Steiner & Lobman v. Steiner Land & Lumber Co. , 120 Ala. 128 ( 1897 )

BRICKELL, C. J.

The bill of complaint in this cause was filed by the Steiner Land & Lumber Co., and sought to have set aside and cancelled a deed alleged to have been executed in the name of the corporation by J. M. Steiner, its president, without authority and without consideration, by which several thousand acres of land were attempted to be conveyed to Steiner & Lobman, the defendants. Joseph Steiner died in January, 1889, leaving a will by .which, after making provision for his widow and several special bequests, he devised and bequeathed the remainder of his property, consisting of many thoxxsand acres of land and much pex’sonal property, to his eight children, J. M. Steiner, S. J. Steiner, R. E. Steiner, J. T. Steiner, Bernard Steiner, J. H. Steiner, Estelle Steiner, now Mrs. Otts, and Mrs. M. C. McGehee. At the time of his death he was a member of the firms of Joseph Steiner & Sons, J. M, Steiner & Co., and Steiner Bros. & Co., and by the terms of his will he directed that the several partnerships should be continued after his death for a period not exceeding three years. The personal property of his estate, at the time of his death, was sufficient to pay all his debts, and in June, 1893, all his children, together with the firms of Steiner Bros. & Co. and Joseph Steiner & Sons, which were then composed of J. M. Steiner, S. J. Steiner, R. E. Steiner and J. T. Steiner, organized the Steiner Land and Lumber Co., the complainant, with a capital stock of $192,800, all of which was subscribed for and taken by the above named children and copartnerships, who paid for the same by conveying to the corporation their respective interests in the land which had been devised by said will. On June 8, 1893, in a suit in the Federal Court at Montgomery, wherein Eppinger & Russell were plaintiffs and J. M. Steiner, S. J. Steiner, R. E. Steiner and J. T, Steiner, as executors of the estate of the said Joseph Steiner, deceased, were defendants, a judgment was rendered in favor of Eppinger & Russell for the sum of $5,984.83, and upon an appeal to the Circuit Court of Appeals at New Orleans, Louis Steiner and Nathan Lobman, composing the firm of Steiner & Lobman, became sureties on the appeal bond. The judgment having been affirmed, judgment was rendered against said sureties and principals, which judgment with interest, amounting to $6,091.05, the said Steiner & Lobman paid on May 15, 1894, taking an assignment of the judgment to themselves. In the summer of 1893, after the organization of the Steiner Land & Lumber Co., and more than three years after the death of Joseph Steiner, the firm of Joseph Steiner & Sous became indebted to the Bradley Fertilizer Co. in the sum of $10,000, for which it gave two notes of $5,000 each, one indorsed by Steiner Bros. & Co., Steiner & Lobman and R. E. Steiner, and the other signed by Steiner Bros. & Co., and indorsed by Joseph Steiner & Sons, J. M. Steiner & Co., Steiner & Lobman, and R. E. Steiner. These notes were subsequently paid by Steiner & Lobman, but before they were paid, in May, 1894, Joseph Steiner & Sons gave to Steiner & Lobman two notes for $5,000 each, one dated back to December 18, 1893, and the other dated February 3, 1894, and payable, respectively, December 1, 1894, and January 1, 1895, and Steiner Bros. & Co. gave them their note for $899.31, dated April 23, 1894, and payable October 16, 1894. The first two of these notes were given to secure Steiner & Lobman against liability on their indorsement of the Bradley Fertilizer Co. notes, and the third was given in settlement of an indebtedness for goods sold by Steiner & Lobman to Steiner Bros. & Co., but at what date this indebtedness was incurred is not shown. Each of these three notes was indorsed: “We guarantee and indorse the within notes till paid. The Steiner Land & Lumber Co. by J. M. Steiner, Pres’t.” On or before November 5, 1894; before these notes became due, Steiner & Lobman agreed with J. M. Steiner, president of the Steiner Land & Lumber Co., to accept, at an agreed valuation, a certain number of acres of land, particularly described, belonging to said corporation, in full payment and satisfaction of the three notes above described, indorsed by said corporation, and of the Eppinger & Russell judgment, the whole indebtedness amounting to $17,026.97, and on November 5, 1894, the said J. M. Steiner, in the name of the Steiner Land & Lumber Co., executed and delivered to Steiner & Lob-man a deed conveying to them the lands agreed to be accepted in payment of said indebtedness. A few days thereafter Steiner & Lobman complained that the land was not worth the amount of said indebtedness, whereupon J. M. Steiner gave them a description of 1400 acres of additional land, and told them to insert it in the deed, which was done without any re-execution or re-acknowledgment of the deed. Several days later Steiner & Lobman, learning that the deed was invalid as to said additional 1400 acres, applied to J. M. Steiner, for a new deed embracing all the land, including said 1400 acres, which deed was executed by J. M. Steiner in the name of the Steiner Land & Lumber Co. on November 23, 1894. Said notes were indorsed and said deeds executed in the name of the corporation by J. M. Steiner without the knowledge of the other directors and stockholders, and on November 28, 1894, the directors of the company, still having no knowledge of the indorsements, but having learned of the execution of the deed, repudiated the transaction and directed the president to institute legal proceedings to have it annulled. It is now contended that the corporation had no power to indorse these notes, and that J. M. Steiner, as president, had no authority to indorse them or to execute the deeds in discharge of the liability incurred by the indorsements.

