Court Opinion

ID: 6580728
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:38:03.838267+00
Date Added: 2024-06-11T15:57:16.341370
License: Public Domain

Loomis, J.
The opinion of the majority of the court recognizes the correctness of the proposition that tl\e J. & E. Stevens Company, after its incorporation under the act of 18G9, could not become a partner in the American Toy Company unless expressly or impliedly authorized hy the provisions of that act. While heartily assenting to the truth of the premises, I totally dissent from the conclusion. I know of no recognized rules of interpretation that can extract from the charter any authority to form such a partnership as is referred to. The fact that the charter specifies with unusual particularity the business which the corporation is to engage in, would seem to settle the question. The language is—“with power to engage in and carry on the manufacture of hardware, skates, toys, tools, and other articles of wood or metal; and for the purpose of trade in connection therewith. * * Said corporation to be located at said Cromwell, in the county of Middlesex in this state.” Private Acts of 1869, p. 7, sec. 1. The business is characterized only as manufacturing. But as the goods manufactured must be sold to effectuate the object of making them, the power is added “ to trade in connection therewith.” This can only be construed as a trade conducted by the corporation and confined to the articles allowed to be manufactured, and not as authorizing the formation of a partnership to conduct “ a wholesale and retail toy and general merchandizing business.” Suppose it had been a joint stock corporation located in Cromwell, and its articles of association had specified the business precisely as above, would it *152not seem preposterous for a lawyer to advise them that they could go beyond the limits of this state and join other parties not mentioned in a general merchandizing partnership ? But the same construction would necessarily be given to the same language.
The authority to become a partner is nowhere expressed or even faintly intimated in the charter or in the preamble. Is such a power implied ? If so, it must be from some language contained in the charter, or must be derived from those incidental powers that are necessary for the purpose of carrying into effect powers that are expressly granted.
At the very threshold of the inquiry after implied powers we are confronted with the fact that the purposes, and business of the corporation are particularly specified, which brings the case within “the sound principle that the specific grant of certain powers in a charter, is an implied prohibition of other and distinct powers.” Firemen Insurance Co. v. Ely, 5 Conn., 572.
But for the purposes of tjhis discussion I am willing to ignore even this fundamental and elementary principle, and give a liberal construction to every part of the act.
Great reliance is placed by a majority of the court upon the preamble. It is claimed to confer an authority on the corporation to continue the business of the late firm in all particulars as they found it. It seems to me otherwise. The business is not left to be determined by extrinsic evidence, but is particularly specified. And in this respect the language of the preamble is just as explicit as that of the act itself. The business of the J. & E. Stevens Company is first specified in the same language used in the act, and. afterwards in every instance where there is any reference to the business the words are “ said business.” And where it speaks of the continuance of the business as one'of the objects of the incorporation, it is-referred to as “said business of the late firm, Ac.,” which for purposes of construction is equivalent to repeating the language first used.
But had the word “said” been omitted in the reference, the fair construction would refer it to the business which had *153been mentioned. And even a general expression of a purpose to continue their business refers by necessary intendment to their business proper and its incidents, rather than to some particular mode or accidental contract they may have adopted. The business was manufacturing certain articles. The power to sell them would be necessarily incidental; but the mode of selling through a partnership contract with persons not mentioned would not be a necessary incident, but rather a mere accident of their former business.
But it is further said that the reason given to the legislature in favor of an act of incorporation was to prevent the interruption of a profitable business, and therefore, it is argued, they must have intended to continue the partnership contract with George W. Brown & Company. This seems to me a non-sequitur, especially when the business to be interrupted is specified, and no mention is made of anything else. And besides, regard must also be had to the nature of the interruption feared. This was such an one as the death of a partner would occasion—a total dissolution of the firm and consequent apportionment of the assets, not a trifling interruption, resulting from the termination of the contract referred to, and possibly a change in the mode of selling their goods. This change was just as easy on the adoption of the charter as when afterwards made in March, 1873, and doubtless it would have been far better to have made it then. The argument drawn from the provision in the act transferring all the property of the late firm to the corporation, loses its force when we keep in mind the legal distinction between the property owned independently by the J. & E. Stevens Company as a distinct partnership, and that which they owned in another partnership with George W. Brown & Co. The former could have been conveyed by the J. & E. Stevens Company by description as tangible property, but the latter only as an interest or right resulting from a final settlement of the affairs of the Toy Company. And there is surely no presumption that the legislature intended to vest it in any other way except as it might have been transferred by the firm as an existing partnership.
*154Again, as the purpose of the incorporation was to extricate the concern from the perils and inconveniences of one partnership, it seems the more incredible that the legislature should have intended to subject it to similar perils in another nowhere named or referred to in any of the proceedings.
And not only is the po.wer to form a partnership unnecessary in order to carry into effect the powers expressly granted, hut it will be found inconsistent with, the powers so granted. The provisions putting, the entire management in the hands of seven directors, chosen by and from among the stockholders, and requiring regular returns of the pecuniary condition, it seems to me are liable to be practically nullified if one who happens to be merely a partner in the Toy Company is allowed to secretly appropriate the whole or any part of its assets in the management, or mismanagement, as the case may be, of “ a wholesale and retail toy and general merchandizing business,” located far away from the corporation.
In passing, I may here notice a remark in the opinion of the court that there was nothing objectionable in the articles of agreement of the Toy Company, because those articles confined the business to the sale of goods actually manufactured by the partners. The articles however did not necessarily so confine it, and it does not appear that in fact it was so confined. Under their articles they could have purchased additional toys anywhere else, or any other article of merchandize.
The plaintiff in his supplemental brief, in replying to the defendants’ objection that the Toy Company had no power to accept the drafts in question because the limitation had been exceeded, says:—“The copartnership was formed'for the purpose of hiring and conducting a store in the city of New York for the purpose of carrying on a wholesale and retail toy and general merchandizing business. It is true that it is provided tha’t each partner shall have the right to draw drafts to a certain amount which the Toy Company shall be obligated to accept, but not a word is said in those articles which prohibits the company from giving notes or accepting drafts as might be required in carrying on the general merchandizing business.” ■ ■
*155The fact that this corporation did engage in this partnership [ apprehend may have had undue weight with the court in construing the charter in question. But this fact has no legitimate place in the discussion if by all the rules of construction the act done is not within either the express or implied powers of the corporation. The doing of the act in itself can never authorize or sanction it. If it could, the doctrine of ultra vires would be unknown. And for the same reason the doctrine of estoppel can never apply to an act not within the scope of the powers of a corporation to perform under any circumstances and for any purposes. I know it sometimes seems hard to see a contract with a third party stricken down by the unrelenting application of this principle, but nevertheless it is perfectly clear that the doctrine of ultra vires is founded upon a wise, necessary, and even beneficent, public policy. Without it, every corporation could defy the sovereign power that created it, and engage in any business or speculation lawful for a natural person to an unlimited extent, and non-assenting stockholders, who have practically no control over the management, and creditors, would be greatly injured. The doctrine in special instances may be wrongfully applied or carried too far, and I would be liberal in conceding to a corporation all necessary incidental powers auxiliary to its main business, but I can scarcely imagine anything more objectionable or hostile to chartered privileges, or more dangerous to the interests of stockholders and creditors, than to allow a corporation to be launched on the uncertain, dangerous, and limitless sea of partnership responsibility.
In this opinion Carpenter, J., concurred.
[Note.—The foregoing ease was argued at an adjourned term of the court at which Judge Granger was present, though not present at the regular term.]