author: Mr. Justice Barnes

text:
    William Bross Lloyd and Henry Demarest Lloyd, Trustees, Appellees, v. John Bross Lloyd, Individually and as Trustee, Appellant.
    Gen. No. 32,980.

      Opinion filed April 30, 1929.
    Rehearing denied May 13, 1929.

      Reilly and Harrold, for appellant.
    Scott, Bancroft, Martin & MacLeish, for appellees; John E. MacLeish, Leland K. Neeves and Fred Schroeder, Jr., of counsel.
   Mr. Justice Barnes

delivered the opinion of the court.

This is an appeal from, a decree adjudging that $253,750 received by the trustees under the deed of trust here involved constituted funds which were part of the corpus of the trust estate and did not constitute income payable to appellant, the life beneficiary.

The trust is a voluntary one. The corpus constituted property which belonged to appellant, John Bross Lloyd, in his own right prior to its creation. The trust deed, dated June 19, 1913, provides:

“The trustees shall pay over the net income of said property or so much thereof as said John Bross Lloyd requests, for his maintenance, support, education and enjoyment at convenient intervals not exceeding (3) months apart.”

Included in the trust property at the time of the creation of the trust were 125 shares of the Tribune Company. Said company was organized under a special charter in 1861, and throughout its entire existence has had a capital stock of $200,000, divided into 2,000 shares of $100 each.

When said trust was created the Tribune Company owned a plant and office building' located on property it held under leaseholds at Madison and Dearborn streets, Chicago. The building was erected in 1902, and took the place of a previous building owned by the company on the same site. It was originally twelve stories in height and subsequently was increased to seventeen. Part of it was used by the company itself and part was rented for revenue purposes, the proportion being about half and half.

In 1920 the Tribune Company erected what is known as “The Tower Building” on Michigan avenue, and by 1925 had substantially completed the removal of its ' plant from the Madison and Dearborn site to the Michigan avenue site. It then disposed of the Madison and Dearborn site, building and leaseholds, and distributed' the proceeds of the sale tó its stockholders pursuant to the following plan adopted and affirmed by its stockholders and directors.

It first arranged with one Stone and one Keplinger for a sale of the property at $4,060,000. A new corporation — the Dearborn and Madison Building Corporation — was then organized and the property was conveyed to it for 40,600 shares of its capital stock. These shares of stock were then divided in the form of a dividend of the Tribune Company pro rata among its stockholders, and, as contemplated by the original scheme, Stone and Keplinger purchased directly from the Tribune stockholders at $100 a share the stock of the new corporation so distributed. In such distribution the trustees of this trust received 2,537% shares of the stock of the corporation for which they were paid by said Stone and Keplinger $253,750 in cash. Whether said stock or the cash received therefor by the trustees constitutes corpus of the trust estate or income is the question which the bill filed by the trustees herein seeks to determine. If the former, it undoubtedly belongs- to the remaindermen, if the latter, it belongs to appellant, the life tenant.

The foregoing method of procedure and distribution was had pursuant to resolutions by both the stockholders and the directors of the Tribune Company that when a conveyance had been consummated and the stock of the building corporation received by the Tribune Company it should be reissued and delivered to the stockholders of the Tribune Company pro rata according to their respective holdings “as a dividend . . . out of the last accumulated earnings of this corporation.”

In contending that such dividend constitutes income, appellant not only urges that it must be determined from such action by the company and that it is conclusive, citing cases adopting the Massachusetts rule hereinafter referred to, but contends that regardless of the rule the following facts support that conclusion.

On the books of the Tribune Company the $4,060,000 was charged against surplus. Of that sum $2,486,-857.12 was charged as profit on the sale of the building. Exclusive of such profit the books disclosed that the net profit of the year 1925, when the distribution was made, was $6,042,255.93. At the end of that year only the unchanged capital of $200,000 stood charged as such, and $14,999,080.71 was charged against surplus. In the same year the Tribune Company declared another cash dividend of $2,400,000. Even had there been no such sale a cash dividend for the same amount as the stockholders realized therefrom would not have exhausted “the last accumulated earnings of this corporation” nor have entrenched upon its capital.

On the other hand, appellees contend that whether the surplus was large enough to pay such a dividend in cash is entirely immaterial as the distribution was in fact of proceeds derived from the sale of the company’s building and leaseholds, and that whether the dividend thereof was of capital or income must be determined by the facts underlying the transaction, as to which the statement of the directors in taking corporate action is not necessarily conclusive, citing Robertson v. de Brulatour, 188 N. Y. 301; United States Trust Co. v. Heye, 224 N. Y. 242, 120 N. E. 645; Heard v. Eldredge, 109 Mass. 258; D’Ooge v. Leeds, 176 Mass. 558, 57 N. E. 1025, and other cases. In this connection appellees stress the following facts: That the ground under the building so sold was held by the Tribune Company prior to the sale under certain long term leases which represented an investment of $162,000; that the company was duly authorized to purchase some of these leaseholds and to pay for the same out of funds in possession of the company; that the balance sheets showed the investment in the building, exclusive of the leaseholds, to be over $1,775,000 on December 31, 1902; that in that year the stockholders by resolution authorized the officers of the company to borrow over $500,000, and the directors provided by resolution that after May 1, 1902, one-half of the surplus earnings should be divided among the stockholders pro rata, and the remaining one-half should be put in the building fund authorized in 1899 which amounted to a little over $520,000 June 30, 1901. The fund, however, had disappeared from the balance sheet December 31, 1902. Whether it went into the surplus or the building in question does not appear, and, is as we think, immaterial. It is urged that the books show that the earnings for the two years, 1901 and 1902, not’ distributed in the form of dividends were not sufficient to account for the increase in the investment which with leaseholds amounted to approximately $1,775,000, and the cost of the building was brought up to over $2,100,000 by December 31,1924. ¡Reference is made to the fact that the company had no other printing plant until about 1913, when it acquired other property for its colored press work, and that after the company moved into its new plant on North Michigan avenue it still printed paper in the former building until some time in 1925, when all of the departments except the “Want Ad” department were moved into the new quarters. Presumably, having sold the property, the space for that department was rented.

