Woods Lumber Co. v. Moore

The defendant appeals from the judgment. The plaintiff sued to recover of Goldstein Company, as guarantor, the sum of $2,845.55 owing to plaintiff from Continental Producing Company for building materials and merchandise bought of plaintiff by said Continental Company. The guaranty contract alleged to have been executed by Goldstein Company is as follows:

“Jan. 6, 1917.

“Woods Lumber Company,

“Beverly Hills, Calif. f ‘ Gentlemen:

“This is to confirm conversation Mr. Woods had with B. Goldstein on the afternoon of the 4th inst., guaranteeing the payment of all bills which you have or will have against the Continental Producing Co., 650 S. Broadway St., city.

“Tours very truly,

‘ ‘ Goldstein Company, Los Angeles, Ino. .

“By L. C. Abmbrust, Secretary.”

The answer alleged that the guaranty contract above set forth was given without consideration and for accommodation only; that the officer of defendant corporation that executed the same had no authority to do so, and that the guarantee of said Continental Producing Company’s debts was not within the scope of the Goldstein Company’s business. The court below made findings to the effect that the guaranty contract was given for a valuable consideration; that the officer who executed it was duly authorized to do so, and that the making of said guaranty contract was within the scope of the said Goldstein Company’s corporate powers.

The appellant claims that the evidence shows: (1) That the contract of guaranty was not within the scope of the powers of the corporation as set forth in its articles, nor in direct furtherance of its business, and consequently that it is ultra vires. (2) That the said Goldstein Company received no benefit from the making of said guaranty and is therefore not estopped to assert that it was ultra vires. (3) That the officers who executed the contract had no authority to bind the corporation thereby.

The articles of incorporation of Goldstein Company stated that it was incorporated “to manufacture, . . . buy, sell, lease, or otherwise acquire, and generally deal in all kinds of goods, wares, merchandise, and property of every class and description; to construct, purchase, lease or otherwise acquire, . . . operate, 'maintain and conduct theaters, concert-halls, and amusement places of all kinds and descriptions; to manage theatrical, concert-hall and vaudeville companies of all kinds; . . . and to purchase, own, produce and present theatrical plays, operas and exhibitions of all kinds.” The principal business in which the Goldstein Company was engaged at and before the making of this guaranty was the selling and renting of costumes to persons engaged in the operation of theaters or shows and to-persons engaged in the manufacture of films for moving picture shows. The Continental Producing Company was engaged in manufacturing films for the production by moving pictures of a play entitled “The Spirit of ’76.” On May 31, 1916, the Gold-

1. The articles of incorporation of Goldstein Company gave it power to make films for moving picture plays and to exhibit them to the public and also to build structures for the purpose of making such films. This fact, however, did not empower it to guarantee the obligations of other persons or corporations engaged in such business. It was not authorized to make contracts of guaranty as an independent business. It had no express power to make such contracts. The guaranty in question can be» upheld as binding upon it only upon the theory that under/M the circumstances existing at the time it was within its] implied powers.

[1] A corporation engaged in carrying on a business i which it is authorized .to do by its articles and the law I under which it is organized has implied power to ma ke all contracts which are “essential to the sueccessful prosecution of the business” (Civ. Code sec. 354, subd. 8; Bates v. Coronado B. Co., 109 Cal. 163 , [ 41 Pac. 855 ]; Mercantile Trust Co. v. Kiser, 91 Ga. 636 , [ 18 S. E. 358 ]), or the making of which is an appropriate means by which it may be “reasonably expected that the business inf which the corporation is engaged will be advanced ” (Depot R. Synd. v. Enterprise B. Co., 87 Or. 560 , [L. R. A. 1918C, 1001, 170 Pac. 294 , 171 Pac. 223 ]), or which are,, “necessary and helpful to the conduct of its authorized| business” (Timm v. Grand Rapids B. Co., 160 Mich. 371 , [ 27 L. R. A. (N. S.) 186 , 125 N. W. 357 ]), or which tends directly to promote the business authorized by its | articles and which it is doing. (Kraft v. Brewery Co., 219 Ill. 205 , [ 76 N. E. 372 ]; Central L. Co. v. Kelter, 201 Ill. 503 , [ 66 N. E. 543 ]; Blue Island B. Co. v. Fraatz, 123 Ill App. 26 ; Horst v. Lewis, 71 Neb. 365 , [ 98 N. W. 1046 , 103 N. W. 460 ].)

