)

The burden was on plaintiff to show Watson’s- authority, if any could be shown, to- make the agreement claimed by plaintiff to have been made. *(Finch*v. *Kent,*61 Pac. 652; *Bank of Beer Lodge*v. *Hope. Mining Co.,*3 Mont. 146 ; *Helena National Bank*v. *Rocky Ml. Tel. Co.,*20 Mont. 379; *B. & B. Co>.*v. *M. O. P. Co.,*21 Mont. 539.)

Corporations are artificial creations existing by virtue of law and organized for purposes defined in their charters; and he who deals with one of them is chargeable with notice of the purpose for which it was formed; and where he deals- with agents or officers of one of them he is bound to know their powers and the extent of their authority. Corporations like natural persons are bound only by the acts and contracts of their agents done.and made within the scope of their authority. (Angelí & Ames on Cor., pages 288-301; *Alexander el al.*v. *Caldwell el al.,*83 N. Y. 485 ; *Wilson*v. *Kings. County Ry. Co.,*114 N. Y. 487, 21 N. E. 1015-1016; *Woodruff*v. *Rochester & P. Ry. Co.,*108 N. Y. 39, 14 N. E. 832-834; *Farmers & Merchants Nat’l Bank*v. *Smith,*77 Fed. 129-135; *Victoris Gold Mm. Co.*v. *Fraser et al.,*29 Pac. 667; Art. I, Chap; XV, Fifth Div. Bevised Stat. of Montana, 1879.)

Power of agent cannob exceed power of corporation. The contract claimed by plaintiff to have been made with defendant was beyond the powers of the corporation to make. ( *Relfe*v. *Bundle,*103 IT. S. 222-226; *Whitehurst v. Whitehurst,*83 Va. *466153, s. c. 1 S. E. 101; *Davis*v. *Old Colony By.*Go41 Am. Rep. 221; *Memphis Elevator Go.*v. *Mem. etc. By. Co.,*85 Tenn. 703, s. c. 5 S. W. Rep. 52; *PI. Boad Go.*v. *PI. Boad*Company, 7 Wis. 59; *N.*W. *Packet Co.*v. *Shaw-,*37 Wis. 655, s. c. 19 Am. Rep. 781; *Hall*y. *Auburn Turnpike*Go., 27 Cal. 255, s. c. 87 Am. Dec. 75, cited with approval in *Hall*v. Grhndall, 29 Cal. 572; Morawetz on Corporations, Yol. 2, Secs. 579-580; Besí *Breioing Go.*y. *Xlassen,*57 N. E. 20, 185 Ill. 37.)

ilír. *John W.*Goiter, for Respondent.

MR, CHIEE JUSTICE BRANTLY

delivered tbe opinion of tbe court.

By tbis action recovery is sought by tbe plaintiff of tbe sum of $1,691.31, tbe amount of an account wbicb be alleges be sold to tbe defendant at its face value; and wbicb tbe defendant promised to pay. Tbe account was for a boiler sold and delivered to tbe Sbonbar Mining Company, and for labor done in its bebalf. Upon a former appeal to tbis court, a judgment in favor of tbe plaintiff was reversed and a new trial granted because of error during tbe trial in tbe exclusion of certain evidence. *(Mahoney*v. *Butte Hardware*Co., 19 Mont. 377, 48 Pac. 545.) A complete statement of tbe case precedes tbe former opinion. It is therefore not necessary to1 repeat it here. By reference to that statement, it appears that tbe issue between tbe parties on tbe first trial was whether tbe transaction between tbe plaintiff and tbe manager of tbe defendant corporation amounted to' a sale of the account, or whether it was an assignment of it only for tbe purpose of collection. Incidentally there was also involved tbe question whether tbe defendant corporation bad tbe power under its charter to make tbe purchase, and also whether the manager was authorized to make it for tbe company. Tbe plaintiff then contended that be could have secured bis account by filing a statutory notice of a mechanics’ or furnishers’ lien, and that tbe purpose of tbe purchase by tbe defendant was to protect a claim it held against tbe Sbonbar Mining Company, wbicb was unsecured, and therefore inferior *467to that of the plaintiff and others of like character. Upon the second trial the contention was that the plaintiff was about to attach the property of the Shonbar Mining Company, and that the defendant company, through its manager, purchased the account in order to protect its own unsecured claim, promising that when it finally obtained a sheriff’s deed to the real property of the Shonbar Mining Company it would pay the plaintiff the full amount of his claim. The defendant contended, as before, that the claim was assigned for the purpose of collection only, and that, though it had obtained title to the property, it had obtained it through the purchase of other claims which were secured by liens, and through the foreclosure of such liens, and that, having collected nothing upon the plaintiff’s claim, though it had reduced it to judgment in connection with its own claim, it owed the plaintiff nothing. The plaintiff had judgment, and the defendant prosecutes these appeals from the judgment and an order denying it a new trial.

Many errors are assigned upon the admission and exclusion of evidence and upon the instructions submitted to the jury. The point is also1 made that the evidence is insufficient to justify the verdict. In their briefs counsel have discussed extensively the power of the defendant corporation under its charter to purchase such claims for any purpose, as well as the principles of law of agency applicable. We shall not give special notice to any of the errors assigned. ' A careful consideration of the record reveals no prejudicial error in any ruling of the court upon questions of the admissibility of evidence. There was evidence that the manager had authority to purchase, and that he did purchase, the plaintiff’s account, as plaintiff contended. Touching the contention that the purchase was *ultra vires*of the corporation, this court on the former appeal said: “It was not *per se•*an act [of] *ultra vires*for the appellant to purchase claims against the Shonbar Mining Company, secured by liens, in order to protect its own account. Conceding that it was organized to do1 a hardware business only, still if, in the course of its legitimate business, it became necessary, in the exercise of business prudence, to purchase these claims for the protection *468of its own interest, and such claims were purchased in good faith, for that purpose only, that would not have been a violation of its charter or of the statutes of the state pertaining to corporations of its character.” This statement became the law of the case, and is conclusive upon this appeal. We think it embodies the correct view. ' There is nothing in the charter of the defendant nor in the laws of this state prohibiting such a transaction, nor was the transaction inconsistent with the purposes for which it was organized, to-wit, to (h> a hardware business. Indeed, we think it among the necessary powers of a commercial corporation that resort may be had by it to. any expedient .not prohibited by law, and within the course of its legitimate business, which may be dictated by motives of prudence, to collect debts due it, or otherwise 1» protect and secure its assets for the benefit of its stockholders, provided only its officers proceed in good faith and for that purpose only. There is no difference in principle between the purchase of a claim which is or may be secured by mechanic’s lien and that of a claim which may be secured by an attachment lien. The fact that the particular expedient resorted to proved ineffective to accomplish the purpose for which it was made does not alter the case or in any wise change the position of the parties'.

Rehearing denied April 10, 1903.

The judgment and order appealed from are affirmed.

*Affirmed.*

' Me. Justice MilbueN, being ill, did not hear the argument and takes no part in the foregoing, decision.