Scott v. Bankers' Union of the World

85 P. 604, 73 Kan. 575, 1906 Kan. LEXIS 291

• Court: Supreme Court of Kansas
• Decided: May 12, 1906
• Docket: No. 14,516
• Status: Published

Opinion

The opinion of the court was delivered by

GRAVES, J.:

This action was commenced to recover upon the eight promissory notes obtained by the plaintiff from M. Ware, each being for the sum of $333.33. The notes were given in consideration of services performed in an effort to effect a consolidation of the Bankers’ Union of the World and the National Aid Association. One of the defendants, the Bankers’ Union of the World, objects to the payment of the notes (1) because the purpose for which the notes were given was beyond the power of the association, which makes them void in toto; and (2) because the plaintiff is not in a position to claim the protection ordinarily due to an innocent holder of commercial paper, as he is still in possession of all the property that was the consideration for the notes and is secure from loss without such protection.

The plaintiff insists that a corporation having power to create debts or incur liabilities for any purpose whatever has the power to issue its promissory note therefor, and the purchaser of such note, in the absence of notice or knowledge to the contrary, has the right to assume that it was given for a rightful purpose; that defendant association has express power to provide many things that can only be obtained either by cash or credit, and to carry out the manifest purposes of the order it is necessary for it to have the power to contract debts for these essential purposes and issue its promissory notes therefor; that the plaintiff has delivered all of the property sold, and is in possession thereof merely as agent of the owner, and therefore cannot protect himself; and, further, that the defendant association, having received the services of the payee of the notes, and caused him to surrender his office, and receipt for past-due salary, is now es-topped from denying its power to make the contract and execute the notes.

There are other questions presented, but they are minor to, and involved in, the principal ones mentioned, and in the view we have taken they .are not material to the conclusion reached and need not be considered.

Corporations are created by law, and have such powers only as are expressly or impliedly conferred upon them. The charter of a corporation is the measure of its power. (7 A. & E. Encycl. of L. 695.) In the case of Head v. Providence Insurance Co., 6 U. S. 127 (reprint, vols. 5-6, p. 150), 2 L. Ed. 229, Chief Justice Marshall said:

“Without ascribing to this body, which in its corporate capacity is the mere creature of the act to which it owes its existence, all the qualities and disabilities annexed by the common law to ancient institutions of this sort, it may correctly be said to be precisely what the incorporating act has made it; to derive all its powers from that act, and to be capable of exerting its faculties only in the manner which that act authorizes. To this source of its being, then, we must recur to ascertain its powers.” (Reprint, vols. 5-6, p. 154.)

In the case of N. Y. F. Ins. Co. v. Ely, 5 Conn. 560, 567, 13 Am. Dec. 100, Chief Justice Hosmer said, when speaking of the powers of corporations, that “the law of its nature, or its birthright, in the most comprehensive-sense, is such, and such only, as its charter confers.” In the case of Central Transp. Co. v. Pullman’s Car Co., 139 U. S. 24, 11 Sup. Ct. 484, 35 L. Ed. 55, Mr. Justice Gray said':

“The charter of a corporation, read in the light of any general laws which are applicable, is the measure of its powers, and the enumeration of those powers implies the exclusion of all others not fairly incidental.” (Page 48.)

This is the generally accepted and recognized rule. The implied powers which a corporation has are only such as are necessary fully to carry out the" powers expressly given and to accomplish the purpose of its creation. (7 A. & E. Encycl. of L. 699; The People, ex rel., v. Chicago Gas Trust Co., 130 Ill. 268, 283, 22 N. E. 798, 8 L. R. A. 497, 17 Am. St. Rep. 319; Chicago Gas Light Co. v. People’s Gas Light Co., 121 Ill. 530, 13 N. E. 169, 2 Am. St. Rep. 124; Franklin Bank v. Commercial Bank, 36 Ohio St. 350, 355, 38 Am. Rep. 594.)

In the case of National Home-building Ass’n v. Bank, 181 Ill. 35, 54 N. E. 619, 64 L. R. A. 399, 72 Am. St. Rep. 245, Chief Justice Cartwright said:

“A corporation is a creature of the law, having no powers but those which the law has conferred upon it. A corporation has no natural rights or capacities, such as an individual or an ordinary partnership, and if a power is claimed for it the words giving the power or from which it is necessarily implied must be found in the charter or it does not exist.” . (Page 40.)

It may therefore be said that as a general rule a private corporation possessing the powers usually conferred has authority to issue promissory notes, either when authorized to do so in express terms, or when it is necessary to carry out other powers expressly given and is essential to the accomplishment of the purpose of its creation. But it may also be said that corporations may be created which do not have such power, either express or implied. Whether a given corporation has such power or not will depend upon the express provisions of its charter, and the purpose it was intended to accomplish. When a law whereby a corporation is created does not confer in express terms the power to issue promissory notes, such power will not be implied if it appears from the general scope of the law, and from the purpose to be accomplished by such corporation, that it is not essential to the proper exercise of the powers expressly conferred nor to the accomplishment of the objects fór which the corporation was created.

Applying these principles to this case, we have concluded that the Bankers’ Union of the World did not have power, either express or implied, to issue the notes sued upon. It was organized under the provisions of a statute enacted for the purpose of placing such associations in a separate and distinct class. By the express terms of this statute associations organized under it are excluded from the provisions of all laws relating to ordinary corporations and life-insurance companies. This indicates an intention to deprive them of the ordinary business powers incident to other corporations, and to withhold all power not expressly given.