[2] The question whether or not a contract of guaranty comes within, the reasons above mentioned is one which is to be primarily “determined by the corporation, or

For illustration: A sawmill corporation may guarantee bonds of an auxiliary railway corporation formed to build a railroad penetrating the country from which the' sawmill company expected to obtain its timber. (Mercantile Trust Co., v. Kiser, supra.) A brewing company can lawfully guarantee the payment of rent of a saloon-keeper who has agreed to sell the beer of the brewing company exclusively, or the rent of a hotel which was one of the brewing company’s customers, or the bond required by the state law of a liquor dealer who was one of its customers, or notes of a saloon-keeper to obtain money from a third person for the erection of a saloon building in which he had agreed to sell exclusively the beer of the guarantor, or when by such contract the brewing company creates for itself a new customer and an additional outlet for its product. (Depot R. Synd. v. Enterprise B. Co., supra; Winterfield v. Cream City B. Co., supra; Timm v. Grand Rapids B. Co., supra; Kraft v. Brewery Co., supra; Blue Island B. Co. v. Fraatz, supra; Holm v. Lipsius B. Co., 21 App. Div. 204 , [ 47 N. Y. Supp. 518 ]; Koehler v. Reinheimer, 26 App. Div. (N. Y.) 1 ; Horst v. Lewis, supra; Miller v. Northern B. Co., 242 Fed. 164 ; McQuaide v. Enterprise B. Co., 14 Cal. App. 315 , [ 111 Pac. 927 ].) A lumber company may become surety on the bond of a building contractor to induce him to purchase of the lumber company the lumber used in such building. (Central L. Co. v. Kelter, 201 Ill. 503 , [ 66 N.

[3] The case presented by the record comes clearly within the principle of the first-mentioned cases. The Goldstein Company was in the business of selling theatrical costumes and had a pending contract with the Continental Company for the sale of a large amount of such costumes, presumably for a good profit. It was directly interested in the continuance of the business by the Continental Company and in the success of the enterprise of producing the proposed play. The circumstances are such as to create the inference, which the court might reasonably have drawn, that the payment of the expenses of the Continental Company in producing the film for the play, including the price of the costumes aforesaid, was very largely dependent upon its completion and its successful production. The expressed purpose of the Lumber Company to refuse further credit to the Continental Company threatened to stop the entire enterprise, both that of the Continental Company in manufacturing the film and that of the Goldstein Company in selling 'the costumes therefor. The manager of the company reasonably concluded that this could only be prevented by making the guaranty in ¡ question. In a business view the guaranty appeared to be ! essential to enable the Goldstein Company to obtain payments upon its contract with the Continental Company. It was to be reasonably expected that the making of the guaranty would advance the business of the- Goldstein . Company and would secure to it the payment of the debt ; that would be due to it from its customer, the Continental Company. It was a thing helpful to the conduct of its business and tended directly to promote the same. All of these things are held in the foregoing cases to be ¡sufficient to bring the contract of guaranty within the scope of the implied powers of a corporation. We are of the opinion that the guaranty was a valid contract of the Goldstein Company.

[4] 3. Under the circumstances shown by the evidence, it was not necessary for the plaintiff to prove that the guaranty contract was directly authorized by the board of directors of Goldstein Company, or that it was ratified by them. It was signed by the secretary by the direction of R. Goldstein, the president and business manager of the corporation; the man who, apparently, had the power to direct and control, and who did direct and control, its affairs and business. Woods knew this and relied upon it in accepting the guaranty and furnishing the lumber in reliance upon it. [5] The authority of an officer or agent of a corporation to make contracts in its behalf may be shown by proof of conduct and without resort to the minutes of its board of directors, or even where the minutes do not speak on the subject. “It may be shown by evidence that the person does business for the corporation and on its behalf, as agent, with the knowledge and acquiescence of its directors. . . . The company, in such a case, is bound by Ms acts within the scope of the business intrusted to him.” (Venice v. Short Line etc. Co., 180 Cal. 447 , [ 181 Pac. 658 ].) “If a corporation allows its officers to conduct its business and third persons act upon the apparent authority thus shown, it cannot defeat the rights of such persons arising from transactions done and completed under such ostensible authority by failing to enter upon its minutes any order giving its officers authority to act.” (Fowler Gas Co. v. First Nat. Bank (Weber), 180 Cal. 471 , [ 181 Pac. 663 ], citing Fresno etc. Co. v. Southern Pac. Co., 135 Cal. 202 , [ 67 Pac. 773 ]; Blood v. La Serena L.

Olney, J., and Lawlor, J., concurred.