Marengo Abstract Co. v. Hooper & Co.

56 So. 580, 174 Ala. 497, 1911 Ala. LEXIS 338

• Court: Supreme Court of Alabama
• Decided: November 21, 1911
• Status: Published

Opinion

McCLELLAN, -J.

It is ■ doubtless well at this .time to note,that this appeal is from a judgment expressing rulings on demurrers to pleadings in an action at law, and that the appeal is justified by the act creating the law and equity court of Marengo county. — Acts Sp. Sess. 1909, pp. 339, 356, § 26.

The presumption is that contracts are valid. Courts will not presume that parties to a contract intended to violate the law; and the legal intendment is to construe contracts to uphold, not to defeat them, if that may be done consistently with the expressed intent of the parties. — Culver v. Caldwell, 137 Ala. 125, 34 South. 13; Perryman v. Wolffe, 93 Ala. 290, 9 South. 148; Nelson v. Manning, 53 Ala. 549; 9 Cyc. p. 586; Curtis v. Cokey, 68 N. Y. 300; Ormes v. Dauchy, 82 N. Y. 443, 37 Am. Rep. 583.

Intention, at the time of contracting, is the factor that does and will determine whether a contract for future delivery of a commodity is legal, and hence binding, or void, because of being a wager upon market fluctuations, and therefore unenforceable. — Hawley v. Bibb, 69 Ala. 52; Perryman v. Wolffe, 93 Ala. 290, 9 South. 148; Allen v. Caldwell, 149 Ala. 293, 42 South. 855; Code 1907, § 3349. If the intention of both the parties, at the time of contracting, be that no property in the commodity shall pass, or that no delivery in kind shall be made, the engagement is illegal, for it is a wager upon the fluctuations of the market. — Authorities supra.

Intention, that will control in this regard, is not the “secret design which may dwell in a party’s mind and as to whose existence he alone can speak.” — Bank v. North, 160 Pa. 303, 308, 313, 28 Atl. 694, 696; 9 Cyc. p. 578. It is the purpose “implied and manifested by his act.” — Authorities supra. At common law or under the statute, if the contract manifests an unmistakable intention by the parties, to constitute an illegal contract for the future delivery of commodities, it is void upon its face. No evidence aliunde can be received to turn the purpose and intent toward a lawful object.

At common law and under tbe statute (Code, § 3349), that the form and terms of the contract for future delivery of commodities are free from indicia of illegality did not — does not — conclude the inquiry of illegality vel non, for the real intention of the parties may be found by recourse to proper evidence tending to show the “nature of the true transaction and the circumstances attending it.” — Hawley v. Bibb, supra; Code, § 3349.

" If a contract for the future delivery of commodities is fair on its face — without indicia of illegality refuting the presumption that parties do not intend to make an illegal contract of that character — obviously (omiting, at this stage, consideration of our statute [Code, § 3349]) the assertion of such a contract, with a view to the enforcement of its obligations would not require the pleader thereof to affirm that the intention of the parties in the premises was to deal in the property, and not to wager upon market fluctuations. To conclude otherwise would be to initially impose upon such a party to a contract, fair upon its face, the duty of allegation of his innocence and of the validity of his contract, when and as he engaged, and, in consequence, to lay upon him the onus of sustaining the allegations. The presumptions stated refute any such conclusion.

Has our cited statute altered this matter as respects the assertion in pleading of such contracts? We think not. There is nothing in the statutes on this subject, which are a codification of the act approved March 7, 1907 (Gen. Acts 1907, pp. 448, 452), wh'ereúp'on it could be contended that the legislative intention was to deby the application of the mentioned presumptions to contracts free from illegality on their faces. Indeed, from the provision made in section 2 of the act (Code, § 3351), with respect to the effect, prima facie, of evidence of certain, defined character, the necessary implication is that the Legislature did not intend to impose the burden of allegation and proof upon a party asserting, with a vieAV to its enforcement, a contract for future delivery.

