New Orleans N.E.R. Co. v. Jemison

^* Corpus Juris-Cyc. References: Corporation 14aC. J., p. 322, n. 92; p. 324, n. 1; p. 330, n. 29. The appellant, a Louisiana corporation, operating in Mississippi, sued the appellee on a contract, and from a judgment sustaining a demurrer to its declaration, and dismissing the suit, has brought the case to this court.

The ground of the demurrer is that the contract sued on is void, for the reason that the appellant was without power to enter into it. The contract, a copy of which is an exhibit to the declaration, is for a lease by the appellant to the appellee of a small parcel of land adjoining the appellant's right of way in Picayune, Miss. The lease contemplates the erection and operation of a boarding house on the land by the appellee, and provides that:

"The said lessee hereby obligates herself to furnish meals and rooms to the employees of the said railroad company in preference to other persons, and at rates to be satisfactory to said railroad. This to apply as well to the colored as to the white employees of the said railroad."

"The said railroad, in so far as it may legally, binds itself to make stoppage on its pay rolls against its employees for lodging and meals furnished to the said employees by the lessee. The lessee to pay the said railroad at the rate of five (5) per cent. for such deductions as are made. It being understood, however, that this provision in regard to deductions is severable from the remaining clauses of the contract, and that if, for any reason, the same shall be or become illegal it may be expunged without impairing the remaining portions of the contract."

The declaration alleges that "from the period beginning in May, 1915, and ending in January, 1924, it [the plaintiff] deducted a total of fifty-nine thousand four hundred ten dollars and sixty-five cents from the wages of its employees, as aforesaid, and paid the same over to the defendant herein, for which deductions the defendant became liable unto the plaintiff from time to time as they were made, for five (5) per cent. thereof, under the terms of said written contract aforesaid, in the total sum of two thousand nine hundred seventy dollars and fifty-two cents," and prays for a judgment therefor. The declaration also alleges that the appellant is a corporation, but no copy of its charter was filed as an exhibit thereto.

The argument of counsel for the appellee, in effect, is that the making of the contract here sued on is, to the court's judicial knowledge, beyond the scope of powers usually conferred on a railroad company, and, as no copy of the appellant's charter was filed with its declaration, the court must presume that the making of the contract was not authorized thereby, and that, consequently, the appellant was not authorized to enter into the contract, and cannot recover thereon.

We pretermit any discussion of the preliminary questions raised by this contention, and come at once to the ultimate question thereby presented for decision, which is: When a contract with a corporation, which is merely ultra vires and not otherwise illegal, either because of its being expressly prohibited, or because of its being contrary to public policy, has been fully executed by one of the parties, so that the other party has received the consideration for his or its promises, either in money, property, or services, and the party on whose part the contract has been executed sues the other party thereon, can such party defeat a recovery by pleading that the contract is ultravires?

There is much confusion in the authorities generally, and in the decisions of this court, and of its predecessor, the High Court of Errors and Appeals, particularly as to the effect of a corporation's ultra vires contract, and who can complain thereat, and, as said by Cook, in his work on Corporations, vol. 3, 8th Ed. section 668:

"The attempt to formulate general rules on this subject has only added to the confusion."

The rule that has been most frequently followed by this court and its predecessor is that laid down in Commercial Bank v.Nolan, 7 How. 533, but more definitely announced and applied inHaynes v. Covington, 13 Smedes M. 408, and is:

"If a corporation make a contract entirely foreign to the purposes of its institution, the act is void, simply for want of power in reference to the subject-matter. . . . But where a corporation enters into a contract in reference to a subject embraced within the scope of its granted powers, but in so doing exceeds them, the contract will not thereby be rendered void. It might constitute a ground for the resumption of its franchises by the state, but could not be objected to by the party sought to be charged."

Among the cases reannouncing the rule are Bacon v. InsuranceCo., 31 Miss. 116; Littlewort v. Davis, 50 Miss. 403;Williams v. Creswell, 51 Miss. 817. Compare Nevitt v.Bank, 6 Smedes M, at pages 561 and 581, and Grand Gulf Bank v. Archer, 8 Smedes M. 151. In Greenville Compress Warehouse Co. v. Planters' Compress Warehouse Co., 70 Miss. 669, 13 So. 879, 35 Am. St. Rep. 681, it was said that, while no action will lie on a corporation's ultra vires contract, "by proceeding in the proper court the plaintiff may recover to the extent of the benefit received by the defendant from the execution of the agreement by the plaintiff."

The rule now recognized and enforced by this court, and which is in accord with the great weight of modern authority (14a C.J. 323 et seq.; 3 Fletcher's Cyclopaedia on Corporations, 2639, et seq.; 3 Cook on Corporations [8th Ed.] section 681), is that announced and acted on in Watts Mercantile Co. v. Buchanan,92 Miss. 540, 46 So. 66. In that case a corporation had purchased, and had executed a promissory note in payment of, shares of stock in another corporation, and, when sued on its note by the person from whom the shares were purchased, the corporation set up its want of power to purchase the shares of stock as a defense to the suit. It does not appear from a report of the case what powers the charter of the corporation conferred upon it, but a statute expressly prohibited any corporation from purchasing or owning shares of the capital stock of another corporation. The transaction there in question was, therefore, one expressly prohibited by law; but the court, as pointed out in Fletcher's Cyclopaedia on Corporations, vol. 3, p. 2622, "treated the case as involving a merely ultra vires contract."

Two questions were there expressly decided: First, a corporation cannot accept the benefit of an ultra vires contract and repudiate it when sued thereon; and, second, an action on the contract will lie. Compare Board of Trustees v.Smith, 58 Miss. 301, and Fargason v. Mercantile Co.,78 Miss. 65, 27 So. 877. That case was followed in People's Bank v. Lamar County Bank, 107 Miss. 852, 66 So. 219, 67 So. 967, which case, however, deals, not with the right of recovery on anultra vires contract, but with the right of a corporation to the use and benefit of property which it acquired contrary to law, and therefore is not strictly in point here. The only difference between the Watts Mercantile Co. case and the one at bar is that in the former a corporation which had accepted the benefit of an ultra vires contract attempted to repudiate the contract when sued thereon, while here a private person, who had accepted the benefit of a corporation's alleged ultra vires contract, now seeks to repudiate the contract when sued thereon, but the rule in each case is the same. 14a C.J. 330, and the legion of authorities there cited.

This rule was recognized in Commercial Bank v. Nolan, 7 How. at page 535, wherein the court, in disposing of a plea ofultra vires by a private individual to a contract made by him with a corporation, said:

"The contract on the part of the bank is executed, and the opposite party is secured in the enjoyment of the fruits beyond disturbance. How, then, can he object to the want of power?"

And again, in National Surety Co. v. Hall-Miller DecoratingCo., 104 Miss. at page 633, 61 So. 703, 46 L.R.A. (N.S.) 325, where this court cited, with approval, the statement by the supreme court of the United States in Ohio M.R.R. Co. v.McCarthy, 96 U.S. 258, 24 L.Ed. 693, that:

"The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail, where it would defeat the ends of justice, or work a legal wrong."

It follows from the foregoing views that the question herein presented for decision, and hereinbefore specifically set out, and to which all that is here said is limited, must be answered in the negative.

Reversed and remanded.