Court Opinion

ID: 6315046
Source: CourtListenerOpinion
Date Created: 2022-02-18 20:24:46.73622+00
Date Added: 2024-06-11T08:59:13.628928
License: Public Domain

The opinion of the court was delivered in
by Lewis, J.
— This is an action of assumpsit brought for the *47purpose of charging the estate of R. S. Reed, deceased, with the amount of a large number of bonds issued by and in the name of the Erie Canal Company. The bonds- are in form engagements by the corporation, and were issued by authority of the board of directors. They are duly authenticated by the corporate seal, and attested by the president and secretary. They bear date 1st January, 1844, and purport to bind the company to the bearer for the payment of the sum therein mentioned, on the 1st January, 1850, with six per cent, interest, payable annually. The whole amount issued during the presidency of the defendants’ testator was $658,418. There is no evidence that he engaged to pay them, or that he made himself liable for them in any other manner than by the act of signing them as president of the corporation. There is no evidence that he had any interest in the contracts on which they were issued. Nor has any claim been made on the ground that the other directors were interested in them. It was held in Gtordon v. Preston, 1 Watts, 387, that a director may sustain the relation of a creditor to the corporation, and may even take a mortgage against it without prejudice to his title. But as the plaintiff has not thought proper to put his claim on this ground, we may fairly presume that he has satisfactory reasons for waiving the question, and we follow his example.
When an agent is sued for an act done in the name of another, Be is in general required to show his authority. But when, as in this case, he has shown full authority from the corporation for his acts, and has also shown that the corporation possessed a general authority to make contracts of the kind in question, relating to its legitimate business, 'he has shown all that is required in the first place. Such contracts, like notes given by one partner in the name of the firm, will be intended to have been given for legitimate objects, until the contrary appears. There is no presumption against them. 3 Wend. 97. The party alleging that they were given for illegal objects, must establish his "allegation. If the holders of bonds and other negotiable paper against corporations, having general authority to make such contracts, were bound to encounter the presumption that they were illegal, their character and value ivould be destroyed, and the mischief would be intolerable. In this case there is no evidence to repel the presumption that the bonds were issued in the course of the lawful business of the company. On the contrary, the evidence is that they were given to the contractors for work done in completing the canal. This brings us to the question — Had the corporation power to issue them for that purpose ?
It is sometimes said," that “ privileges not expressly granted in a charter are withheld.” Bank of Pennsylvania v. Common*48wealth, 7 Harris, 153; Packer v. Sunbury & Erie R. R. Co., 7 Harris, 218. At other times it is declared, that a corporation can “exercise no powers except those which the law confers upon it, or which are incident to its existence.” Perrene v. Ches. & Del. Canal Co., 9 Howard, 184; Dartmouth College v. Woodward, 4 Wheat. 636; Bank of Augusta v. Earle, 13 Pet. 589; Rungan v. Caster, 14 Pet. 129. These rules were applied to cases in which the corporations were claiming monopolies in conflict with the rights of the government, or its grantee, or were demanding exemption from their proper proportion of. the public taxes. The rules were sufficient for the cases to which they were applied; but they are not stated with sufiicient precision for general application, and they do not accurately express the true rule for the decision of cases in which there is no conflict with the government or its grantee, and where no privilege is( claimed in derogation of the public rights. Corporations possess both \ powers and privileges. These powers are often expressed in their jcharters. But they are frequently implied from the duties imposed. In the latter case they are but incidents to the principal matter, and partake so much of its character that they ought to be denominated duties instead of privileges. A corporation may be clothed with power to perform its duty, to bear a burthen, to pay a debt, or if unable to pay immediately, to give an obligation for it payable at a future day. But this power can scarcely be called a privilege,¡yñúck is to be grudgingly withheld, unless expressly granted by its charter. And any construction which would relieve corporations from these obligations would be inverting altogether the rule of strict construction, and would in fact be conferring privileges of a character highly injurious to the public. The true rule applicable to the case now under consideration is given by Chancellor Kent, in these words: “ The modern doctrine is to consider corporations as having such powers as are specifically granted by the act of incorporation, or as are necessary for the purpose of carrying into effect the powers expressly granted, and as not having any other.” 2 Kent, 298. The Supreme Court of New I York has adopted the same rule: “A corporation for a specific ' object has no rights except such as are expressly granted, and those that are necessary to carry into effect the powers granted. Many» powers and capacities are tacitly annexed to a corporation duly created; but they are such only asv are necessary to carry into effect the purposes for which it was established." The People v. The Utica Ins. Co., 15 Johns. 