This association was not organized for trading or business purposes, or to acquire profit in any way. It is without capital, and has no revenue. Its only financial resource is the voluntary contributions of its members. Its only business is to receive and disburse these contributions in accordance with the rules of the order. No power exists to enforce the payment of assessments, but when they are voluntarily paid a fixed per cent, thereof is placed in a fund out of which all the expenses incident to the management of the order are to be paid. This fund is the sole means at the disposal of the officers of the association, and it is, and of necessity must be, an uncertain and conjectural quantity. The issuance of a promissory note, with no security for payment when due other than this fund, would be a very unbusinesslike transaction. It would seem like folly to permit any obligation of the association to be issued which exceeded the extent of this fund at the time of such issuance. An obligation payable upon the contingency that this fund would be sufficient might work no injury, but.a promissory note negotiable in a commercial sense, payable absolutely, is wholly incompatible with the plans, resources and necessities of such an organization.

A law permitting a corporation of this character to issue such notes, and thereby deceive and entrap the unwary and credulous, would be open to serious criticism. It may be conceded that the legislature of Nebraska might confer such power upon such an association, but it should not be assumed to have done so until its language to that effect is so clear and explicit as to admit of no other reasonable interpretation. The statute under which the Bankers’ Union of the World was organized, and the constitution and by-laws of that order, have been fully pleaded and constitute a part of the record in this case. The decisions of the Nebraska supreme court, so far as deemed applicable, have béen cited in the briefs of counsel, and further to aid this court depositions of eminent lawyers in that state have been taken, wherein opinions have been given pro and con as to whether or not under this statute and the decisions and other laws existing in Nebraska the Bankers’ Union of the World had the legal power to issue a promissory note. But, since we have the statute and reports before us, we have con-eluded to follow our own judgment in the decision of this question.

It is familiar law that whoever deals with a corporation or buys its obligations is bound to take notice of the powers conferred by its charter, and the purposes for which it was created. When the plaintiff was. about to purchase the notes in question he was charged with notice of the powers, express and implied,, possessed by the Bankers’ Union of the World, and was. bound to take notice that it had no authority or power to issue such notes for any purpose whatever. Charged with such notice, he could not become the' owner of the notes so as to be entitled to the protection usually accorded an innocent holder of commercial paper. (Alexander et al. v. Cauldwell et al., 83 N. Y. 480, 485; Jemison et al. v. C. S. Bank, 122 N. Y. 135, 140, 25 N. E. 264, 9 L. R. A. 708, 19 Am. St. Rep. 482; Sturdevant Bros. & Co. v. Farmers’ & Merchants’ Bank of Rushville, 69 Neb. 220, 95 N. W. 819; National Home-building Ass’n v. Bank, 181 Ill. 35, 54 N. E. 619, 64 L. R. A. 399, 72 Am. St. Rep. 245; Nicollet National Bank v. Frisk-Turner Co., 71 Minn. 413, 74 N. W. 160, 70 Am. St. Rep. 334; The Franklin National Bank et al. v. Whitehead et al., 149 Ind. 560, 49 N. E. 592, 39 L. R. A. 725, 63 Am. St. Rep. 302; Durkee v. The People, 155 llI. 354, 40 N. E. 626, 46 Am. St. Rep. 340.)

This conclusion disposes of the case so far as the Bankers’ Union of the World is concerned, and makes it unnecessary to consider the question of estoppel on account of benefits received, as the plaintiff took the notes with notice of this infirmity and is. not therefore entitled to the rights of an innocent holder. It seems, however, that this defendant received very little, if' anything, of value out of the transaction.' The scheme of consolidation failed. These notes were not to be paid unless it succeeded. It is true that the president and secretary of the Bankers’ Union of the World, while in control of the National Aid Association, used. its funds in a way that might give just cause of complaint, but that association is not in this case. These funds were not transferred to the Bankers.’ Union of the World, nor used in any way for its direct benefit. They were used to defray the expense incurred in the furtherance of the scheme in which both associations were interested. The National Aid Association was insolvent and unable to pay the salaries due its officers, and the release thereof resulted in very little, if any, loss to them, and no advantage to the other association.

We think E. C. Spinney, the other maker of these notes, is liable thereon. He was personally, as well as officially, interested in securing the consolidation of the associations. But for his supposed personal financial responsibility nothing would have been done by the payees of the notes to secure the union of the two companies. He knowingly and voluntarily executed negotiable notes, and consented to their delivery. The transaction in which they were given was not unlawful, or contrary to public policy. The consolidation of such corporations might be desirable and useful to both associations, and proper and legitimate in every way. The officers of the National Aid Association did not attempt to sell out their company, nor to betray their trust; they only undertook to advise with and urge the subordinate lodges and members to consent to the proposed merger. This was proper. The National Aid Association could not exist alone very long, and any change which promised protection to its certificate holders was desirable. We think this effort on the part of the officers was not vicious, but commendable.

The notes are not enforceable against the other maker (the defendant corporation) simply because it had no power to execute them, and the plaintiff had legal notice thereof when he took them. The plaintiff, having bought these notes in good faith, and for value, and without notice of the circumstances under which they were given, is an innocent holder as against Spinney, and is entitled to recover thereon.

The judgment of the district court is affirmed so far as the Bankers’ Union of the World is concerned, and reversed as to E. C. Spinney; and it is directed to enter judgment, upon the facts found by it, against E. C. Spinney, in accordance with the views herein expressed. The costs in this court are divided equally between the plaintiff and defendant Spinney.

All the Justices concurring.