Kohlruss v. Zachery

77 S.E. 812, 139 Ga. 625, 1913 Ga. LEXIS 548

Opinion

Hill, J.

The controlling question in this case is whether the Harlem Oil & Fertilizer Company, a corporation, under the laws of this State, can have specific performance of an executory contract for the purchase of farm lands, where the charter of the corporation contains no express power to execute such contract or to acquire such lands. The contract referred to is as follows:

“State of Georgia, Columbia County. Eeceived from the Harlem Oil & Fertilizer Company the sum of three hundred ($300) dollars, to be applied on the purchase-price of the following tract or parcel of land fully described in a bond for title given by Mrs. Nannie B. "Wright to C. F. Kohlruss, dated June 19, 1912, provided said sum of $300 is not repaid to said Harlem Oil & Fertilizer Company within sixty days after date. It is agreed that if said sum is not paid in the above-specified time, the said Kohlruss agrees to sell to the Harlem Oil & Fertilizer Company, who agrees to buy, said tract of land fully described in said bond for titles, at and for the sum of seventy-five hundred ($7,500) dollars, to be paid as follows: The said Harlem Oil & Fertilizer Company agrees to assume a loan of twenty-three hundred ($2,300) dollars on said land, payable to Mrs. Nannie B. Wright, the sum of fourteen -hundred and fifty ($1,450) dollars January 1, 1913, and the sum of thirty-seven hundred and fifty ($3,750) dollars January 1, 1914. All deferred payments to bear interest from January 1, 1913, at the rate of 8% per annum. It is agreed that all rents during the year 1912 are to be paid said Kohlruss, 'and the said Kohlruss shall pay all taxes on the property up to January 1, 1913. Possession of the uncultivated part of the property may be taken by the purchaser sixty (60)- days after date, provided said sum is not paid, and the remaining part of said land on January 1, 1913. In witness whereof both parties have hereunto set their hands and seal, ■this 20th day of September, 1912.

“Signed, sealed and delivered in the presence óf:

“Dr. A. B. Martin.

“W. I. Lazenby, Notary Public, Columbia Co., Ga.

C. F. Kohlruss (L. S.) Harlem Oil & Fertilizer Co. (L. S.) By Julian J. Zaehery, Prest.”

The material part of the charter of the Harlem Oil & Fertilizer Company is as follows: The petitioners seeking “the formation of a corporation to be known as the ‘Harlem Oil & Fertilizer Company/ for the purpose of conducting for pecuniary profit the business of buying and selling, both in their own right and on commission, cotton, cottonseed, and all cottonseed products and farm produce of all kinds, coal, wood, timber, and lumber; to manufacture and sell cottonseed oil and all substances and commodities obtainable from cottonseed and other agricultural products; to purchase fertilizer ingredients, to make, mix, manufacture and sell fertilizers; to manufacture ice and sell the same; to establish and operate an electric-light plant and create motive power and electric light, both for the use of said corporation and for sale to others; and to establish and operate sawmills, and to manufacture lumber,” it is ordered that said application be granted, and that the petitioners and their associates and successors be vested with “all the rights, privileges, and powers mentioned in said petition.” It will be observed from reading the above language that the charter contains no authority or power on the part of the corporation to own farm lands, or to make any contract for the purchase or holding of such property. Our Civil Code, § 2823 (5), is as follows: “Corporations thus created may exercise all corporate powers necessary to the purpose of their organization, but shall make no contract, or purchase or hold any property of any kind, except such as is necessary in legitimately carrying into effect such purpose, or for securing debts due to the company.”