From these facts appellees argue that the money put into the leasehold and the building was capitalized and that its character as capital was not changed by the sale and the distribution of the proceeds whether denominated as cash or earnings.

The conflict over the right to dividends as between a life tenant and a remainderman has given rise to a wide variety and difference of opinion (De Koven v. Alsop, 205 Ill. 309; 14 C. J., sec. 1255), and has resulted, in different rules for determining the question. They are discussed and distinguished by the courts and in textbooks as the Massachusetts rule, the Pennsylvania rule, the Kentucky rule, and the rule of England— which, however, is now the same as the Massachusetts rule (14 C. J., sec. 1263). Some States follow one and some another. This. State follows the Massachusetts rule (Alsop case, supra; Blinn v. Gillett, 208 Ill. 473; Billings v. Warren, 216 Ill. 281), as do many other States, and as does the Supreme Court of the United States. (Gibbons v. Mahon, 136 U. S. 549.) The leading Massachusetts cases in which the rule is laid down are Minot v. Paine, 99 Mass. 101; Leland v. Hayden, 102 Mass. 542; Rand v. Hubbell, 115 Mass. 461; D’Ooge v. Leeds, 176 Mass. 558, 57 N. E. 1025; Lyman v. Pratt, 183 Mass. 58. In substance the rule is that whether a dividend is to be regarded as income, and, as such, property of a life tenant, or as capital belonging to the remainderman, “is to be determined by the substance and intent of the action of the corporation” in declaring the dividend, or to use the precise language of the Rand case, “as shown by its vote,” or as said in the Gibbons case, supra, “as manifested by its vote or resolution. ’ ’

That the substance and intent of the action of both the stockholders and directors, as evidenced by their resolutions and vote, wére to treat the proceeds from the sale of the building and leaseholds — for which it evidently had no further use in the conduct of its business or as an investment — as income from its accumulated earnings, and to declare a dividend thereof to its stockholders to be realized by them under the arrangement aforesaid in cash, and thus the same as if it had been declared in the form of cash from said earnings, is hardly open to question. Accordingly, observing the Massachusetts rule, in force in this State, we should treat the dividend as income. As said by Mr. Justice Gray in the Gibbons case — which is followed in the Alsop case: “Whether the gains and profits of a corporation should be so invested and apportioned as to increase the value of each share of stock, ... or should be distributed and paid out as income, to the tenant for life or for years, excluding the remainder-man from any participation therein, is a question to be determined by the action of the corporation itself, at such times and in such manner as the fair and honest administration of its whole property and business may require or permit.” No question of good faith or rights of third parties arises in this case. Nor are we dealing here with a stock dividend as was the fact in many of the cases cited in the briefs. The fact that the declaration of the dividend was in the form of stock of another corporation does not affect the question. Had the directors' declared a dividend of shares of stock in the Tribune Company there would be no doubt that the dividend would constitute capital. But being stock of another corporation it may be treated as cásh as was manifestly intended. (Old Colony Trust Co. v. Jameson, 256 Mass. 179, 152 N. E. 52; Gray v. Hemenway, 212 Mass. 239; Gray v. Hemenway, 223 Mass. 293.)

To go back of the corporate action into the accounts and affairs of the company and attempt to trace the dividend to its origin presents the very difficulties and inconveniences, to avoid which said rule has been adopted. The reason for the Massachusetts rule is that it would be impracticable for the courts, in determining the comparative rights of different persons in a particular share of stock, to go behind the vote of the corporation and its directors, in order to ascertain how the corporation acquired the funds out of which the dividend was declared. (Minot v. Paine, 99 Mass. 101, 111; Rand v. Hubbell, 115 Mass. 461; Coolidge v. Grant, 251 Mass. 352, 354; Gibbons v. Mahon, 136 U. S. 549, 559; Smith v. Dana, 77 Conn. 543.) Discussing the question in the Gibbons case the court quoted with approval from Williams v. Western Union Tel. Co., 93 N. Y., 162, saying: “When a corporation has a surplus, whether a dividend shall be made, and if made, how much it shall be, and when and where it shall be payable, rest in the fair and honest discretion of the directors uncontrollable by the courts,” and whether the dividend “shall be made in cash or property must also rest in the discretion of the directors.” (p. 564.) In other words, the determination of the matter is left under the rule to the directors because it is deemed that too much difficulty, uncertainty and inconvenience would attend the practical operation of a test requiring the court to go back of the vote of the corporation and investigate its accounts and affairs in order to trace the origin of the particular fund distributed as earnings.

