Case Name: Elbert I. Jemison et al., Resp'ts, v. Citizens' Savings Bank of Jefferson, Texas, App'lt
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1887-05-13
Citations: 9 N.Y. St. Rep. 366
Docket Number: 
Parties: Elbert I. Jemison et al., Resp’ts, v. Citizens’ Savings Bank of Jefferson, Texas, App’lt.
Judges: 
Reporter: New York State Reporter
Volume: 9
Pages: 366–372

Head Matter:
Elbert I. Jemison et al., Resp’ts, v. Citizens’ Savings Bank of Jefferson, Texas, App’lt.
(Supreme Court, General Term, First Department,
Filed May 13, 1887 )
1. Corporation — Notice to parties dealing with, as to its powers.
Parties dealing with corporations are chargeable with notice of the pur- • poses for which the corporation was formed, and every corporation necessarily carries its charter wherever its goes, for that is the law of its existence. Cases cited.
2. Same—Liability for contracts ultra vires.
Held, that it is entirely immaterial as to what the parties dealing with, the corporation know in reference to the limitations of its powers. They are bound to know whether or not the corporation had power to make the contract which they attempt to enforce, and they cannot plead their ignorance in support of their claim.
3. Same—When not estopped from disputing the validity of contracts MADE.
On the failure of a corporation to carry out a contract with the parties thereto, in regard to a transaction in which there had been a loss to said parties, which by the terms of the contract was chargeable to the corporation: Held, that said parties could not recover in a suit against the corporation, if by the act under which it was incorporated it had no authority to incur the liability. Whitney Arms Co. v. Barlow, 63 N. Y., 62; The Rider Co. v. Roach, 97 id., 378, and Parish v. Wheeler, 22 id., 494, distinguished.
Appeal by the defendants from a judgment entered against them on trial by the court without a jury.
W. D. Guthrie, for app’lt; F. C. Barlow, for resp’t.

Opinion:
Van Brunt, P. J.
There is no dispute as to the facts which it is necessary to consider in the disposition of this appeal. The action was commenced to recover a balance of money claimed to have been expended by the plaintiffs on the purchase and sale of cotton futures for the defendants, and for the plaintiffs' commissions.
The plaintiffs at the time of the transactions referred to, were copartners in business as commission merchants and cotton brokers.
The defendants were a corporation created and existing by and under the laws of the state of Texas, and doing business at Jefferson in that state being chartered in the year 1871, by an act of the legislature of the state of Texas.
The statute incorporating the defendants stated that the general business and object of the corporation should be to receive on deposit or in trust such sums of money as might from time to time be offered therefor, by tradesmen, merchants, clerks, laborers, servants and others, to be repaid to such depositors when demanded, at such times with such interest and under such regulations as the board of directors might, from time to time, prescribe.
The statute further provided that the corporation might loan money according to the constitution and Laws of the state, and might discount in accordance with banking usages, taking such security therefor, either real or personal, as the directors might deem sufficient; that the corporation should have power to borrow money, buy and sell exchanges, bullion, bank notes, government stocks or other securities. But the corporation was not by its charter given the power to deal or speculate in cotton or other articles of merchandise or property
The plaintiffs had no knowledge of the corporation, or off the Laws of Texas in regard to its powers, other than that which is implied from the title or name of the defendants.
At the time of the transactions in question, J. H. Parsons was the cashier of the defendants, and the by-laws provided that the board of directors should meet from time to time as they should appoint, and provided in regard to the cashier that he should have general charge of the business of the bank and the supervision of its concerns; and that he should have custody of the personal property of the bank, and sign all checks and orders, drafts, bills of exchange, and certificates of deposit. The transactions in question commenced in January, 1879, at which time Parsons as cashier wrote to the plaintiffs asking what margin and commission they would ask in transactions for the purchase of cotton futures. The plaintiffs answered by letter of the 27th of January, 1879, stating amongst other things that the margin required was $250 per contract, and added : " This will give you an idea how much to require from any of your friends who wish to make an investment."
On the 10th of February, Parsons as cashier gave the first order by telegraph, and wrote on the same day that the order was made for one of their customers who had deposited $250 in accordance with their letter, of January 27th. Other orders were given, on the 24th of May, and on the same day Parsons wrote a letter to the plaintiffs in which he stated that neither himself nor the bank dealt in futures, and that in case he ordered other purchases it would only be for good responsible customers, who had put the necessary margin up. Other correspondence was carried on between the parties and orders given, and the final result of the transactions was a loss, to recover which this action is brought. In June and July, 1879, upon the ledger of the defendants appeared entries of an account between the plaintiffs and defendants, showing debts and credits to the plaintiffs growing out of dealings in futures. An account also appeared on the defendants' ledger with one Olopton, showing debits to said Clopton of losses on futures and credits, of profits, and deposits of margins. By an examination of said entries and accounts, the directors could have ascertained that the bank was having dealings in some kind of futures.