A very different statutory status Avas involved in Gist v. W. U. Tel. Co., 15 S. E. 344, 23 S. E. 143, 55 Am. St. Rep. 763. There the statutes expressly laid the burden of proof upon any one seeking to enforce a right or obligation arising out of a contract for future delivery; and, besides, the major statute of the system of laws there considered condemned every future delivery contract “unless” the engagement possessed the elements requisite to make a valid contract of that character under that system. It Avas there ruled that no cause Avas stated, “unless” the requirements of the system, to render such a contract valid, Avere affirmatively alleged. One of the differences between that system and our own (Code, e. 6, art, 5) is that between a general prohibition with a legal exception and a prohibition directed against specific acts of a larger class. There the pleader, must, by averment, bring his contract, if it be valid at all, Avitliin the purvieAV of the exception from the major prohibition. His obligation is affirmativé. The contract being valid upon its face, Avith us the presumption of intention to validly engage refers the contract to the Iuav that Avill sustain it — that sanctions its validity. The result under the South Carolina system and that under our oavu Avould be, in substance, the same; but the burden of allegation and proof is not, as indicated, the same. Hence it must be held, as indicated, that this general rule applies, namely, that he who AvoAild defeat a contract, valid on its face, for illegality, lias the burden of allegation to that end. — 9 Cyc. p. 762; Gafford v. Speaker, 125 Ala. 498, 27 South. 1003; 5 Mayf. Dig., p. 371.

Counts 1, 2, 4, and 5 of the amended complaint stated a cause of action in each. Without attempting particularity in the statement, upon their respective averments, these counts set forth contracts for the sale of stipulated quantities of cotton, for delivery at designated points, at a specified price and grade. The substance of the contracts ivas that appellees, who were cotton brokers, agreed to sell certain quantities of cotton “for account” of appellant. The consideration shown in these counts, moving from appellant to appellees, was 50 cents per bale. There is nothing in the contracts therein, set forth evincing any other intention of the parties than to deliver the commodity — to deal in the substance, and not to merely wager upon the market changes. The contracts were, on their faces, valid. They consist with legal undertakings. The objection, taken by the demurrers and argued in brief for appellant, that the counts should have contained other allegations ■ excluding the elements working invalidity, as provided in the cited statutes, cannot be approved. The court below, therefore, did not err in so ruling on this phase of the demurrers.

If the pleas purporting to assert that the contracts declared on were ultra vires the corporation were predicated upon the idea that the contracts were, on their faces, wagering transactions, and therefore void and without the corporate powers of the defendant, what has been said before in respect to the contracts will suffice to indicate our opinion that that theory cannot be approved. If the corporation possessed the power to lawfully deal as the contracts on their faces show was undertaken, it is evident, upon authority, that ownership of the cotton, at the time of contracting, engaged to be delivered, was not with the defendant, or that it had no lands in cultivation Avherefrom- cotton, for such delivery, might be gathered, are not essential to constitute a valid contract for the future delivery of the community. — Hawley v. Bibb, 69 Ala. 52, 55. Ultra vires must be especially pleaded Avhen to be offered in avoidance of contractual obligation. — 5 Ency. Pl. & Pr. 95; 10 Cyc. p. 1056; Bank v. Pence, 59 Neb. 579, 81 N. W. 623. The presumption is that contracts by corporations are justified by their poAvers. — Boulware v. Davis, 90 Ala. 207, 211, 8 South. 84, 9 L. R. A. 601; Ala. Ins. Co. v. C. A. & M. Ass’n, 54 Ala. 73. In such matters, the burden of proof folloAvs the burden of allegation.

Original pleas 3 and 4 will be set out in the report of the appeal. They Avere demurred to upon the ground, among others, that the allegation that the contracts Avere ultra vires the corporation Avas a conclusion of the pleader. The demurrer Avas sustained. The court holds that Avliile, under the authority of Hawley v. Bibb, supra, the averments of these pleas, preceding the summary allegation of ultra vires, did not, if true,, lead to the result that the sales of cotton for future delivery Avere ultra vires the corporation (if the corporation was authorized to laAvfully deal as the. contracts on their faces shoAv was undertaken), the concluding allegation of ultra vires Avas not subject to the demurrer interposed; and therefore the court erred in sustaining the demurrer to original pleas 3 and 4.