Appellees, however, cite expressions from some of the Massachusetts cases, which taken by themselves apart from the particular facts of the case where used do not apparently harmonize with the rule in its literal form. In the Heard ease it was said, “it is more safe to look at the character of the property than at the transaction”; and in the H’Ooge case, supra, that “the substance and not form is regarded”; and in Talbot v. Milliken, 221 Mass. 367, 108 N. E. 1060, that the court always looks at the substance of the transaction rather than at its form, and if in its essence the payment is one out of capital, it is treated as such no matter how it may "be denominated. However, when these expressions are considered with reference to the particular facts of the case, they disclose no intention to depart from the rule aforesaid followed in that State. As said in one of the cases, no difficult process was necessary to ascertain the elements that entered into the dividend. In the Heard case it consisted of cash received by the corporation for real estate unquestionably forming part of its capital which was taken under the right of eminent domain. In the Talbot case it became necessary to interpret the “vote” which referred to “a distribution” and not “a dividend.” In the D’Ooge case the property always was capital in the business up to the time of its distribution and so declared to be. The quoted expressions above were appropriate to the particular facts before the court which presented hardly any ground for difference of opinion as to the character of the property distributed. It would be hardly profitable to discuss the distinguishing features of the numerous cases cited.

But even the facts disclosed in appellees ’ attempt to trace the origin of the funds that went into the building and leaseholds do not reveal that they came from the company’s original capital or assets it had capitalized or treated in its books and accounts as capital. The facts are equally consistent with the theory of investment or reinvestment of the company’s accumulated earnings. (Smith v. Cotting, 231 Mass. 42, 48.) We do not find from the evidence adduced that either the building or the leaseholds were ever carried into the company’s capital account, or any other fact by which they would seem to be impressed as capital ex-' cept the form of the investment, which of itself,-however, is not determinative of its character.

However, it is argued by appellees that because it appears without such an investigation that the dividend was for the precise amount of the proceeds from the sale of the building and leaseholds it was in substance a distribution of capital assets. This contention -involves the theory that when accumulated earnings •were put in the building and leaseholds — as the evidence seems to disclose was the fact — they were capitalized and that “when once capital always capital.” (Hemenway v. Hemenway, 181 Mass. 406.) Discussing this question and the distinctions in the use of the. word “capital” in Smith v. Dana, 77 Conn. 543, 553, the court had under consideration the distribution of the proceeds of the sale of an electric light and gas plant which had been operated by a corporation, but was taken over by a city under the power of eminent domain. It said: “The quality and incidents of surplus, however invested or employed, are not the same as those of capital, within the strict meaning of that word,” and that while in its strict meaning it may be said ‘ ‘ once capital always capital, ” it is not so of distributed profits or surplus in any form. The court went on to say:

“The manner of utilization may be changed, investments altered, permanent property sold and turned into cash, ... all at the discretion of the directors, with no such artificial consequences that the assets thus employed change their character as the result of the process. Investment in permanent works does not and ought not to capitalize. Directors can, in their discretion, fairly exercised, withhold profits and employ them in the conduct or enlargement of the business. By the same right they ought to be able to, and can, withdraw from any action which will enable the assets thus employed to be returned to their original condition as funds available for distribution to those to whom they might have been originally divided as dividends. Capital of this kind does not bear the perpetual stamp of capital. It simply constitutes a portion of the corporate assets which are within the discretionary control of the directors, which they may use for the corporate advantage in such ways as have the approval of their judgment, or, if that course seems wiser, cease using and by proper action withdraw from the corporate resources.” (p. 354.)

The court went on to say in substance that where invested surplus has been created by the lawful fiat of directors it would seem fair that its return by the same means to its original status should be as possible as its first transition, and that when transformed back into cash and a cash dividend declared therefrom the benefit of that dividend should be dependent upon the final act of the directorate, and that the Massachusetts rule adopted in that case rests upon that proposition.

This clear exposition of the subject seems to us sound and practicable, and a justification of the rule on which it is founded. We shall not undertake to quote from other authorities holding that an accumulated surplus invested in permanent works is not necessarily capital beyond the recall of the directors. Authorities so holding are Thomas v. Gregg, 78 Md. 545; Robertson v. de Brulatour, 188 N. Y. 301; Gray v. Hemenway, 223 Mass. 293; Bryan v. Aiken, 10 Del. 1, 86 Atl. 674, 677. The last cited case deems it as settled law that although a corporation has the right to set apart or reserve a portion of its net earnings for a period of years, and treat it as capital, yet when it subsequently divides such net earnings among its stockholders it is a distribution of profits.

We recognize that there is a great diversity of opinion on this subject. But if the Massachusetts rule adopted in this State be adhered to we should give to the vote of the directors the weight it .is entitled to under the rule, and there being no doubt as to the substance and intent of their action the dividend must be deemed income. On the other hand, the inconvenience and difficulty in reaching a different conclusion by entering into an examination of the company’s accounts and thereby undertaking to trace the dividend to its origin leads to the very conditions which under the reason of the rule justifies its adoption.

No other conclusion would be reached by inquiring into the character of the property at the inception of the trust, or by discussing definitions of “net,income.” .The fundamental principle involved is whether there was a distribution or division of earnings, profits or accumulations of the corporation. And we find nothing in the facts of the case that is repugnant to the Massachusetts rule for determining the character of the distribution.

Appellees characterize the dividend as “extraordinary” and cite authorities from jurisdictions which make a distinction between extraordinary and ordinary and current dividends. But we deem the distinction irrelevant. ' Under the Massachusetts rule the fundamental question is whether it is capital or income. While the dividend is extraordinary in amount it can hardly be deemed extraordinary for the Tribune Company in the sense in which it is characterized as such. The year before it was declared that company declared a dividend of $2,600,000; the year before that for $3,311,000, and the year before that for $3,500,000. In those years it added over $4,350,000 to its surplus and still had a large amount left therein undistributed.

We feel constrained, therefore, to follow the Massachusetts rule and consequently to reverse the decree and to remand the cause for entry of a decree in conformity with the views herein expressed.

