Flagstaff S. M. Co. v. Patrick

2 Utah 304

• Court: Utah Supreme Court
• Decided: June 15, 1880
• Status: Published

Opinion

BoeemaN, J.,

delivered the opinion of the court:

The respondent (plaintiff below) a mining corporation organized and existing under the laws of Great Britain, made, through its directors, a contract with Erwin Davis, one of the appellants, for the appointment of J. N. H. Patrick as agent and manager of the company’s properties and business in Utah, and for Patrick’s retention in the position until out of the profits of the mine Patrick should repay to Davis moneys advanced to the company, and until Patrick should mine and deliver to Davis, and smelt certain ores. By the terms of this contract, Patrick was, for an indefinite time, removable at the pleasure of Davis, but could not be removed by the company. It further provided that Davis could appoint a successor to Patrick, and Davis expressly reserved all of his rights to proceed against the company for tlio non-payment of the money to be advanced the company and for non-delivery of the ores sold to him. The company at the same time executed to Patriot a power of attorney to attend to all of its business in Utah, and to take'charge of all its properties in Utah.

After this contract with Davis and this power of attorney to Patrick had existed about three years, the respondent (the company) assumed to remove Patrick and appoint as its agent in his stead Andrew G. Hunter. Hunter arrived here, and Patrick being out of the Territory, he (Hunter) applied to Patrick’s foreman (George Cullen) at the Flagstaff mine, the property of respondent, for possession, and possession was refused him. He thereupon has Cullen arrested as a trespasser and then entered into possession of the company’s property, the other employees at the mine recognizing his authority to represent the company. The company then bring this suit, alleging that Patrick and Davis are out of the Territory, but that Cullen and "Walker, the other two defendants, acting for Patrick and Davis, threaten to seize the mine in dispute, said Davis and Patrick claiming the possession; and plaintiff asks that the defendants may be restrained from entering into or upon said mining property.

The application for a temporary injunction was heard by the judge of the Third District Court at chambers, and, after the hearing, he granted the temporary injunction prayed for, and thereupon the defendant appealed to this court.

In considering the matter before us, we are to keep in view the fact, that during all the time of the dispute between Patrick and Hunter, the ownership and possession of the mining property in question remained in the respondent, the Flagstaff company; that Patrick acted as agent for the company, and Hunter does likewise. So plaintiff has not been out of possession, and the disputo is alone as to who is the authorized agent of the company. Patrick or Hunter. We think that this fact has to some extent been lost sight of in the consideration of the case by the parties.

But tbe defendants say that the possession of plaintiif was only through Patrick, under the contract with Davis, and that “ plaintiff’s possession was obtained by wrongful and unlawful means,” thereby referring to the possession of the company under Hunter, and ask that the parties be restored to the positions occupied before such possession by Hunter tookplace.

If Patrick was entitled to retain the agency, the conduct of Hunter in taking possession as plaintiff’s agent was unauthorized and wholly illegal. If Hunter was the agent, duly aP' pointed, and Patrick was not, then when this fact was brought to the knowledge of those in the Territory having charge of the mining property, the company, by its agent, Hunter, was entitled to the possession and control of the mine, and no one had the right to resist such authority. The resisting of the authority of the company and a refusal to yield ujjthe mining property was unlawful. The moment the knowledge of the change of agents came to the employees, that moment their power to act under an agent who had been removed ceased, and they had no rights in or to the property or to the possession. Such would not be like the case of a lease, where the rights of landlord and tenant have to be considered, but it would be similar to a ease where a man owns a piece of real estate and is in possession, and employs an agent, overseer or superintendent under himself. In such a case, the principal's power to discharge such overseer or agent could not be questioned, and if such agent or overseer refused to leave the premises, but persists in continuing to discharge the duties formerly devolving on him, he could be proceeded against as for trespass. If this could not be done, the employee could remain and discharge the duties of agent or overseer against the will of the principal and in violation of the rights of the principal, and the principal could not heip himself. It would be the employee that would control the business and not the owner and possessor. This cannot be the law.

But it must be further kept in view that the object of such temporary injunction is not to decide whether possession was obtained rightfully or wrongfully, but is merely to prevent any forcible and illegal attempts to gain or disturb the possession of property during litigation, and that its office is merely to keep matters in staPu, quo until the questions involved in the suit are decided. High on Inj. § 4.