The language of the statute just quoted is clear and plain. By its terms a corporation can make no contract or purchase or hold any property of any kind, except such as is necessary to the purposes of the organization. The declared purpose -of the corporation is as set out in the excerpt from the charter above quoted. Was the purchase of the farm lands necessary in legitimately carrying into effect such purpose ? Mr. Zaehery, who was the general manager, president, and treasurer of the corporation, testified that he wanted the land because “around an oil-mill there is a great deal of waste, and this tract was bought by me to fertilize it and bring it up to a high state of cultivation from the waste and fertilizer around the oil-mill.” Owning a farm to fertilize it was not one of the necessary or declared purposes of the corporation. The necessary' purposes of the corporation are enumerated in the charter. If the waste and fertilizer were valuable for the purpose named, it could be sold by the corporation. But it is argued that the State alone can make the question as to the right of the corporation to own and hold the land. This is undoubtedly the general rule. 10 Cyc. 1133; American Mortgage Co. v. Tennille, 87 Ga. 28-30 (13 S. E. 158, 12 L. R. A. 529), and cases cited; Hanson v. Little Sisters of the Poor, 79 Md. 434 (32 Atl. 1052, and note in 32 L. R. A. 293); Zinc Carbonate Co. v. First National Bank, 103 Wis. 125 (79 N. W. 229, 74 Am. St. R. 845, and note); Anglo-American Land &c. Co. v. Lombard, 132 Fed. 721-722 (68 C. C. A. 89); South & North Ala. R. v. Highland Ave. & Belt R. Co., 119 Ala. 106 (24 So. 114). Thus it was held in the Tennille case, supra, under the act of February 28, 1877, which provided that the State would not allow foreign corporations to own five thousand acres or more of land unless they should become incorporated under the laws of Georgia, that the State alone could question the right of foreign corporations to hold land contrary to the provisions of the statute. But this principle has no application to a case where a corporation by its cross-bill is seeking the aid of a court of equity to enable it to acquire and own lands which by its charter it has no power to acquire and own. 10 Cyc. 1135; Case v. Kelly, 133 U. S. 21 (10 Sup. Ct. 216, 33 L. ed. 513); note to Hanson case, 32 L. R. A. 293; Pacific R. Co. v. Seely, 45 Mo. 212 (100 Am. D. 369). The distinction between the two classes of cases is, that the courts will not interfere with a contract that is executed, but will refuse to aid a corporation in enforcing a contract for the purchase of land that is merely executory. The contract in the present case is executory. Under its charter powers, the defendant is seeking specific performance of a contract for the purchase of a plantation consisting of 404% acres of farm land at the price of $7,500. It claims to have paid $300 on the purchase-price of the land, and to have assumed a debt due Mrs. Wright of $2,300, which was to be paid as follows: $1,450 on January 1, 1913, and the remainder, $3,750, on January 1, 1914, with interest at eight per cent, per annum on deferred payments. The testimony shows that Kohlruss, the plaintiff, executed his note to Mrs. Wright for $2,300 and made her a deed to the land to secure the same. The bond for title given by her to Kohlruss was transferred by the latter to the corporation, which holds it. If the Wright note should not be paid by the corporation, Kohlruss is still liable on the note. The note is not paid, so far as the evidence discloses. Nor has Mrs. Wright executed a deed under the bond for title to the defendant corporation, nor does it appear that she took any part in the transaction. The contract, therefore, is not executed but executory as to the corporation. The plaintiff is im possession of the land, and the defendant corporation seeks to compel specific performance of the contract by its cross-bill. Under such circumstances the plaintiff can raise the question of authority of the corporation to take the title to farm lands, as being ultra vires.

The members of the court concur in the rules of law above announced, but there is not unanimity as to the application of them to the facts of the present case. The opinion of the members of the court other than the writer on this subject is as 'follows: In the Civil Code, § 2216, is contained a statement of the powers common to all corporations. Among these is, “to receive donations by gift or will, to purchase and hold such property, real or personal, as is necessary to the purpose of their organization, and to do all such acts as are necessary for the legitimate execution of this purpose.” By § 2823 it is declared that corporations organized by the superior court “may exercise all corporate powers necessary to the purpose of their organization, but shall make no contract, or purchase or hold any property of any kind, except such as is necessary in legitimately carrying into effect such purpose, or for securing debts due to the company.” The word “necessary,” as employed in these.two sections, is to be given a reasonable construction, and not to be so construed as to hamper and obstruct, or practically prevent, the profitable and reasonable exercise of the corporate powers and the conduct of the corporate business. Thus many contracts may be made which are not in an absolute sense essential to the conduct of business, and yet may be legitimate as advancing the principal business or rendering it more profitable. Such contracts would not be invalid. In Spear v. Crawford, 14 Wend. 20 (28 Am. D. 513), it was said that the land which a canal company may buy is not limited to a mere passage for the canal, but that a reasonable discretion is vested in the company in respect to the purchase. On the other hand, in Pacific R. Co. v. Seely, 45 Mo. 212 (100 Am. D. 369), it was held that a railroad has no authority to acquire land for purposes of speculation, under a grant of power to acquire and hold sufficient real estate for the construction of its road and for the erection of depots, engine-houses, etc. These cases will serve as illustrations of the principle involved in the case now under consideration. If the contract for the purchase of the land involved in the controversy was clearly beyond the corporate power, that question could be Raised when it sought to enforce specific performance, and an injunction would be granted to restrain the corporation from taking possession or interfering with the business of the landlord. The evidence on this subject is quite meager. The person who was at once the president, treasurer, and general manager of the corporation testified thus: “As to what I wanted this land for, I will say, around an oil-mill there is a great deal of waste, and this tract was 'bought by me to fertilize it and bring it up> to a high state of cultivation from the waste and fertilizer around the oil-mill, and I wanted it for that purpose.” It is not very clear whether the witness meant that there were certain products of the mill which would be wasted or lost or not profitably used otherwise than by the purchase of this land, and that it was to be used in connection with the business of the mill and as necessary for the profitable use of such waste products, or whether such purchase was reasonable in its amount for such corporate purposes. But inasmuch as the landowner was attacking the right of the corporation to have specific performance, and basing his attack on the ground that the purchase was ultra vires, the burden of establishing this defense rested upon him. And if the evidence left his defense in doubt or failed to establish it, the consequent injury fell upon him. The majority of the court are not prepared to hold that under the evidence it can be declared as matter of law that this contract was ultra vires. They think that the judge did not abuse his discretion in refusing to grant the interlocutory injunction prayed. On the subject of whether the transaction really amounted to the securing of a loan or to the making of a sale, the evidence was- conflicting; and therefore the-judge had the right to exercise his discretion in finding on that, subject.

The writer of this opinion can not concur in the views of the majority of the court just above stated. He is of the opinion that, assuming the contract to have been for the sale of land by the ' owner thereof to the corporation, the evidence so clearly shows that it was ultra vires, because the purchase was not for a- purpose necessary to the corporate business, that as matter of law an injunction should have been granted.

Judgment affirmed.

Hill, J., dissents. Beck, J., absent. The other Justices concur.