Court Opinion

ID: 9829075
Source: CourtListenerOpinion
Date Created: 2023-09-01 18:57:55.909043+00
Date Added: 2024-06-11T07:42:57.003394
License: Public Domain

On Motion for Rehearing.
The plaintiff in its supplemental petition alleged that defendant was engaged in op-prating a-cotton gin, and while thus engaged frequently received cotton seed in- lieu of money for ginning cotton, and that in so doing it must naturally dispose Of such seed, and' '“such disposition of cotton seed so taken by defendant in exchange for the labor of ginning cotton for farmers is essential and a necessary incident to the operation of its plant,” and that therefore it had full authority to make the contract as alleged in plaintiff’s petition. It was not alleged, however, that the defendant at the time of making such contract, or the one for which it was substituted, had on hand any cotton seed. Nor was it alleged that plaintiff was led to believe that it did have such seed on hand, or that it expected to deliver seed to be acquired for ginning in lieu of money, if these facts could be material upon the inquiry whether the contract was ultra vires. S<? far as estoppel is concerned, plaintiff only pleaded the conclusion that defendant was estopped, without stating any fact relied on as ground for estoppel. The general manager of plaintiff corporation, who made the contract with Nuckols, testified that he knew that plaintiff was a corporation, and testified to no facts that would tend to show any element of estoppel.
The defendant corporation was operating two gins and an ice factory under its charter. It was permitted under its charter to maintain and operate mills, but there was no pleading or evidence that it owned or operated any mill, and, if it had owned a cotton seed oil mill, it would have purchased cotton seed for use, and not for resale, and would not have been justified in assuming long in advance of the cotton season that it would purchase five cars of seed mofe, than it could’ utilize in its business. The business which it actually conducted was that of ginning cotton for fees and manufacturing and selling ice. As a matter of fact, it also undertook to conduct a general trading business in cotton, cotton seed, and grain. Of course, if the fact that it ginned cotton authorized it to engage in the purchase and sale of cotton and cotton seed, it could under its charter engage in the business of harvesting and threshing grain, and that ought then by the same process of reasoning to authorize it to engage in the business of buying and selling grain; in other words, a charter under subdivision 72 of article 1121 would include the business of the purchase and sale of agricultural and farm products, provided for under subdivision 24, as to cotton and cotton seed and all kinds of grain.
• The Legislature, in providing separately for an incorporation for the maintenance of a gin, must have intended that the real purpose of the incorporation should be that of making a profit out of the fees received for ginning, and not out of trading in farm products. It found it necessary to expressly authorize a corporation chartered for the manufacture of ice to go into the business of buying, selling, and refrigerating poultry, etc. Bearing in mind that the purpose of the corporation, in so far as its ginning business is concerned, is to make a profit from the fees charged for ginning cotton, it seems that it was never intended for such a corporation to engage in the business of buying and selling cotton and cotton seed for a profit. It will not do to say that a corporation will be at a disadvantage when competing with an individual unless it is permitted to engage in trading enterprises, for that disadvantage is inevitable. It is one of the limitations imposed in consideration of limited liability. The individual engaged in the ginning business can engage in any other business if he wants to-do so. He can surround his gin with other business enterprises with the view of drawing trade to that vicinity, and thus indirectly benefiting his ginning business. The corporation cannot do this; otherwise it would be-folly to prescribe purposes in a charter, or enact statutes containing subdivisions classifying corporations with respect to the powers permitted to be exercised.
The evidence shows, however, that it is the custom of many gins to purchase and sell-cotton seed; that this custom had its origin, in the fact that the farmers who had ginning done wished to pay in cotton seed, and sometimes did not want to be troubled with the handling of the seed. So far as the purchase of cotton seed from customers is concerned, when necessary to retain their business, there can be no doubt that such purchase constitutes a direct method of accomplishing the purpose of the corporation to make a profit out of the ginning fees. To go out into the open market and buy seed from noneustomers, if it has any effect at all on the ginning business, affects the same as indirectly as that of the purchase of farm products other" than cotton seed. The question whether it is necessary in order to foster the-business of ginning to purchase seed from the-*209customers is, of course, dependent on the facts. If there is such a market for seed that the farmer can sell without removing the seed from the gin or going to any trouble whatever, it is difficult to see how it could make any difference in the volume of the ginning business whether the gin company purchases the seed or some other person purchases the same. The evidence of Nuckols, which is uneontradicted, is that during 1916 and 1917 it was not necessary for the farmers to get the gin to take their seed in order to find a market for them, and that it was not necessary for defendant corporation to take cotton seed for ginning in order to enable it to gin cotton. He also testified that he did not think it was essential to the operation of the corporation that it buy seed from the farmer who came there with cotton to be ginned,; that their purpose in buying the seed and reselling it was to make the profit incident thereto. He explained the situation with respect to buyers and the market at Bishop, and plaintiff’s witness Baldwin, whose testimony was relied on to show the custom and necessity of buying from customers, stated that in a town on the railroad, in which there were buyers, he would not think it necessary for the ginner to buy seed. He also testified that in 1916 and 1917 a man did not have to hunt a buyer for cotton seed; that the demand was greater than the supply.