It is a general doctrine that an agent holds his power only at the pleasure of the principal, and when the principal discharges an agent all power and authority of that agent ceases. But there are exceptions to the rule, as when the power of attorney is coupled with an interest, or is for a consideration, or as security to the agent. Such power of attorney is said to be coupled with an interest when the interest is an estate in the thing about which the agency is created, and not in the proceeds, and when the agent could act in his own name and not in the name of the company in carrying out the powers conferred. Hunt v. Rousmanier, 8 Wheat. 203 et seq.

In the case at bar the power of attorney is made at the same time that a contract is made by the company with Davis. This contract requires the making of the power of attorney. Defendants claim that Patrick has the right to continue to act as agent, and to retain control of the property, by virtue of these two papers together. Patrick is not a party to the contract and has no interest therein. He can claim no rights except under his power of attorney. Davis has, however, an interest in both the contract and in the power of attorney, as the latter was made-merely to carry out the former. Under the ruling in Hunt v. Rousmanier, above referred to, his interest is not such as is contemplated by the rule as to irrevo-cability of power of attorney, that is, it is not an interest in the property, but only in the proceeds of the mining business. Barr v. Schrader, 32 Cal. 609. By the language of some other authorities it is such an interest as may be embraced under the exceptions to the rule, as it was made to protect the rights of Davis. Wharton’s Agency, § 95 and note; Story on Agency, § 477.

If the power of attorney alone existed, it would not be pretended that the removal of Patrick was not within the authority of the company; but the contract, so far as Davis is concerned, goes with it. And, assuming then that the power of attorney is a power coupled with an interest, if the contract, be valid, we pass to the consideration of the question whether this contract with Davis is valid and binding upon the company. It is simply a question as to whether the directors transcended their powers in making it.

Chief Justice Marshall, in delivering the opinion of the court in Dartmouth College v. Woodward, held that a corporation “being the mere creature of the law, it possesses only those powers which the charter of its creation confers upon it, either expressly or as incidental to its very existence.” 4 Wheat. 636.

The same doctrine is again laid down by the Supreme Court of the United States, in almost the same language, in the case of Perrine v. Chesapeake and Del. Canal Co., 9 How. 184. And this seems to be the settled doctrine. Angell & Ames on Corp. p. 86.

The power, then, to make the contract, if it existed, was either by the express words of the statute, or as incidental and necessary to the existence of the company. The contract is alleged to have gone beyond the powers of the directors in several respects. It is urged that the directors transcended their authority in borrowing money from said Davis in larger sums than specified in § 20 of the “ articles of association,'-' and in trying to bind the company by such a contract for the repayment thereof. It is answered, that although the amount is above that specified in § 20, yet that it was proper, as that section only had reference to borrowing on mortgage or debentures, and did not restrict the directors in borrowing without mortgage or debenture, and that the general authority given to the directors was equivalent to and covered the authority to borrow money. The general power is embraced in the closing lines of § S3 of the articles of association, which section, after detailing a number of powers specially granted, says: “ And, generally, to do all matters and things which are necessary or may be deemed expedient for carrying on the business of the company.” This power is quite broad.

It is probably true that “in general an express authority is not indispensable to confer upon a corporation the right to borrow money,” and “ it is sufficient if it be implied as the usual and proper means to accomplish the purposes of the charter.” Angelí & Ames on Corp. § 257.

The difficulty, however, is to ascertain whether the contract is embraced in the implied powers of the corporation under this general clause. There is no express authority given to borrow money except on mortgage or debentures, under certain circumstances.

If the power to borrow money by the directors, without the consent of the stockholders is given under this general clause, it can only be limited by what the directors may deem “expedient for carrying on the business of the company.” The power is conveyed if it be within the “ letter and spirit of the act of incorporation.” Angelí & Ames on Corp. pp. 86-7; Beatty v. Knowler, 4 Pet. 162. Was it, therefore, within the “intention of the charter?” Utica Ins. Co. v. Scott, 19 John. 1.

The power to borrow money by such a corporation is a very important power and one that the corporate articles would likely make express provision for, but yet they might not do so. To a certain extent such provision was made in § 20 of the corporation act, which provides that:

Sec. 20. “ The company may from time to time, with the sanction of a general meeting, borrow on mortgage or debentures, either transferable or to bearer, any sum or sums not exceeding £100,000, at such rate of interest as such meeting shall determine, and the board may borrow, without the sanction of a general meeting, on the like securities or on bills of exchange, any sum or sums not exceeding £10,000, at such rate as the board shall think fit.”