The defendants claim that they were not bound upon these contracts, because they were ultra vires and against public policy, and that they were acting simply as agents and not as principals. As the defendants did not disclose their principals at the time of the giving of the orders, they are not exonerated from responsibility merely because they stated that they were acting as agents.
From the finding of the learned judge who tried the case, that the plaintiffs had no knowledge of the powers of the defendants' corporation, or of the laws of Texas, written or otherwise, in regard to its powers and functions, other than that which is implied from the title or name of the defendants, it is claimed on the part of the plaintiffs that they were not bound by any of the limitations contained in the defendants' charter, or any laws relating thereto existing in the state of Texas. It is to be inferred, however, from this finding that the knowledge as to the powers of the defendants' corporation, which is implied from the title or name of the defendants the plaintiffs are chargeable with. The title or name of the defendants is the Citizens Savings Bank, of Jefferson, Texas, and the knowledge of the powers of the defendants which the title or name of the defendants implies to citizens of this state, is that the defendants had powers similar to those which savings banks in this state had a right to exercise.
The courts have declared in the case of Sistare v. Best (88 N. Y., 527), in respect to the powers of a savings bank: " The bank was a savings bank, and there can be no doubt that speculative contracts entered into for the sale of stock by the bank at the stock board or elsewhere, subject to the hazard and contingencies of gain and loss, would be ultra vires and a gross perversion of the powers conferred by its charter." Therefore, applying the rule that the implied knowledge of the plaintiff as to the powers of the defendants was such as the name or title of the defendants gave, they, were bound to know from the very nature of its title, that speculating in cotton futures by defendants was a gross perversion of the powers conferred by its charter, and that neither its cashier nor its board of directors had any power to cause the bank to embark in any such enterprise. But it will appear upon an examination of the charter of the defendant that its powers differed very materially from those of a savings bank as known under the laws of this state. It was a corporation having all the banking powers which belong to ordinary incorporated banks, with the ex ception that it had no power to issue notes for the purposes of a circulating medium, unless the same was done in conformity to the laws of the United States in such case made and provided. In the consideration of the question as to whether these contracts were ultra vires, it is necessary to treat it not as a savings bank only, but as an ordinary banking association or corporation.
The rule seems to be well established that parties dealing with corporations are chargeable with notices of the purposes for which the corporation was formed, and that every corporation necessarily carries its charter where it goes, for that is the law of its existence. In Hoyt v. Thomson (19 N. Y., 208), in respect to corporations, the court of appeals say: "There is no doubt that all persons dealing with or deriving title from a foreign corporation are bound to take notice of every limitation upon its powers contained in the charter."
In Alexander v. Cauldwell (83 N. Y., 480), the court say: " Every one knows that 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 when 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.
In Davis v. Old Colony R. R. Co. (131 Mass., 258), it is said that every person who enters into a contract with a corporation is bound at its peril to take notice of the legal limits of its capacity.
In Relf v. Rendle (103 N. Y., 223), it is said: "Every corporation necessarily carries its charter wherever it goes, for that is the law of its existence. It may be restricted in the use of some of its powers while doing business away from its corporate home, but every person who deals with it everywhere is bound to take notice of the provisions which liave been made in its charter for the management and control of its affairs, both in life and after dissolution."
In Angel & Ames on Corporations (section 256), it is said that where a corporation is created for particular purposes, with, special powers, the contract does not bind it, if it appears from the express provisions of the statute creating the corporation, or by necessary and reasonable inference from its enactments, that the contract is ultra vires.
These authorities seem to show beyond question that it is entirely immaterial as to what the plaintiffs knew in reference to the limitations of the defendants powers. If the corporation had no power to speculate in the manner in which they,-attempted to do, with the plaintiffs, the plaintiffs were bound to know this fact, and they cannot plead their ignorance in support of a claim founded upon a contract which they were bound to know that the corporation had no power to make. We have already seen that there-is no dispute that if the plaintiffs were assumed to have had the knowledge conveyed by the title of the, defendants that they must have known that the defendants had no power or authority to enter into the speculative contracts-which form the basis or subject of this action. Upon an examination of the charter, we find no power conferred which authorized this bank to enter into the speculations which it is claimed they did with the plaintiffs. Their powers were defined to be, first, that of a savings bank; and secondly, the power to loan, money, to borrow money, buy and sell exchange, bullion, bank notes, government stocks and other securities.