The evidence disclosed further that the amount of cotton seed offered for sale by customers to the ginner is very uncertain, being dependent on the size of the crop. A certain amount of seed is always retained for planting or feeding purposes. The crops in 1916 and 1917 were very short in the vicinity of Bishop, and only a limited amount of seed was marketed.
The court disregarded the uneontra-dicted testimony of Nuckols, and found not only that it was essential for the defendant gin to buy and sell seed for the successful operation of its gin, but that it was essential for all corporations and persons in the state to do so. These findings follow a finding that defendant ginned cotton for farmers and took cotton seed in exchange for its services, but the court failed to state whether only the purchase from its customers was essential, or whether the general business of buying and selling cotton seed in the open market was essential. The evidence wholly fails to show that it was essential to go into the open market and engage in the business of buying and selling cotton seed. We think the court would have been justified in finding that the act of purchasing seed from customers who requested defendant to buy was an act within the power of the corporation in view of the custom and the direct effect which a failure to purchase might have upon the ginning business. The evidence does not show what amount of cotton seed had been acquired during any ginning season from customers. Of course, the corporation would have the power to make a contract for the sale of seed thus acquired. It would also have the power to make a contract for the sale of seed acquired by means of ultra vires contracts; for the power to make such sale would arise from the necessity of preventing a loss.
The contract in this case, however, was not one for the sale of seed owned by the corporation, nor was it based upon any estimate^ so far as the record discloses, of the amount of seed which could reasonably be expected would be acquired from customers. It was a contract to sell from 100 to 125 tons of seed which it did not own at the time, and which it might or might not secure in the exercise of its implied power to take seed from customers in order to obtain or retain their ginning business. There is not a particle of evidence that such contracts are necessary or usual in the ginning business. The evidence affirmatively shows that there was no necessity for any such contract; for it shows that there was always a market for the seed, and that the defendant could at all times at once resell such seed as it acquired from customers, and, if it bought at the market price, such resale could be made without loss, thus retaining the good will of its customers and avoiding speculation. There being no necessity for making the contract of sale, and it being clearly one which could not have any bearing upon obtaining customers for the gin, either directly or indirectly, it appeared to us and still appears to us that the contract simply involved a trading speculation.
In addition we will say that, if such a contract could be held to constitute a direct means of fostering the charter business, the evidence discloses that it is an unusual means, and not designed or intended for the fostering of the ginning business, but as a speculative venture indulged in by Nuckols in the hope of making a profit in the independent business of trading in agricultural products.
We do not consider this case as analogous to the ordinary cases in which corporations make contracts for the sale of their products before they have manufactured the same. An illustration of such cases is furnished by Taylor Cotton Oil Co. v. Early-Foster Co., 204 S. W. 1179, in which it was held that a corporation chartered to do a cotton oil business could make an advance contract for the sale of 850 to 950 bales of linters, its estimated output during the year 1915-16. It had the right to sell its oil and linters, such right being embraced in its charter purpose, and, in accordance with the usual custom of the oil mill business, could make a contract in advance for the sale of its estimated output. It is a selling corporation by virtue of its charter powers with reference to the products resulting from the operation of its man-*210ufaeturing business, and a contract for tbe sale of sucb products bas a direct relation to tbe business authorized by charter. It seems to us that it is much easier to sustain sucb contracts than a contract which involves entry into the selling business as to products not produced by it, and in which it has no authority to trade other than that implied from the necessity of disposing of property obtained in fostering the charter business. While we realize the difficulty, in cases of this hind, of determining whether a power to make a certain contract can be implied, we conclude that, when the contract involved in this case is tested by the rules approved in the case of Northside Ry. v. Worthington, 88 Tex. 562, 30 S. W. 1055, 53 Am. St. Rep. 778, and those enunciated in the case of Hdw. Mfg. Co. v. Perry Stove Co., 86 Tex. 143, 24 S. W. 16, 22 L. R. A. 802, it must be held to be an ultra vires contract.
Defendant in error admits in argument that “it will be observed from the pleadings of the plaintiff in error and from the testimony given by H. Nuckols, its secretary and general manager, that the plaintiff in error was incorporated for the purpose of operating mills, gins, and the manufacture of ice, gas, heat, light, water, and electric motor power.” We do not go so far as this, but do find that Mr. Nuckols’ description of the business conducted by the corporation clearly disclosed that incorporation could only have been had under subdivision 72 of the statute. We found that it was authorized to maintain mills, but the evidence shows it was only engaged in the ginning and 'ice business. If it did not carry on a mill business of any kind, no contract for the sale of cotton seed could be essential to the transaction of a mill business. As before stated, if it had been shown that it conducted a cotton seed oil business, it would not have followed that it was authorized to conduct a general-trading business in cotton seed.
The defendant in error’s motion for a rehearing is overruled.