In the “ memorandum of association,” we find that one of the objects of the incorporation is: ud. To borrow money and issue bonds transferable or to bearer, secured on all or any of the property of the company.” If we consider together the general clause referred to in §33, and also § 20, and this specification “ D ” in the “ memorandum of association,” (and there are no other provisions bearing upon the point) the power to borrow money was within the “ spirit of the act,” and the “ intention of the charter,” but the power to borrow could only be exercised in a particular way and to specific amounts, and the amounts borrowed from Davis were above the amounts authorized, and were not borrowed by the consent of the general meeting. The manifest intention of all of these pi’ovisions, taken together, was to authorize the directors to borrow to the extent of £100,000 with the consent of the general meeting, and to the extent of £10,000 without such consent, and that, if necessary, such loans could be by the directors, secured by mortgage on the company’s property or by debentures. It was never intended by the charter to give the directors unlimited power to involve the company by borrowing money. The granting of the power to be done to a definite amount and in a certain way was a prohibition upon the directors to pursue any other course. Zottman v. San Francisco, 20 Cal. 96; Angell & Ames on Corp. § 111.

It is further urged that the contract with Davis was ultra vires in another respect, that it placed beyond the reach of the corporation, for an indefinite time, the appointment and removal of its agents. The contract required that Patrick should be the agent, and that he could be removed by Davis but not by the company, until Davis had been repaid advanced money and certain ores had been delivered to him, and that Davis could remove Patrick at his pleasure, and appoint another agent for the company in Patrick’s stead.

The articles of association say that the directors shall have power to appoint and remove agents, but the directors say that Davis may do these things and the directors shall not do so. The power to appoint agents and to remove' unfaithful ones, is a trust reposed alone in the directors, and they cannot contract that power away. If that power is to be surrendered by the directors, it can only be surrendered to the corporation, and not to a stranger. If the directors could transfer this power to a stranger then we might have the anomalous case of the formation of a corporation for mining purposes and the power assumed by the directors and without the consent of the corporation, to put the property of the corporation beyond the reach of the corporation, and to make the carrying out of the very object of the corporation an impossibility. The power to appoint and remove agents and managers rests with the company, and this power cannot be shifted or taken away by any contract made by the directors. Neall v. Hill, 16 Cal. 145; Grant on Corp. 243.

And, further, Patrick, it is said and admitted, broke the contract with Davis by failing to make the monthly reports required, and this, too, without objection from Davis. If, for this violation of duty, the company could not remove Patrick and thus repudiate the contract, then the contract was certainly one-sided. Davis reserved to himself the right to ignore the contract at pleasure, and to proceed against the company otherwise to secure payment of his debt. A corporation cannot be bound by any such contract of its directors. The contract is not mutual but is ultra vires as it is termed, beyond the authority of the directors, and is not binding upon the corporation. Pry on Specific Perf. 133; 2 Kent, 298-9.

■ And if it were true that such contract were binding upon the corporation, after recognition, yet there is no evidence to show such recognition, except such as was made by the directors. But as the directors had no power to make such a contract, their recognition of it after it was executed made it no more binding. There is no evidence that the matter was brought before a general meeting of the company.

There are two minor points urged, which we will notice. It is objected that the grounds of relief are alleged on information and belief instead of on direct and positive averment. Under § 113 of the Practice Act, the allegation upon information and belief is sufficient.

It is likewisecharged that the complaint does not set out the facts constituting the’fraud charged. This mayor may not be necessary, but the court will not now pass upon the point, as, aside from this, the complaint sets out enough facts to constitute a cause of action under § 254 of our Practice Act. Curtis v. Sutter, 15 Cal. 259.

Upon the whole case, therefore, we consider that the complaint was a sufficient statement of a case, and that the evidence before the court below was sufficient to warrant the conclusions that the company had the right to remove Patrick and to appoint another agent in his stead, and that the evidence was sufficient to show a well grounded fear that force would be used to wrest the possession from the duly appointed agent. Hence we conclude that the action of the court below in granting a temporary injunction was not improper, and its action is therefore approved. And, as was ordered by the judge below, this injunction is not to prevent defendants from instituting or prosecuting any proper legal proceedings to secure any just rights or claims which they or either of them may have against the plaintiff.

Judgment affirmed with costs.

Sohaeffjer, O. J., and EjubRSon, J., concurred.