The original powers of the Steiner Land & Lumber Co. conferred by its charter, in addition to those granted by the general laws, were to manufacture, buy and sell all kinds of lumber, laths, shingles and wooden ware ; to own and operate commissaries, and to build, own and operate steamboats and railroods in connection with and for the purpose of carrying on its business ; to build, sell and lease houses, and to lease its lands. Afterwards a petition to the probate judge was prepared praying that the charter of the corporation be amended so as to give 'it additional powers, but this petition was never filed and the charter was not amended. This petition was signed “J. M. Steiner, S. J. Steiner, E. E. Steiner, Bernard Steiner, J. H. Steiner, Joseph Steiner & Sons, Steiner Bros. & Co.” but was not signed by or for the other stockholders, J. T. Steiner, Mrs. Otts, or Mrs. McGehee. Subsequently, at a meeting of the stockholders of the company at which were present J. M. Steiner, S. J. Steiner, J. T. Steiner, Bernard Steiner and J. H. Steiner, held on a date which is not shown, but which was prior to the indorsement of said notes and the execution of said deeds, the substance of this petition was embodied in a resolution which was adopted as an amendment to the by-laws, by which it was attempted to give to the corporation the following additional powers : “First. To buy and own grist mills, gins and ginneries, and to conduct the business of same, charging toll therefor; to rent and to receive rent for the use of said grist mills and gins ; to buy and sell coal; to own and operate a cotton compress ; to buy and sell cattle ; to own and operate an orange grove ; to deal in wagons, carriages, harness' and buggies ; to buy and sell fertilizers ; to own stock in, or to own entirely a plant for. making gas and electric light, one or both ; to own stock in, or the plant of, a water-works. Second. To give its note in payment for anything it may do,, or to indorse bonds, coupons or notes for others ; to become security or indorsers upon notes, bonds or mortgages. Third. To sell and dispose of, for cash or credit, as it may deem best, any property that it may own or may hereafter acquire.” The president was authorized by the amendment to sell and dispose of any of the property of the corporation, and to execute deeds therefor in the name of the corporation, without any further authority from the directors or stockholders, and “to sign all notes or bonds as principal, security or. indorser, which he may deem to the interest of the corporation ; and to settle the question as to whether it is the interest of the corporation or not, his act of signing the notes or bonds as principal, security, or indorser is final upon the corporation.”

It is conceded by defendant that J. M. Steiner, as president of the corporation, had no special authority to indorse these particular notes or to execute these particular deeds ; but it is contended that the general power to indorse notes for others and to dispose of lands of the corporation in discharge of the liability thereby incurred, was vested'in the corporation, and the authority to execute this power was conferred on its president, by this amendment to the by-laws ; or if the attempt to amend the by-laws in this respect was void, that,, as shown by the signatures to the above mentioned petition and by the vote on said amendment, the.whole body of the stockholders had consented to the exercise of this power by the corporation, through its president, and that the act was one which the whole body of stockholders could authorize in the first instance, or ratify after performance. The general rule which prevails in this country is, that corporations created by an act of the legislature, or organized under the general laws, can exercise only the powers expressly granted, the implied power to do all acts necessary to enable them to exercise the powers expressly granted, and such incidental powers as pertain to the purposes of their creation. The charter of the corporation, together with the general laws of the State of its creation, is the measure of its powers, and the enumeration of these, powers implies the exclusion of all others, except such as are incidental or necessarily implied. The source of its powers is the legislature, and not its stockholders, and the unanimous consent of the latter can give it no right to engage in transactions foreign to the object of its creation.—Central R. R. & B. Co. v. Smith, 76 Ala. 579; Chewacla Lime Works v. Dismukes, 87 Ala. 344; Ala. Gold Life Ins. Co. v. Cent. Agr. & Mech. Asso., 54 Ala. 77; Thomas v. Railroad Co., 101 U. S. 82; 7 Am. & Eng. Encyc. of Law (2d ed.), 695 et seq. Hence, it is not competent for the stockholders by the adoption of by-laws or amendments thei'eto, to enlax'ge or extend the powers of the corporation beyond the scope authorized by its charter and the general laws. In so far as its by-laws are inconsistent with the object of the cox-poration and the spirit and terms of its charter, or attempt to authorize the corporation to perform acts beyond its charter powers, they are void, although adopted with the unanimous consent of' the stockholders.