383; N. Y. Firemen’s Ins. Co. v. Sturges, 2 Cowen, 675; Same v. Ely, 2 Cowen, 699. Angel & Ames also announce the general rule to be that a corporation “ has power to make all such contracts as are necessary *49and usual in the course of business, as a means to enable it to attain the object for which it was created, and none other.” Angel & Ames on Corporations, 245. And the Supreme Court of this State, has distinctly adopted the rule that “a corporation! duly created has tacitly annexed to it, without any express pro-1 vision,” — “ every capacity that is necessary to carry into effect the purposes for which it was established.” Dana v. The Bank of the U. S., 5 W. & S. 243. In. accordance with this principle, it has been declared in a work of authority, that “in general an express authority is not indispensable to confer upon a corporation the right to borrow, to deal on credit, or become drawer, endorser, or acceptor of a bill of exchange, or to become a party to any negotiable payer.” Corporations are expressly mentioned in the statute of Anne, respecting promissory notes, “ as persons who may make and endorse negotiable notes, and to whom such notes may be made payable.” Angel & Ames, 234; Mott v. Hicks, 1 Cowen, 513; Kelley v. Mayor of Brooklyn, 4 Hill, 265; Moss v. Oakley, 2 Hill, 265; Barker v. Mech. Ins. Co., 3 Wend. 97. These authorities are full to the point. But it seems clear upon principle, as well as upon authority, that corporations are bound by all contracts, whether express or implied, whether by bond, bill of exchange, or negotiable note, entered into in the usual and necessary course of their legitimate business, except where there is a statutory prohibition. The case of Broughton v. The Manchester and Salford Waterworks is sometimes cited as an authority against this proposition, but it cannot be so regarded. There was a prohibition by statute in that case, and the decision was placed upon that ground. 3 Barn. & Ald. 1.
The charter of the Erie Canal Company contains the usual grant of corporate powers. The company is expressly authorized to purchase, sell, mortgage, and otherwise dispose of its real and^ personal estate, and to do all other things “necessary for the proper business of the company.” What-is “the proper business of the company ?” The completion of the canal and its preservation for the uses designated by law. It had therefore a right to enter into contracts for the work required for these objects. It Was not usual, and was quite unreasonable, to pay before the work was done. The company was therefore inevitably obliged to contract debts for these purposes. If-unable to raise the money for immediate payment, honesty required that it should give satisfactory engagements to pay at a future period, with legal interest for the delay. The corporation was unable to borrow money to complete the work. It gave these obligations to its contractors in payment of debts contracted in “ its proper business.” They are binding upon it unless they fall within the meaning of some statutory prohibition. The obligations have *50neither the form nor the substance of bank notes. There is no evidence that they were issued in the business of discounting-notes, or for the purpose of creating a circulating medium. They are simple obligations, given for the payment of lawful debts, and made payable to bearer. They do not therefore fall within the prohibition respecting the exercise of “banking privileges.” For the same reason they do not fall within the meaning of the 9th section of the charter, which relates exclusively to a loan of money, and not to securities given for debts contracted in the legitimate business of the company. That section purports to be a grant of power, and must not be construed as restricting power already granted. It has been held that even the incidental power to issue negotiable notes is not taken away by mere1 affirmative words directing a certain form of contracting. Kelley v. Brooklyn, 4 Hill, 263. It is our duty to construe the several clauses of the act so that they will all be operative and stand in harmony with each other, if that be possible. There is no difficulty whatever in doing so. The 2d section authorizes mortgages for debts contracted in the necessary business of the company. The 9th section relates altogether to a loan of money. The 2d section gives no power to contract for the payment of more than legal interest. The 9th section allows a mortgage for a higher rate, not exceeding seven per cent, per annum. The 2d authorizes a lien upon such property as may not be necessary to the existence and great public object for which the company was'^ created, and consequently gave no power to encumber or transfer the canal itself, beyond the process of sequestration. 9 W. & S. 27. The 9th section may have been intended to bind all its corporate property without exception. That it was not intended’ to exclude the corporation from the power to contract other debts, is manifest from the 10th section, which provides that on a sale of the mortgaged property, the proceeds shall be first applied to the payment of “the loans secured by mortgage, and then to the other debts of the company.”
It is not necessary to consider the other points discussed by counsel. Enough has been said to show that the case was properly decided in favor of the defendants below.
Judgment affirmed.