Reversed and remanded with directions.

Gtridlby, P. J,, and Scahlan, J., concur.


source: Caselaw Access Project

license: Public Domain

text:
    Henry T. Talmadge and Jacob H. Van Deventer, trading as Henry Talmadge & Company, Appellees, v. Clewiston Iron Company, Communipaw Company and Clewiston Company, Inc., Defendants. Clewiston Company, Inc., Appellant.
    Gen. No. 33,137.

      Opinion filed April 30, 1929.
    Alden, Latham & Young, for appellant; Charles Martin, of counsel.
    Chapman & Cutler, for appellees; John E. Tracy and Charles M. Thomson, of counsel.
   Mr. Justice Barnes

delivered the opinion of the court.

This is an appeal from a judgment for $25,218.50 against the Clewiston Company, Incorporated, the only defendant served with process or appearing in the case.

The suit is based on four promissory notes executed by the Clewiston Iron Company, three for $5,000 each, and one for $7,500, dated October 17, 1925, payable January 15, 1926, to the order of Communipaw Company, and indorsed by the maker, by ‘ ‘ Clewiston, Limited” (the then name of appellant) and by the payee in the order mentioned.

Plaintiffs allege in their pleading that they were purchasers of the notes before maturity for a valuable consideration and that the notes were duly protested for nonpayment. Appellant’s pleading denies these averments of consideration and protest and alleges that it was an accommodation indorser, of which plaintiffs had notice, without consideration, and that its indorsements are ultra vires and void. The cause was heard without a jury.

The material facts are not controverted. Their construction, however, is.

Appellant is a Florida corporation. At the time of the transaction in question its name was “Clewiston, Limited.” Its name had been changed to Clewiston Company, Incorporated, at the time of this action. Its charter powers are numerous and comprehensive. They will be, referred to more specifically later. Its primary object, however, was to establish and develop a town site and certain means and enterprises calculated to promote its development and the sale of appellant’s lots therein. Under its powers it had founded a town site called “Clewiston” in the interior of southern Florida which embraced nearly 3,000 acres divided into about 10,000 lots having a sale price of over $14,000,000. At the time of the transaction in question (October, 1925) the work at the town site had developed to the point where permanent buildings could be constructed.

One Bussell B. Smith was its general manager. His plan of development contemplated installing certain key industries and granting subsidies for that purpose, including means of transportation, an electric light and power plant, a steel fabricating plant and other lines of industry possessing features deemed necessary for the development of the town site. With this scheme in mind Smith met in New York one Lusk, who was the president and principal stockholder of the Communipaw Company which owned a structural steel plant in New Jersey. After certain conferences they came to an understanding and agreement — as evidenced by three letters dated October 15,1925, from appellant by Smith, its manager, to Lusk — by which Lusk was to form a new corporation named the Clewiston Iron Works under Florida law, acquire said plant and machinery, assign the same and his interests to said new company in consideration of all its stock (which he subsequently obtained), remove and set up the equipment in Clewiston not later than November 1,1925, and provide a working and executive personnel for its operation, Lusk to manage its affairs as its president, and the new company to purchase a specific block reserved for it in Clewiston by appellant. Smith was to submit notes of the new company of the amount and form of those in question to appellant for indorsement “in consideration of prompt establishment of equipment at Clewiston,” and to effect the movement and installation appellant’s check for $1,250 was issued, and its additional checks were to be issued to cover the expenses of moving and installing the machinery at Clewiston, and for a working and executive personnel of the plant, for which the new company was to give notes to appellant, such expenses not to exceed $25,000. All these notes were to be held by the payee or nominee until purchased by the organization “now forming for the purpose of assisting the establishment of industries at Clewiston.” If there was any such organization it does not appear in the evidence. We think, however, that proof on that subject was not essential to the cause of action. The third letter said certain delays in acquiring a Florida charter might occur and that in the meantime a Delaware corporation named Clewiston Iron Works would be substituted. Just what was done about substitution does not appear and is seemingly immaterial. Pursuant to such understanding, the notes in question dated October 17, 1925, were executed in the name of ‘ ‘ Clewiston Iron Company” by its president and by its treasurer, and were also indorsed in the same manner. When and how the new company was chartered and organized was not shown, but it appears to have functioned as a regular corporation and to have purchased from the Communipaw Company, pursuant to the arrangement outlined in said letters, its machinery and plant, paying therefor by executing the notes in question and other notes payable to Lusk personally. The notes in question were delivered to Smith who forwarded the same to appellant’s principal office in Chicago for indorsement, where they were indorsed as aforesaid by its vice president and its treasurer. After indorsement appellant’s vice president on October 23, 1925, sent the notes directly to Lusk with an accompanying letter saying that they were sent at the request of Smith in connection with the deal as outlined in Smith’s three letters to Lusk under date of October 15, 1925. Their purpose seems to have been well understood by the company.

. The notes in question were given by Lusk October 27, 1925, to plaintiffs, a banking firm which had business dealings with and had advanced money to the Communipaw Company on its accounts receivable, and which credited on its books the amount of the notes against the indebtedness of that company to plaintiffs for about $100,000. Plaintiffs were informed that they were given for the purchase price of the machinery of said company. They had not, however, seen the contract therefor and first knew only from the notes to whom the sale was made. At that time the Communipaw Company practically ceased doing business. Plaintiffs were its principal creditors and evidently expected and understood that said company was to dispose of its assets and apply the proceeds on such indebtedness.