In this ruling the writer is unable to concur. The proposition affirmed by the ruling limiting its-'Statement to character of . action here presented is that the Avant of corporate poAver is sufficiently pleaded, in bar of the recovery sought, by the simple allegation that the contract in question was “ultra vires the corporation)” or was “ultra vires the charter of the corporation.” Corporations are creatures of special statutes or general law authorizing their organization, and possess only such powers as are expressly granted, or such as are necessary to carry into effect the powers so expressly granted. — Chewacla Lime Works v. Dismukes, 87 Ala. 344, 346, 6 South. 122, 5 L. R. A. 100; 10 Cyc. p. 1096, and notes thereon. What the powers and properties of such creatures of.the law are, is, as in all cases of the construction or interpretation of written instruments, an inquiry for the court and not for the jury. — 1 Thompson’s Com. on Corp., § 1237; S. M. & M. R. R. Co. v. Anderson, 51 Miss. 829, 834. It is an elementary rule that a plea must set up the facts constituting the defense, and not the pleader’s legal conclusion deduced therefrom. — 16 Ency. Pl. & Pr. p. 564; 12 Ency. Pl. & Pr. p. 1024 et seq.; 31 Cyc. p. 49 et seq.

In this instance, the variety of the general allegation of ultra vires depended upon the charter powers, express and implied, of the private corporation. To justify, against the demurrer, this general allegation, the pleader must be accorded the prerogative to construe the defendant’s unpleaded charter. — Broad Street Hotel Co. v. Weaver’s Adm’r, 57 Ala. 26. This cannot, under principle and authority, be permitted. The question in hand was, in principle, decided in Savage & Darrington v. Walshe & Emanuel, 26 Ala. 619, 632. The action was on a note given by Savage and others to the Planters’ & Merchants’ Bank. Among other pleas filed was the fifth, wherein it was alleged “that said bank, at the date of said note, had no power or authority to make a contract, and that the said note was null and void.” There, the effort was by the payers to defeat their obligation to the corporation by the assertion of its want of power to contract. Here the corporation itself would assert its want of charter power to contract as plaintiff alleges. Of the plea quoted this court, through Goldthwaite, J., said: “In the action of the court in sustaining the demurrer to the * * * fifth pleas there was no error. * * * The same objection applies to the second and fifth pleas, both of which assert legal conclusions instead of facts.”

The method and sufficiency of pleading ultra vires was considered in Life Association v. Cook, 20 Kan. 19, 2. It was there said: “In this case, if the defendant Westerman wished to raise by her answer the question that the loaning of money by the plaintiff to Cook on real estate security in Kansas was ultra vires, and forbidden, she should have pleaded its charter, or the laws of the state where it was organized, or both such charter and laws, and on the trial produced the same evidence.” There are many instances in our reports ivhere the principle illustrated by the cases cited has been noted and applied. The writer, therefore, dissents from the ruling holding original pleas 3 and 4 not subject to the demurrer, and hence would affirm the judgment appealed from.

Plea 6, as originally filed, alleges an intention entertained by the “defendant” inconsistent with a valid contract of this character. Such an intention must be common to the parties in order to render the contract illegal. — Hooper v. Nuckles, 39 South. 711. The plea was defective on that account, and the court did not err in sustaining the demurrer thereto.

Plea 7 was patently subject to the demurrer. It appears to have been but a reiteration of Code, § 3350. That section's sole office is to exclude a certain class of persons, firms, or corporations from the provisions of the preceding section 3349. Plea 7 contained no averment challenging the validity of the contracts sued on, or asserting, in any degree, the corporation’s want of power to so engage.

1’lea 5 was also addressed to count 3 as amended. It was a common count. The plea omitted to allege that the contracts to which it referred Avere the bases of liability declared on in amended count 3. The- demurrer taking this point was Avell sustained.

As amended pleas 3, 1, and 6 set forth the corporate poAvers of the defendant, as a predicate for- the allegation that the contracts declared on were ultra vires the corporation. In its charter it Avas authorized “to buy, sell, hold or mortgage * * * personal property.”

Granting, as appears prima facie, that the contracts described Avere valid, no reason' occurs to us, nor has any been pointed out, Avhy the dealing indicated Avas not Avithin the corporate poAver to buy and -sell personal property. It could not be donbted that the corporation has thereunder the poAver to buy and sell cotton. If such poAver it had, it -Avouhl seem to necessarily result that it could engage to sell as, on their faces,-these contracts purport to do. The court did not, therefore, err in sustaining the demurrer to amended pleas 3, 4, and 6.

For the error indicated, the judgment is reversed, and the cause is remanded.

Reversed'and remanded.

All the Justices, save the Avriter, concur.- McClellan, J., dissents.