There is nothing in their charter which m any degree seems to authorize this bank to engage in speculative' purchases of cotton merchandise or any other personal property,, and as we have seen that the powers of corporations only extend to the purposes defined in their charter, and that he-who deals with one of them is chargeable with notice of the purposes for which it has been formed, when he enters-into a contract with such corporation for a purpose manifestly foreign to its charter, he is bound to know that such contract is ultra vires.
In the findings of fact, the learned justice has found that speculating in cotton or other articles of merchandise or property was not forbidden to said corporation either by its charter, by the constitution or by any statute of the state of Texas. We have seen that such speculations were forbidden by the charter of the corporation because they were-foreign to the purposes for which it was created. It is true t-hat there was no evidence introduced in the case tending to show that such speculations were forbidden by the state of Texas. But this may be explained by the fact that under the objection of the plaintiffs' evidence tending to show that such speculation was forbidden by any statute of the state of Texas was excluded.
The objections were interposed upon the ground that the powers and privileges of the defendants' bank were immaterial because the contracts in question were executed on the part of the plaintiffs. In view of this condition of the-record the plaintiffs in this action cannot recover unless the grounds stated in this objection are well founded.
It appears from the evidence that the transactions were entirely closed and resulted in a loss, and that this action was brought to recover the balance of such loss. And from these facts it is urged that the contract being an executed one, the defendants cannot claim that it was ultra vires, or that its cashier had no power to make the same.
In considering this proposition it will not be necessary to pass upon the powers and authority of the cashier, because the difficulty with the plaintiffs' case seems to be that neither the cashier nor the board of directors had any power to enter into any such contract, and the plaintiffs' claim can only be sustained upon the ground that the contract although ultra vires, was executed. In support of this proposition is cited the cases of The Whitney Arms Co v. Barlow (63 N. Y., 62), The Rider Co. v. Roach (97 N Y., 378) and Parish v. Wheeler (22 N. Y., 494). The ground upon which the plaintiffs in this case claim that the contract is executed is that the plaintiffs have paid out money at the defendants' request to the defendants' creditors. It is to be observed that the plaintiffs, if acting for other persons, have nowhere disclosed who they were; and, therefore, applying the rule which is urged against the defendants, that although the plaintiffs knew that the defendants were acting as agents, yet not having disclosed their principals, they became principals themselves, these transactions are to be considered as transactions between the plaintiffs and defendants as principals, neither of them having disclosed for whom they were acting or pretending to act. The plaintiffs cannot claim in one breath that the defendants are principals because the persons for whom they were acting were not disclosed, and then claim on behalf of themselves that they were acting for others, and hence are not to be treated as principals, they have failed to disclose for whom they were acting under the facts disclosed, the plaintiffs were personally responsible to the defendants, There is no evidence, therefore, that the plaintiffs have paid out any money to any particular person at the request of the defendants. This they were bound to show under the general denial contained in the answer, if they sought to reach the defendants because of money laid out and expended at their request.
In the case of the Whitney Arms Co. v. Barlow (supra), the defendant had property which had been sold and delivered by the plaintiffs to the defendant and the court held that the defendant could not hold the property without paying the purchase-price.
The same state of affairs existed in the case of The Rider v. Roach, above referred to, and in Parish v. Wheeler, it was held that through a corporation exceeded its legal powers in a purchase of personal property, the person who paid at its request, the purchase-price of the property, could maintain an action against the corporation, such corporation having possession of the property, and that they could not defend on the ground that the purchase was ultra vires.
In all of these cases the party seeking to be charged, had possession of the property, which formed the basis of the action and such a defense could not be allowed as it would not advance justice, but on the contrary would accomplish a legal wrong.
In the case at bar the corporation has received nothing from the plaintiffs under the contracts in question and hence occupies a very different position from those corporations in the cases cited, who were in actual possession of the property forming the consideration for the contract sued upon.
In the case of the Rider Co. v. Roach (supra), attention is called to the fact that some of the decisions hold that the plea of ultra vires can only be interposed by a corporation, and not by an individual dealing with such corporation. It is very doubtful whether that is the law in this state.
In the case of Sistare v. Best (88 N. Y., 527), it is claimed by the respondents to be held that an agent is not to suffer for ultra vires acts when he does not know that they are ultra vires. Upon an examination of that case we fail to find any such proposition. The acts referred to in that case were expressly held to be within the powers of the corporation, and a recovery was sustained upon that ground and upon that ground alone.
It would appear, therefore, that these contracts made between the plaintiffs ahd the defendants being beyond the authority of the corporation and entirely foreign to the purposes of its incorporation, the losses sustained thereon cannot be removed.
The judgment must be reversed and a new trial ordered, with costs to appellants to abide events.
Daniels and Brady, JJ., concur.