After transfer of the machinery to the Clewiston Iron Company, of which Lusk became president, the machinery was dismantled and boxed for transportation. A shipment of three cars was made October 20, and others followed December 14, 1925. The cost of removing the machinery, including boxing, moving and freight, and the contemplated organization of the working personnel of the new company, amounted to $14,500. The site for the plant had been selected, the foundation and frame of the building set, and said shipments had arrived in Clewiston. The last advance for such expenses from appellant was through its manager Smith, December 6. He resigned about December 17. The $14,500 having been expended and accounted for to Smith, Lusk came to Chicago and applied to Dahlberg, appellant’s president, for additional funds for expenses. He refused any further advances saying he was not going into the iron business. Not having the necessary funds to go on with the work, the installation of the plant in Clewiston was not completed.

Appellant offered no evidence. The cause was submitted to the court on plaintiffs ’ evidence in substance as aforesaid, together with propositions of law by each party.

It appearing that appellant’s indorsement of the notes in question was made prior to their delivery to the payee and the latter’s indorsement — and it would so appear on the notes themselves — plaintiffs rely upon the foregoing facts to show that appellant was not a mere accommodation indorser but that its indorsement was for a valuable consideration. We think the enumerated facts were sufficient to establish that contention, and the real question presented upon the record is whether such indorsement or guaranty was ultra vires.

Upon the above state of facts it is apparent that appellant’s indorsement was in the nature of a guaranty. As indorser, however, it was entitled to due notice of protest, and we think the evidence sufficiently shows that due service of notice thereof was made. The alleged insufficiency of the proof because it merely shows that the notice was dropped in a chute in a building which contained a United States mail box without proving direct connection of the chute with such box, we deem too trivial for discussion. Mail chutes are so generally installed in modern office buildings that one may presumptively use them with assurance of having thereby mailed his correspondence without first making a physical inspection to test their efficiency. We think there was prima facie proof of mailing the notice. (Tobin v. Taintor, 229 Mass. 174.)

As to the contention that plaintiffs did not prove that the officers executing the indorsement had authority to sign it, it is sufficient to say that the pleadings expressly admit the indorsement of the notes by “defendant,” and as defendant’s affidavit of merits did not expressly deny authority to make the indorsement, an issue on that question is not raised. (Richelieu Hotel Co. v. International Military Encampment Co., 140 Ill. 248, 266.)

We ascribe no special force to the power given in appellant’s charter to indorse negotiable notes. We take it. that such power is intended to be exercised mainly if not altogether where such notes are given or taken in the course of the corporation’s legitimate business, and, therefore, affords little assistance in determining the point in question.

The general principle that a corporation has no implied power to indorse notes for the mere accommodation of another even though it may be incidentally benefited thereby is so well settled as not to need citation of authorities. And it is a recognized principle that “it is no part of the ordinary business of commercial corporations, and, a fortiori, still less so of noncommercial corporations, to become surety for others.” (Best Brewing Co. v. Klassen, 185 Ill. 37.) In the decision just referred to the court went on to say: “Under ordinary circumstances,, without positive authority in this behalf in the grant of corporate power, all engagements of this description are ultra vires, whether in the indirect form of going on accommodation bills or otherwise becoming liable for the debts of others.” And it was said in Calumet & Chicago Canal & Dock Co. v. Conkling, 273 Ill. 318: “An implied or incidental power must be directly or immediately appropriate to the execution of the powers expressly granted and not one that has a slight or remote relation to it.” These general principles are set forth in Fletcher’s Ency. of Corporations, vol. 2, secs. 924 — 926. In the latter section it is stated:

“The general rule that a corporation has no implied power to become guarantor or surety is based upon the ground that such a transaction is foreign to the objects of its creation, and not upon the ground that there is an absolute want of power on the part of a corporation to bind itself by such a contract.. The power to act as surety or guarantor exists in the case of corporations, though not expressly conferred, whenever it is necessary to enable them to accomplish the objects for which they are created, or whenever the particular transaction is reasonably necessary or proper in the conduct of their business.”

In Morawetz Priv. Corp. No. 362, it is said:

“ . . . it is impossible to decide abstractly that acts of a particular description are within or without the chartered powers of a corporation. The right of a corporation to perform an act depends in every case upon all the surrounding circumstances.”

It will be noted that in nearly every case arising for the determination of implied corporate powers the language used in defining them is more or less qualified. In the Best Brewing case, supra, the court said: “If the act had been reasonably necessary to accomplish the end for which the corporation was formed, — it would have been within the scope of the corporate power.” In the Richelieu Hotel case, supra, where the hotel had subscribed with others to procure the location of a military encampment in Chicago, it was held to be within the corporate powers of the hotel as “an expedient directly calculated to increase-the number of patrons of the hotel.” But as said in the Brewing Co. case, supra:

“It cannot be held that every act in furtherance of the interests of a corporation is inter vires. Many acts can be suggested which, though beneficial to the business of a corporation, are too remote from its general purposes to be deemed reasonably within its implied powers. What is and what is not too remóte must be determined according to the facts of each case.”

Discussing the question in Northside Ry. Co. v. Worthington, 88 Tex. 562, 30 S. W. 1055, 1058, the court said:

“In every express grant there is implied a power to do whatever is necessary or reasonably appropriate to the exercise of the authority expressly conferred. The difficulty arises in any particular case whenever we attempt to determine whether the power of a corporation to do an act can be implied or not. The question has given rise to much litigious controversy and to much-conflict of decision. It is not easy to lay down a rule by which the question may be determined.”

