Court Opinion

ID: 8752848
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:33:44.637363+00
Date Added: 2024-06-11T17:01:03.605862
License: Public Domain

REDDER, District Judge
(dissenting). I am reluctantly forced to dissent from the opinion in this case. My views in regard to the question' of ultra vires presented by the record herein are well set forth by the opinion of the learned judge below. My views are also in harmony with those of the judge below as regards the true character of the contracts made between the Richmond Guano Company and the oil mill company. He says in his opinion:
“It Is impossible to call these contracts sales of goods. They expressly stipulate that all the fertilizers ordered and the proceeds thereof are the property of the Richmond Guano Company. The contracts are really an agreement by the Farmers’ Cotton Seed Oil & Ginnery Company to receive fertilizers from the Richmond Guano Company, sell them for its account, binding itself for the invoice price of shipments, and looking for its compensation to the sums over and above the invoice prices which it could obtain.”
The agreement referred to is as follows:
“Richmond Guano Co., Richmond, Va., Mar. 4, 1901.
“To Farmers’ Cotton Seed Oil Mill and Ginnery Co., Greenville, S. C.: We will furnish you this season, delivered in carload lots, free on board cars or boat at Greenville, S. C.:
Cash. Time.
Gilt-Edge Fertilizer, at $21.55 per ton, at $22.30 per ton.
Special Premium Brand for Tobacco,
Premium Brand for Tobacco,

