W. C. Bowman Lumber Co. v. Pierson

The W.C. Bowman Lumber Company is a corporation chartered "to buy, sell, hold and deal in lumber and other building materials, both at wholesale and retail, and generally to do and perform all matters and things incident or necessary in such business." As surety, it signed the bond given by A.T. Robinson, a contractor, to secure his performance of a certain building contract. During the negotiation for the contract, it was agreed between Robinson and the Lumber Company that he would purchase and it would sell him the lumber and other like material needed in the construction of the building if he secured the contract. Upon being awarded the contract, Robinson made such purchases of the Lumber Company. Thereafter, the Lumber Company executed the bond.

In a suit where recovery was sought against the Lumber Company upon the bond, the honorable Court of Civil Appeals for the Second District held that its act in signing the bond was ultravires. Because of the conflict between this holding and that of the honorable Court of Civil Appeals for the Fourth District in Munoz v. Brassel, 108 S.W. 417, at a former term in a mandamus proceeding we directed that the question be certified here for the settlement of the conflict. First National Bank of Aspermont v. Conner, 106 Tex. 549, 172 S.W. 1106.

It does not appear that any estoppel was pleaded against the Lumber Company's assertion that its act in signing the bond wasultra vires, based upon the benefit it received through its sale to the contractor of the lumber needed for the building. No estoppel having been invoked, the question is simply one as to the power of the corporation to pledge its credit as a surety for the contractor's undertaking.

Every corporation is created with certain express powers. Being endowed with these express powers, it has the implied power to do whatever is necessary or reasonably appropriate to their exercise. It has, in a word, the authority to do whatever will legitimately effect the express purposes of its creation. A corporation formed for the prosecution of a business may foster that business by necessary or appropriate means — those means which are direct, in their nature related to the objects of the corporation, and by whose employment those objects will be directly furthered. Under the pretense of fostering its own business, or even for that avowed purpose, it cannot, however, entangle itself in engagements or enterprises not necessary or reasonably appropriate to the advancement of its interests, from which it will receive only an indirect or remote benefit, if any, and with which therefore, as tested by its charter powers and their objects, it can have no true concern.

The pledging by a corporation of its credit for another's benefit as a means simply of enabling him to purchase its goods, is not a direct, and hence not a legitimate, means of promoting its own business. It is a means purely indirect, and any benefit derived by the corporation from the transaction is equally indirect. It is not a fostering of the business of a corporation to pledge its capital as security for the debts of prospective customers for the purpose of enabling them to buy its wares. It is inviting its destruction. The creation of custom by such a method is only a delusive benefit to the corporation at best, for the price of it is to jeopardize its capital, not for its own direct benefit, but for the private advantage of another. Its benefit from such a transaction can be only incidental. Such use of its credit is clearly beyond the power of an ordinary business corporation, such as the Lumber Company here. Northside Railway Company v. Worthington, 88 Tex. 562 [88 Tex. 562], 53 Am. St. Rep., 778, 30 S.W. 1055.

While a writ of error was refused by this court in Munoz v. Brassel, the question of the power of the corporation to pledge its credit under the circumstances there shown, was not presented in the application for our review.