The court then refers to the rule laid down in Green’s Brice, Ultra Wires, 88:

“Whatever be a company’s legitimate business, the company may foster it by all the usual means. . . . the courts have, however, determined that such means shall be direct, not indirect, i. e., that a company shall not enter into engagements, as the rendering of assistance to other undertakings, from which it anticipates a benefit to itself, not immediately, but mediately by reaction, as it were, from the success of the operations thus encouraged; all such proceedings inevitably tending to breaches of duty on the part of the directors, to abandonment of its peculiar objects on part of the corporation.”

But as indicated in most of the authorities any at- j tempt to lay down a proper line of demarcation be-1 tween powers reasonably necessary to a business, or| usually incident to its transaction, and those which aref not, or to determine what is reasonably appropriate to I1 its conduct, depends upon the particular facts of the! case. Í

It would be impracticable to attempt to distinguish the facts in the various cases cited wherein this question has been considered and with reference to which the courts have drawn a line betwen direct and remote benefits. It is recognized that the authorities are not always harmonious or consistent in their application of the law to the facts. The principles of law are not questioned. The difficulty is in their application to a particular state of facts — or, as said in the Texas case, supra, in determining whether the power of a corporation can be implied or not. As there said: “If they be unusual, and tend in an indirect manner only to promote its interests, they are held to be ultra vires.” On the other hand, as a general rule, if they be immediately appropriate to the primary object of the corporation they will be implied. “Generally the charter powers of land and investment companies are very broad” and liberally construed as to their implied and incidental powers. (Fletcher’s Cyc. Corp., vol. 2, sec. 873.) In the Texas case, supra, a land company having a suburban subdivision near the City of Fort Worth executed bonds jointly with a railway line connecting it with Fort Worth, each company deeming the enterprises mutually beneficial and calculated to increase the value of the lots on one hand, and to make the street railway a paying investment on the other. The issuance of the bonds under such circumstances was held to be ultra vires. On the other hand, another phase of the litigation was considered in Fort Worth City Co. v. Smith Bridge Co., 151 U. S. 294. There the land company entered into an agreement to pay a part of the cost of constructing a bridge that would make its subdivision more accessible, and it was held that the object of the land company would be directly promoted thereby and was fairly incidental to its powers. In Sherman Center Town Co. v. Russell, 46 Kan. 382, 26 Pac. 715, a town-site company donated land and paid a sum of money for the transfer of a business from another town to its town site. It was held to be within the implied powers of the company. In Arkansas Valley Town & Land Co. v. Lincoln, 56 Kan. 145, 42 Pac. 706, a town site company was held liable on its guaranty that a railroad would be constructed and in operation to the town site within a given time. The guaranty was to induce a merchant to remove his store building and merchandise to the town site from a village a short distance away. Irwin v. Colburn, 56 Cal. App. 41, 204 Pac. 551, is a case.where a canning corporation in.consideration of the lessee of a farm, agreeing to raise tomatoes thereon and sell them to the corporation, indorsed the notes of said lessee given in payment of rent for the farm. It was held the indorsement was for a good consideration and within the company’s implied powers. A somewhat similar case is Farmers’ State Bank of Riverton v. Haun, 30 Wyo. 322, 222 Pac. 45. Other pertinent cases in our own courts upholding implied powers are Green Co. v. Blodgett, 159 Ill. 169; Central Lumber Co. v. Kelter, 201 Ill. 503; Midland Tel. Co. v. National Tel. News Co., 236 Ill. 476; Standard Brewery v. Creedon, 283 Ill. 474; Kraft v. West Side Brewery Co., 219 Ill. 205. In the Midland Tel. case, supra, the court said:

“If, however, the debt which it guarantees is a debt the payment of which will redound to the financial benefit of the corporation signing the guaranty, it may be valid and enforcible. . . . And in exercising powers conferred by its charter a corporation may adopt any proper and convenient means tending directly to their accomplishment and not amounting to the transaction of a separate, unauthorized business.”

On the other hand, appellant cites many cases where under different states of facts the powers exercised/ by the particular corporation were held not to be implied. It would subserve no good purpose to discuss-' she distinctions the different states of facts present in the various cases.

Looking to the particular facts of the case at bar we should first inquire, what are the objects and express charter powargjff_ appellant ^corporation ? *

Included among its specific enumera,ted-powérs are acquiring and dealing in realty and personalty in the State of Florida and elsewhere of every nature and description for cash or on credit; to make contracts looking to the development thereof; to engage in works of internal improvements; to construct canals, drains and ditches; to acquire, develop, sell and exchange property of every character; “to construct, maintain, lease and operate buildings and structures of any and all kinds”; to manufacture various timber products and by-products, phosphate and fertilizers, and products and by-products of other enumerated articles; to construct, etc., various transportation facilities or conveniences and to operate the same; to own, operate, lease, hire, use and maintain docks, wharfs, storage facilities, etc.; to indorse negotiable or transferable notes, etc.; to trade in any and all goods, wares, merchandise and property of every class and description. After enumerating these and various other objects and powers of the corporation the charter provides that it may do any and all other acts and things and exercise any and all other powers “which may be deemed necessary, expedient or convenient in connection with or in addition to the business and businesses hereinbefore specified, which a natural person or corporation of this character may lawfully do and exercise,” stating - that it is the intention that all the objects and powers so specified shall, except where otherwise expressed in said paragraph, be in nowise limited or restricted by reference to or inference from the terms of any other.clause of the charter, but that “the objects and powers specified in each of the clauses of this paragraph shall be regarded as independent objects and powers. ’ ’