—Supreme Commandery, etc. v. Ainsworth, 71 Ala. 436; 5 Thompson on Cqrp., § 5991; 5 Am. & Eng. Encyc. of Law (2d ed.), 95. Although a corporatioxx has implied power to make and indorse negotiable notes and bills in carrying on its lawful busiiness, yet it is well established, as a general rule, by the great weight of authority that it has no power to make, indox'se or accept, for the mere accommodatioxi of others, notes and bills in which it has no interest, unless such power is expressly conferred, or is incidental to some other power expressly conferred. — Green’s Brice’s Ultra Vires, 252, note; 7 Am. & Eng. Encyc. of Law (2ded.), 793; National Park Bank v. Germ. Am. Mut. Warehousing, &c., Co., 116 N. Y. 281; National Bank v. Young, 41 N. J. Eq. 531; Tod v. Kentucky Un. Land Co., 57 Fed. Rep. 47; Hutchinson v. Sutton Mfg. Co., 57 Fed. Rep. 998. There are cases in which the indox-sement of the paper of others has been upheld, but in each instance the transaction was but the means adopted to carry out the legitimate objects of the corporation and conduct its authorized business, made necessary or expedient by peculiar circumstances. No such circumstances existed in the present case. The indorsement was made purely for the accommodation of the firms of Joseph Steiner & Sons and Steiner Bros. & Co., composed of four of the ten stockholders of the complainant corporation, and the corporation was in no way interested in the debt or in its being secured. The effect of the indorsements and subsequent conveyance of the property of the Steiner Land & Lumber Co., in payment of the supposed liability incurred thereby, was simply the payment with the corporate property of the individual debt of the four stockholders of the corporation who composed the firms of Joseph Steiner & Sons and Steiner Bros. & Co. It results that the so-called by-law by which it is attempted to uphold the indorsements and conveyances, if it can be construed as an attempt to authorize the corporation to indorse, for the mere accommodation of others, notes and bills in which it has no interest, is repugnant to the charter powers of the corporation and therefore void, whether such indorsements are beyond the power of the corporation, or merely beyond the power of less than the whole body of stockholders. It is insisted that, although the by-law may be void as such — having been adopted by only five of the stockholders — yet the power to indorse for the mere accommodation of others, notes and bills in which the corporation has no interest, is one which the whole body of the stockholders may concur in authorizing, and that all the stockholders did concur in authorizing the exercise of this power by the corporation, thereby rendering valid the particular indorsement complained of. It has has been held that, although an act or contract may be ultra vires of the corporation — one which the corporation has no power to perform or enter into — yet, if it is not opposed to public policy, or illegal per se, or malum prohibitum, it may be ratified and rendered binding by the entire body of the stockholders ; and there is a dictum to this effect in Jordan & Co. v. Collins & Co., 107 Ala. 576. While all the stockholders may, by ratification, undoubtedly render binding acts done which are within the powers of the corporation, but ultra vires of its officers, or of a mere majority of its stockholders, the doctrine contended for cannot be maintained in those jurisdictions where the principle prevails that a corporation is forbidden to exercise any powers not expressly conferred, without totally abrogating the principle, To permit the stockholders to authorize acts beyond the power of the corporation to perform, or to render such acts binding by subsequent ratification, is simply to permit the usurpation by the stockholders of authority which resides in the legislature alone, and to make the stockholders, instead of the legislature, the source of corporate power. Thomas v. Railroad Co., 101 U. S. 83; National Trust Co. v. Miller, 33 N. J. Eq. 155; The Ashbury Railway Carriage & Iron Co. v. Riche, L. R. 7 H. L. 653; Green’s Brice’s Ultra Vires, 550; 27 Am. & Eng. Encyc. of Law, 403. But it is not necessary in the present case, to-decide this question, since it is conceded that, if it was within the power of the stockholders to authorize the corporation to bind itself by accommodation indorsements, the unanimous consent of all the stockholders is necessary to confer the authority, and the evidence fails to show such unanimoud consent. The petition to the probate judge which was prepared, but never filed, for the purpose of procuring the amendment of the charter, and which, together with the vote on the amendment of the by-laws, is relied on to show the consent of all the stockholders to 'the exercise of this power, was not signed eithér by or for Mrs. Otts or Mrs. McGehee, who were stockholders of the company, nor was their stock voted in' favor of the amendment of the by-laws. If-appears that thése two stockholders were represented generally — but not at the particular meeting at which the by-law was adopted— by J. M. Steiner, bat the capacity in which he represented them, and the extent- of liis authority, is not shown. The