Rio Grande Valley Gas Co. v. Grand Rapids Store Equipment Corp.

This is an appeal from a judgment in favor of the Grand Rapids Store Equipment Corporation, hereinafter called store equipment corporation, against the Rio Grande Valley Gas Company, hereinafter called gas company. The case was tried before the court without a jury in the district court of Hidalgo county, Tex. Judgment was rendered in favor of store equipment corporation and against gas company for the sum of $936.96, including principal, interest, and attorney's fees. The suit was for the purchase price of certain office equipment ordered by the Rio Grande Valley Gas Appliance Company, hereinafter called appliance company, from the store equipment corporation, and payment being guaranteed by John W. Gaines as president of the gas company. The evidence is clear that the gas appliance company and the gas company were two separate and distinct corporations.

One C. W. Cassidy, as salesman for the store equipment corporation, took the order of the gas appliance company for the office equipment, and as the gas appliance company had no credit rating with the store equipment corporation, John W. Gaines, as president of the gas company, wrote a letter to the store equipment corporation guaranteeing the payment of the bill. Brian Norton, president of the gas appliance company was the son-in-law of John W. Gaines, president of the gas company.

The office equipment was shipped on or about July 26, 1927, to the gas appliance company, delivered to it, and the freight was paid by it. The equipment was shipped on terms of thirty days net.

This account was not paid at maturity, and this suit was filed February 5, 1929, seeking to hold the gas company responsible upon its guarantee, the gas appliance company having in the meantime become absolutely insolvent.

The gas company, while admitting that its president had written a letter guaranteeing payment of this account, denied liability on the ground that such acts by its president were ultra vires and not binding on it.

We agree with this contention. It is clear in this state that one corporation cannot lend its credit to another corporation. Articles 1348 and 1349, R.C.S. 1925.

Appellee contends that they sold this equipment direct to the gas company and that this is not a guarantee agreement but an original undertaking on the part of the gas company. Appellee contends that it did not have actual or constructive knowledge of any facts which would render this contract or agreement ultra vires. We cannot agree with this contention. Appellee knew through its salesman, C. W. Cassidy, that this office equipment was for the appliance company and not for the gas company. They knew that the equipment was to be shipped to the appliance company. The letter which it received from the president of the gas company can only be construed as guaranteeing the payment of this account. The body of the letter was as follows: "Rio Grande Valley Gas Appliance Company has placed with you an order for office fixtures aggregating $663.70. Please ship this at your earliest convenience, sending statement through the Rio Grande Valley Gas Appliance Co., to the Rio Grande Valley Gas Co., and the bill will be paid on maturity."

This letter must be construed with the order previously placed by the appliance company with the store equipment corporation. This contract is set out in full in the statement of facts. It is five pages long. It reserves the title to the property until the purchase money is fully paid, and contains many other provisions and stipulations. It is signed by Rio Grande Valley Gas Appliance Company by Brian C. Norton, president, and no one else.

It is clear from this order and this letter that the appellee knew that this furniture was sold to the appliance company, and that the gas company was attempting to guarantee the payment of the account.

Appellee having actual knowledge of the fact that this equipment was for the appliance company, and that the gas company was only guaranteeing the payment of the account, is not now in a position to contend that the gas company is estopped to set up the ultra vires nature of its agreement. Thompson on Corporations (3d Ed.) vol. 3, § 2075, at page 710; 14a C.J. § 2162, at page 313.

However, appellee contends that, if this was an ultra vires agreement, the gas company received a benefit from same, in that the sale of appliances by the gas appliance company would enable the gas company to sell more gas. This was such an incidental and remote benefit as to be of no effect. North Side Ry. Co. v. Worthington, 88 Tex. 562, 30 S.W. 1055,53 Am. St. Rep. 778; City of Indianola v. Gulf, W. T. P. Ry. Co.,56 Tex. 594; Bowman Lumber Co. v. Pierson, 110 Tex. 543, 221 S.W. 930, 11 A.L.R. 547; Taylor Feed Pen Co. v. Taylor Nat. Bank (Tex.Civ.App.)181 S.W. 534, modified (Tex.Comm.App.) 215 S.W. 850.

It is contended by appellee that the purchasing of the equipment was within the implied corporate powers of the gas company, and the fact that the gas company exercised such power in an improper manner for the accommodation of another corporation would not affect the validity of the contract, as it was only appellee's duty to determine that the making of the contract was within the general scope of the corporate powers of the gas company. This contention is not tenable where the appellee had actual knowledge that this equipment was ordered by the appliance company and only payment guaranteed by appellant. North Side Ry. Co. v. Worthington, supra.

Appellee further contends that appellant ratified this agreement by said Gaines later writing a letter admitting liability, and also prevented it from pursuing other remedies to collect its debts. It is clear that a president of a corporation cannot ratify his own ultra vires acts. This is the holding in the case of Hoffman v. M. Gottstein Imv. Co., 101 Wash. 428, 172 P. 573, 574. In which case is found the following language: "Manifestly he cannot ratify his own act, and it seems clear to us that none of the other officers or stockholders of the corporation have ever ratified the execution of this note in such manner as to estop the corporation from now denying its liability thereon."

See, also, 14a C.J. § 2234 at page 376; Porter v. Winona, etc., Grain Co., 78 Minn. 210, 80 N.W. 965.

The record further shows that appellee was corresponding with the appliance company, trying to get them to pay this account at the same time it was corresponding with appellant Judge Gaines' letters to appellee contained many expressions sufficient to put appellee on notice that appellant considered itself as only secondarily liable on this account.

The agreement entered into by appellant was ultra vires. Appellee was in possession of such facts as to prevent it from setting up its good faith in entering into this agreement, and is not in a position to plead estoppel against appellant.

The judgment of the trial court is reversed, and judgment here rendered for appellant.