The comprehensive language employed in the charter might seem almost to include as an express power of the corporation the right to own, operate and build a fabricating steel plant, and if it could do so directly the power to accomplish the same result indirectly would, we think, be implied. If appellant’s charter restricted its object and powers to those of merely acquiring and selling real estate and such powers as are usual or ordinarily incidental to such a business we might hesitate to say that the establishment of a steel plant or extending credit therefor would be within its implied powers because the benefits to be derived therefrom would seem to be too remote and not essential or immediately appropriate to its primary object. But the charter powers of appellant are so broad and comprehensive as to include within their scope not only its right to establish various enumerated industries and facilities but other “business” that would reasonably and directly tend to promote the development of its town site and its power to resort to any convenient and appropriate means for such purpose. If appellant could under such powers construct and operate a steel plant for promoting the development of its town site we think it could hire another to do so or extend credit directly for the accomplishment of that purpose whether it be by a loan or the indorsement of notes given directly for that purpose.

It seems to have been within the scheme for the development of the town site to establish such a plant and various other key industries, especially those which would enable purchasers and contractors to acquire -building materials on the ground, thus saving delays and the cost of transportation. We think we may safely assume from the record that the location of the town site in the interior of Florida at that time presented difficulties of this character that had to be met in order to attract purchasers and induce immigration to the town site. Considering, therefore, all the powers given by appellant’s charter and its various objects it would seem that most of the powers so granted were subsidiary to the general plan of developing a town site in a locality where a fabricating steel plant and other contemplated industries were, if not necessary, reasonably appropriate to the promotion of such plan. That appellant would be directly benefited thereby is entitled to much consideration. (Richelieu Hotel case, supra.) In view of the entire enterprise we would, therefore, hardly deem the establishment of a fabricating plant or the extension of credit therefor in the manner done in this case as too remote from the express objects for which appellant was organized.

We do not think any alleged breach of trust by Lusk with appellant is available as a defense to this suit by plaintiff. But were we to hold otherwise we think the record discloses that appellant was guilty of the first serious breach by its refusal to advance the expenses it had agreed to pay for transporting and setting up the plant and organizing the personnel for its operation.

The burden of proof was on defendant to establish the defense of ultra vires. (Fletcher’s Cyc. Corp., vol. 2, sec. 811; Mayer v. Illinois Life Ins. Co., 211 Ill. App. 285.) We do not think it met that burden. It has been said that the application of the doctrine of ultra vires to the acts of a corporation in suits by individuals yields not only to necessity, “but to transactions incidental to broad powers” (Ellerman v. Chicago Junct. Rys. & Union Stockyards Co., 49 N. J. Eq. 217, 23 Atl. 287), and as before stated generally the charter powers of land and investment companies are very broad, and liberally construed as to their implied or incidental powers. (Fletcher’s Cyc. Corp., vol. 2, sec. 873.)

We think, therefore, the judgment should be affirmed.

Affirmed.

G-ridley, P. J., and Scanlan, J., concur.


author: Mr. Justice Scanlan

text:
    Brennan Packing Company, Defendant in Error, v. Andrew W. Mellon, Director General of Railroads and Agent, Plaintiff in Error.
    Gen. No. 32,883.

      Opinion filed April 30, 1929.
    Follansbee, Shorey & Schupp, for plaintiff in error; Mitchell D. Follansbee, Clyde E. Shorey and John E. Gavin, of counsel.
    Kelly & Murphy, for defendant in error.
   Mr. Justice Scanlan

delivered the opinion of the court.

In the superior court of Cook county, Brennan Packing Company, a corporation, plaintiff, sued Andrew W. Mellon, Director General of Railroads and Agent, defendant, in an action of trespass on the case on promises. The defendant was operating Erie Railroad. There was a trial before the court, without a jury, and at the conclusion of the evidence the issues were found for the plaintiff and its damages were assessed at $13,958.60. Judgment was entered on the finding and this writ of error followed.