fact that J. M. Steiner individually signed the petition, and that he voted his individual stock at the meeting at which the by-laws were amended, does not indicate that he did, or intended to-, éxpress the consent of those stockholders whom he ‘ represented to the exercise by the corporation of the power attempted to be conferred-,'' even if he had the power to do so. Moreover, even if it be conceded that all the stockholders did consent- to' the adoption of the by-laws and to the exercise by. the corporation of the powers attempted tobe conferred thereby, we cannot construe the language used as authorizing the corporation to indorse,'for.'the mere accommodation of others, 'notes and bills in which it has no interest and which are not in any manner connected with the business of the corporation. The most liberal construction that can be given to the language by which it was attempted to confer the power “to indorse bonds, coupons or notes for others ; to become security or indorsers upon notes, bonds or mortgages, ” cannot extend the power beyond the entering into contracts of suretyship or guaranty in matters relating to the business of the corporation, or the loan of its credit, by indorsements, for the purpose of carrying out the legitimate objects of the corporation. Nothing but the most unequivocal language could justify us in holding that it was the intention of the stockholders to confer upon the corporation the general power, to be exercised in the discretion of the president, to indorse for the mere accommodation the notes of the president and other stockholders, given for their individual debts incurred in relation to matters in which the corporation had no concern, and to authorize the president to convey the property of the corporation in discharge of the liability thus incurred. We are of the opinion that J. M, Steiner, as president of the Steiner Land & Lumber Co., had no authority to indorse the notes of Joseph Steiner & Sons and Steiner Bros. & Co. in the name of the corporrtion, that no liability was incurred by the corporation by reason of said indorsements, and that the deeds which it is sought to have cancelled were executed without consideration and without authority, and are void.

There is nothing in the contention of counsel for appellants that the indebtedness evidenced by these notes, originally incurred by Joseph Steiner & Sons and Steiner Bros. & Co., was in reality a legal claim against the estate of Joseph Steiner, who, at the time of his death was a member of these firms, and therefore a charge, in equity on all the land of the Steiner Land & Lumber Co., and that this corporation, by the indorsement of the notes and conveyances of the land, was but securing and subsequently paying a debt which it had, in equity, assumed when it received a conveyance of the lands from the heirs of Joseph Steiner in payment of-their stock. If the proposition were maintainable, it would be available only on an original bill, or on a cross-bill, and can not be asserted, under the answer in this ease, as adefense against the relief prayed for, except in so far as it is urged for the purpose of showing that the Steiner Land & Lumber Co. was in fact interested in the debt which it. attempted to secure, and that this fact brought the act of the president within the scope of the by-laws properly construed. Of the indebtedness, in payment of which the land was conveyed, $10,000 was that of Joseph .Steiner & Sons and Steiner Bros. & Co., incurred more than three years after the death of Joseph Steiner, and the evidence fails to show when the indebtedness of $899.31 was incurred. By the terms of the will of Joseph Steiner these co-partnerships, of which he was a member, were to continue for a period not exceeding three years after his death. It is well settled that the surviving members of a co-partnership, continued under such a direction in the will of a deceased member, can not by their contracts,-made within the period limited for its continuance, bind the general, assets of the estate of the deceased partner, but only those already invested in the business, and that after the expiration of the , period, they have no authority, by entering into new .contracts, to create any liability against the estate.— Edgar v. Cook, 4 Ala. 590; Smith v. Ayer, 101 U. S. 320; Burwell v. Mandeville's Exrs., 2 How. (U. S.) 576; Pitkin v. Pitkin, 7 Conn. 307. As to the Eppinger & Russell judgment, which constitutes the remainder of the indebtedness, this was clearly founded upon obligations incurred by Joseph Steiner in his life-time, and was a claim against the estate. But it is admitted, by an agreement of counsel shown in the record, that the personal assets of the estate of Joseph Steiner were sufficient to pay all his debts, and this being the case, it is clear that said debts'did not become a charge upon the lands of the estate in the possession of the devisees or of their grantees. Heirs and devisees who have received the real property of the estate, are not liable for the debts of the estate unless the personal property of the estate is not sufficient to pay the debts.— Banks v. Speers, 103 Ala. 436; Woener’s Am. Law of Admin., § 576.

Affirmed-.