Schurr v. New York & Brooklyn Suburban Investment Co. — 45 N.Y. St. Rep. 645

Majority

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Samuel Schurr, Resp’t, v. The New York & Brooklyn Suburban Investment Company, App’lt.^[1]

(New York Common Pleas, General Term,

Filed April 4, 1892.)

Headnote

1. Corporations—Ultra vires not available as a defense against an EXECUTED CONTRACT,

A corporation organized for the purpose of “ purchasing, taking, holding, possessing, selling, improving and leasing real estate and buddings, manufacture, purchase, lease, sale, use of building stone, lumber and other building material,” contracted to have organized two corporations to carry on its operations on land owned by it. In an action to recover for the services rendered under the contract, Held, that though the contract was ultra vires, it was not available as a defense, the contract having been executed.

:2. Ratification of unauthorized contract bt board of trustees.

In such case, the board of trustees of the defendant corporation, by

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formal and unanimous action, adopted and confirmed the contract, which made it obligatory upon the defendant, even if otherwise ineffectual to bind it.

Appeal from judgment of the general term of the city court of New York, affirming judgment for plaintiff.

Action on contract.

Abraham H. Sarasohn, for resp’t; Francis R. Van Vechten, for app’lt.

The judgment is assailed upon two grounds; first,, because the contract in suit was ultra vires and so void; and secondly, because if within the power of the defendant corporation, the contract was not made by its authority.

The defendant corporation was organized under the act of 1848 as amended and supplemented by subsequent statutes, and for the “ purpose,” as avowed in its charter, “ of carrying on the business hereinbefore mentioned," namely, “ purchasing, taking, holding, possessing, selling, improving and leasing real estate and buildings, manufacture, purchase, lease, sale, use of building stone, lumber and other building materials.” The contract alleged as the foundation of the action is an agreement by defendant to pay plaintiff a certain sum for work, labor and services “ in organizing two stock companies or corporations to carry on their operations in the place ¡known as Belleport, Suffolk Co., N. Y., said place being owned by defendants.”

Upon the point of the competency of the defendant to make the contract, the argument of respondent is, “That the object of the corporation being to improve, sell and lease real estate, a contract with plaintiff to organize stock companies on its land so as to increase its value, is certainly not ultra vires.” Notwithstanding the confidence with which the conclusion is announced, we are of opinion that it is a non sequiiur.

“ In addition to the powers enumerated in the first section of this title, and to those expressly given in its charter, or in the act under which it is or shall be incorporated, no corporation shall possess or exercise any corporate powers, except such as shall be necessary to the exercise of the powers so enumerated and given.” 2 N. Y. Rev. Stats. (7th ed.), 1531. And that this statutory definition of corporate power is but an enactment of the common law principle,.is settled by repeated adjudication. Head v. Providence, Ins. Co., 2 Cranch, 127 ; Thomas v. R. R. Cc., 101 U. S., 71 , 82; Curtis v. Leavitt, 15 N. Y., 9 , 54; Halstead v. Mayor, 3 id., 430, 433. Such being the limitation upon corporate power, in order to the validity of a corporate contract, it must be either within the express terms of the constitutive instrument, or else implied, as “necessary to advance the objects of the corporate creation,”’ Legrand v. The Mercantile Association, 80 N. Y., 638 , or, less stringently “as incidental to the objects for which the corporation is created." Green Bay etc., R. R. Co. v. Union Steamboat Co., 107 U. S., 98 .

That authority to engage in the business of organizing' other corporations is neither necessary or incidental to the charter objects

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of the defendant company is a proposition too plain for plausible dispute. 27o doubt the erection of factories on defendant’s land would tend to enhance its value; but obviously, not any and everything that so tends is necessary or incidental to the charter objects of the corporation. The contract in controversy was entirely beyond the scope of defendant’s business and powers. Moss v. Averell, 10 N. Y., 449 , 460, arguendo; Northwestern Union Packet Co. v. Shaw, 37 Wis., 655 ; 19 Am. Rep., 781 ; Weckler v. Bank, 42 Md., 581 ; Barry v. Merchants' Ex. Co., 1 Sandf. Ch., 280 , 289; Davis v. R. R. Co., 131 Mass., 259 ; Diligent Fire Co. v. Commonwealth, 75 Pa. St., 291 ; Le Couteulx v. Buffalo, 33 N. Y., 333 ; Auburn, etc., v. Douglass, 9 id., 444 ; Fertilizing Co. v. Hyde Park, 97 U. S., 659 ; Thomas v. R. R. Co., 101 id., 71.

But respondent submits that, though the contract in suit be void as ultra vires, still it is not open to defendant, who has received the benefit of it, to resist its enforcement by the plaintiff, who has expended his labor on the faith of its validity.

Since the plaintiff is conclusively presumed to know the limits of defendant’s powers Alexander v. Cauldwéll, 83 27. Y., 480, it might be difficult to understand how, consistently with familiar principles, he can be permitted to say that he acted upon the faith of the validity of the contract; i e. in the belief that it was not in excess of the corporate powers. The defense of ultra vires is proposed to be excluded by operation of an estoppel; but the authority of a corporation to contract, depends on the construction i; of its charter, and that is matter of law. But a mistake of law merely, cannot be the foundation of an estoppel, because, since all are conclusively held to know the law, the party alleging the estoppel cannot pretend to have incurred detriment by reliance on a misunderstanding or misrepresentation of the law. Ignarantia juris, quad quisque scire ienetur, neminem excusat is an operative principle throughout the whole province of jurisprudence. Broom’s Maxims, 253.

Furthermore, if the fact that a contract beyond the power of a corporation has been performed suffice to preclude the defense of ultra vires, then manifestly all legal restraint on the powers of corporations is virtually of no effect.

Upon principle, therefore, it might be supposed that the defense of ultra vires is as available against an executed as against an executory contract; but, in this state at least, the law is conclusively to the contrary. Whitney Arms Co. v. Barlow, 63 N. Y., 62 ; Ellis v. Howe Co., 9 Daly, 78 .

The inquiry then is: Was the contract in suit made by the defendant corporation?

To sustain the negative of the question the appellant relies on the authority of People's Bank v. St. Anthony's R. C. Church, 109 N. Y, 512 ; 16 St. Rep., 856 . But the evidence lacking in that case and upon the defect of which the decision turned was supplied in the case before us. If the original engagement of the plaintiff was void for want of a contract by the trustees acting as as a board, exhibit 3 shows that as a board they ratified the employment, and as a hoard promised to pay him the money which

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he has earned and for which he recovered the judgment. By § 3 of the act of 1848 power to “manage the concerns ” of the defendant corporation is vested in the trustees; and by formal and unanimous action as a board they adopted and confirmed the contract, which if otherwise ineffectual to bind the defendant, thus became obligatory upon it.

Judgment affirmed, with costs.

Daly, Oh. J., and Bischoff, J., concur.