Alkaline Bone or Potash Mixture,
High-Grade Acid Phosphate,
Dissolved S. C. Phosphate,
Old Homestead Dissolved Bone,
and as much more as may be mutually satisfactory, to be sold by you as uw agents, on the following terms and conditions:
“All fertilizers ordered by you and sold for cash to be settled for in cash on or before the 1st day of May, 1901, and your notes for the remainder to be given us on or before the 1st day of May, 1901, payable one-half November 1st, 1901, and the remaining one-half December 1st, 1901, at the City National Bank of Greenville, S. C., and you agree that all of said fertilizers, ordered by^, you, and all proceeds therefrom, are our property, and shall be held in trust by you, for our account, till your obligations, as above described, are settled in full; and it is further understood and agreed that the fertilizers named are furnished with the guarantee of analysis printed on the sack, but with no guarantee of results from its use, and you are to receive and properly protect them from weather, fire, etc., free of any expense to us.
*719“For all time sales of said fertilizers, you also agree to take from the purchaser or purchasers bonds or motes, payable not later than 15th day of October, 1901, and to turn over to us on or before the 1st day of May, 1901, said bonds or notes for the gross amount of your time sales as collateral security for the payment of your notes given, as above provided for, and for the payment of any renewal or renewals of said notes, either in whole or in part, you to give us a receipt for the said bonds or notes when they are returned for collection.
“Any fertilizers shipped you during this season, and not named in this agreement, shall be subject to all the terms and conditions of this agreement, and any change of prices made on any of the fertilizers shall not affect the terms and conditions of this agreement, but be subject to same. Any shortage or damage in a shipment to be immediately reported. The destruction of our works, or any part of same, by fire, flood or other cause, gives us the right to cancel the whole or any part of this agreement. When the above named goods are ordered in less than carload lots, there will be an additional charge of $1.00 per ton.
“No verbal agreement or understanding will in any manner affect the conditions and terms of this agreement.
“This proposal is madé subject to the approval of the home office after acceptance by you.
“On goods shipped to Woods Crossing, Mauldin, Gantt, Piedmont and Oroswell, 25c. per ton to be added, and on shipments to Simpsonville and Pelzer, 35c. per ton to be added to above prices. Richmond Guano Co.,
“Per C. H. Bulmer.
“Richmond Guano Company, Gentlemen — Your offer is hereby accepted upon the terms and conditions above stated in this agreement.
“J. W. Griffin, Pres.
“Signed in Duplicate.
“March 4, 1901.”
The opinion of a majority of the court seems to recognize that these agreements were ultra vires, and, as executory agreements, could not be enforced, but that, having received the goods, the Farmers’ Cotton Seed Oil Mill & Ginnery is bound to return them or pay for them. While I fully and completely subscribe to this general doctrine, I cannot assent to the implications of the opinion in this regard. It is evident from the contract above copied that the property in the fertilizers furnished by the Richmond Guano Company thereunder never passed thereby to the Farmers’ Cotton Seed Oil Mill & Ginnery. That company was permitted to sell the fertilizers, but so long as they remained in its hands they were, by the very terms of the contract, the property of the guano company. The title never vested for a single instant in the oil mill. The contract expressly stipulates for the sale of these goods, for the turning over to it of proceeds for cash sales, of the notes taken for time sales, and for a receipt to be given for such notes when returned to the oil mill for collection. There is no allegation in the bill nor elsewhere in the record that the oil mill ever failed to turn over any of the proceeds of cash sales, or any notes taken for time sales. If any fertilizers remained unsold at the date of the filing of the bill, they were, under the contract, the property of the guano company, and could have been recovered by it if desired.
It appears that the invoice price of the fertilizers shipped to the oil mill under the contracts was (so far as the record shows) $18,-591.30, none of which was due when the bill was filed, and that the complainant at the time held in its hands farmers’ notes for fertilizers *720sold by the oil mill, amounting to $18,838.68, not a word or syllable ■of which appears” anywhere in the bill filed. On the contrary ^ any one reading the bill would think that these notes were for goods sold ■and delivered, and that complainant held no' sort of indemnity. Had this been a sale of guano to the oil mill I admit beyond question that if the contract, although ultra vires under the charter of the defendant company, had been executed by the delivery of the goods by the guano company, the defense of ultra vires could not, under the weight of authority, have been pleaded in a suit to recover the price. But 'this was not the case. The notes given by the oil mill were manifestly given as security for the faithful accounting for the proceeds of sales of fertilizers to the extent of the invoice price, and guaranties of the solvency of the persons to whom it sold the fertilizers. What else can any one make out of the contract exhibited? If the property in the fertilizers never passed to the oil mill, as is stated in’ the ■contract, then, manifestly, when the fertilizers'were sold it was by virtue of such a relation between the guano company and the oil and ginnery company as was created by the contract, namely, that of an agent, who assumed to guaranty not only its own faithfulness, but the solvency and responsibility of those to whom it sold. Here we are again met with the question whether the oil mill was not acting ultra vires in assuming to do so, and whether it can be held as guarantor of the farmers’ notes taken for guano. I have no doubt that the company could not so be bound, and, without going into any discussion of the principles involved, will cite the following authorities in support of my view: Crewer, etc., Mining Co. v. Willyams, 14 Wkly. Rep. 1003; Lucas v. White Line Transfer Co., 70 Iowa, 541, 30 N. W. 771, 59 Am. Rep. 449; Thompson on Corporations, § 5721, and cases there cited. See, also, Johnson v. Chaplin, Montreal L. Rep. 6 Q. B. 111; Smith v. Alabama Life Ins., etc., Co., 4 Ala. 558. In this latter case it was held that, where an insurance and trust company was required by its charter to invest one-half of its capital in bonds or notes secured by mortgage on land within the state of Alabama, and was authorized to invest the remainder in stocks, or loaned on personal security, etc., it could not loan its credit, and that bonds given by it in exchange for the note of an individual for the same amount were void. In discussing this principle in his work on ■Corporations, Mr. Thompson says:
“If tlie doctrine that the capital of a corporation is a trust fund for the security of its creditors is any more than an empty and idle collection of words, then the principle is also designed for the security of the creditors of the corporation, by preserving from an unauthorized dissipation a fund which, in the event of insolvency, equity impresses with a trust in their favor. It is of great importance to consider whether the principle has been designed as a protection to the stockholders merely, or the creditors as well; because, if it is designed as a protection to the stockholders merely, it is plainly competent for them to waive the privilege, and by unanimous consent, either in the form of a precedent authorization or of a subsequent ratification, to vali■date the act of embarking the funds of the corporation in an undertaking by which it becomes a guarantor or surety for the payment of the debt of another. If the principle is designed for the protection of the stockholders only, then no question of public policy is involved in it, any more than in the question whether a partner can charge the assets of the firm by an aecommo*721elation Indorsement for a third person. If, on the other hand, the rights of the creditors are involved, then, clearly, it rises to the grade of a question of public policy, because the creditors are not in a position to know what particular contracts or undertakings have been made by the officers of the corporation in its behalf. They have no right to inspect its books; and in most cases particular inquiry by them would he deemed impertinent.”
This I conceive to be the true principle applicable to this case, for it matters not how the actors in this contract may have regarded it, the effect of the contract was to make the oil mill company (the agent of the guano company) the guarantor of the farmers’ notes taken for guano sold. The majority of the court predicates its opinion largely upon the idea that the oil mill company, having received the goods, and not being in a position to return them, was bound to pay for them. This would be good law if the premises were conceded, but, as I have tried to show, the premises are false. The oil mill company did everything that the agency contract called for; accounted ¡for all cash received, turned over all notes received from farmers, and kept back nothing to itself. Indeed, it could not, as all guano, etc., belonged to the guano company. The oil mill company has made everything good to the guano company except its guaranty, and as to this a creditor says: “The company is insolvent; its debts cannot be paid in full, and that guaranty contract is ultra vires and void.” Could it be shown in this case that any proceeds whatever, growing out of this contract of agency (for I feel obliged to call it what the parties did), had come into the hands of the receiver, I should say that as to such fund the guano company was entitled to preference, but nothing of that kind is shown here.
As to the question whether the io per cent, attorney’s fee, provided in certain of the notes allowed by the court below, can be charged against the fund, my view is that the proper method of computation is to add the io per cent, to the amount of the note and interest, and then base the dividend on this amount. I assume this to be the intendment of the court below, and agree with that opinion.
As to the question of allowance to complainant’s solicitor, it is evident that, if I am correct in holding that the notes held by the guano company are void, no fee should be allowed.