Two carloads of “sweet pickled picnic hams” were shipped by the plaintiff from Chicago, Illinois, over Erie Railroad, in July, 1919. The defendant then knew that the shipments consisted of perishable foodstuff. When the meat was received by the defendant, it issued and delivered certain bills of lading to the plaintiff, but as the shipments were intended for export, the plaintiff indorsed and surrendered to the defendant the said bills of lading and requested, in writing, export bills of lading. In the written request the plaintiff directed that the consignee be shown as “To order of Brennan Packing Co. Antwerp, Belgium Notify Palmer and Peeters Antwerp, Belgium . . . Ocean-via— Triangle S. S. Corp. . . . Overseas Shipping Co.” Thereupon, “in lieu of said original bills of lading, ’ ’ the defendant issued, as it was required to do by the Interstate Commerce Act, and the rules and regulations adopted in furtherance thereof, four through bills of lading, two for each shipment. The said bills recite the receipt, in Chicago, Illinois, by the defendant, of the property in question, “marked, numbered, consigned and destined,” as follows: “Consignee and Destination Order Brennan Packing Co. Antwerp Belgium Party to be Notified Palmier & Peeters Antwerp Belgium . . . To be carried to the Port (A) of New York and thence by Triangle S. S. Corp. to the Port (B) Antwerp . . . and to be there delivered in like good order and condition as above consigned. . . .” The bills provide that in consideration of the rate of freight named it is understood that the service to be performed shall be subject to the conditions contained in them. They are signed, “C. D. Turner, Agent, On behalf of carriers severally, but not jointly.” The first carload of the shipment left Chicago over the defendant railroad July 18 and arrived at Croxton, New Jersey, “the terminal yards of the defendant,” July 22, 1919. It was iced by the plaintiff at Chicago, and by the defendant, at plaintiff’s expense, at Hornell, New York, on July 21. The second carload left Chicago July 19 and arrived at Croxton July 23. It was iced in the same way as the first car. This icing was sufficient refrigeration to carry the shipments in good condition from Chicago to Croxton. Neither of the two carloads was iced or “refrigerated” after it left Hornell, New York. On July 24,1919, copies of the bills of lading and a copy of plaintiff’s export declaration were delivered to the Triangle Steamship Company by the defendant. On July 25, 1919, the defendant received from the Steamship Company “a permit to deliver said shipment to Triangle Steamship Company, Steamship ‘Lake Berden’ at pier No. 74 North River, New York, New York, for delivery on to-wit: July 28th, 1919.” On the last mentioned date defendant’s employees removed the meat from the two cars at Croxton and loaded it upon a lighter, owned and controlled by the defendant, which proceeded, on the same day, to pier No. 74, North River, New York City, where the defendant made a tender of the shipments to the Steamship Company. That company “failed to receive the shipments” and directed the captain of the lighter “to hold said shipment on said lighter awaiting receipt,” and the lighter, with the shipments aboard, remained at said pier until August 6, 1919. The shipments were neither iced nor refrigerated during the time they remained on the lighter. It is stipulated that they “were delivered to the Triangle Steamship Company on August 6th.” The delivery took place at the latter’s “Loading Berth, Pier 74 New York,” and the Steamship Company gave to the defendant its “dock receipt” for the shipments. The shipments remained on the dock, and were condemned and destroyed, as the meat had become unfit for human consumption. It was stipulated that “no notification was at any time given to plaintiff by defendant of the failure of Triangle Steamship Company at any time to accept said shipment, and no notice was ever given to plaintiff by the defendant at any time that said shipment was delivered by the defendant to the Triangle Steamship Company on August 6th, 1919,” and it further appears that no notice of any kind was given by the defendant to the plaintiff of the fact that the meat was being held on a lighter in the North Biver and without icing or refrigeration. Other facts, material to the decision of this case, are hereafter stated in this opinion. The ease was tried for the most part upon a stipulation of facts, which established the incidents of shipment, the terms of the contract, the transportation to New York City and occurrences there, as well as the value of the shipments and the fact that they never reached Antwerp, Belgium, and that plaintiff received nothing of value for them. Certain oral and documentary testimony was also offered on the trial.

The defendant, in its brief, argues the following contention only: “The contract of carriage, so far as defendant was concerned, bound the defendant to carry the goods safely to the port of New York and there hold them for delivóry on the order of the Triangle Steamship Company. It was not a through carriage contract, by its terms the Carmack Amendment to the Interstate Commerce Act not applying,” and therefore “limitations of liability by bill of lading was proper.” From the very short argument in its brief it is difficult to understand the exact position of the defendant as to this contention. In fact, the defendant states that “as it is the intention of the plaintiff in error . . . to argue this case orally, the matter set up under this heading will be brief.” However, the position of the defendant, as stated in its oral argument, is plain. In that argument counsel call attention to the following provision in paragraph 3 of part I of “ Conditions ’ ’ in the bill of lading: “No carrier shall be liable for loss or damage not occurring on its own road or its portion of the through route, nor after said property is ready for delivery to the next carrier or to consignee (italics ours) and also to the following provision in paragraph 5 of part I: “Property not removed by the person or party entitled to receive it within twenty-four hours after its arrival at destination (Port A), may be kept in the car, depot or place of delivery of the carrier, at the sole risk of the owner of said property,” and they contend that “these provisions fit the facts of this case and exempt it from liability,” and argue that when the defendant tendered the meat to the Triangle Steamship Company at New York (Port A) on July 28, 1919, “its liability terminated,” under the contract, and its duty to the plaintiff ceased, and that even though the meat was thereafter damaged by the negligence of the defendant the latter is not thereby responsible to the plaintiff, and it must look to the Steamship Company for compensation for the damages it has sustained.

It may be conceded, at the outset, that the defendant, under the bills of lading and the law, would not be responsible for any negligence of the Steamship Company after the shipments had been delivered by the defendant to that company.

In our judgment, under the facts and the law of this case, the defendant was acting as a common carrier until the delivery of the meat to the Steamship Company. Under the Interstate Commerce Act, and the rules and regulations adopted in furtherance of it, the defendant was required to issue to the plaintiff, on its written request, the through hills of lading, and under the said act and the hills of lading it was required to deliver the shipments to the Steamship Company. The lighter on which the meat was loaded from the defendant’s cars on July 28 was the property of the defendant and under its sole control, and it was a part of its system as a common carrier and it was its medium of delivering an export shipment to the “next carrier”— an ocean steamship line. The meat remained on this lighter from July 28 until August 6, 1919. From the time it was delivered to the defendant on July 18.and 19, 1919, until August 6, 1919, at which time it was rotten and unfit for. human consumption, it was in the sole custody and control of the defendant, and it is stipulated that the defendant did not make delivery to the Steamship Company until August 6, and there is nothing in the evidence to indicate an intention on the part of the defendant to renounce the capacity of a carrier after July 28, 1919, and, furthermore, there is nothing in the proof to indicate that the defendant did not acquiesce in the delay which intervened between the time of the tender of the meat to the Steamship Company and the time of its actual delivery to that company. There is no evidence that the defendant made any protest to the Steamship Company in reference to its delay in accepting the meat, and the defendant was apparently willing to deliver it at the convenience of the Steamship Company. Paragraph 11 of part I of “Conditions” in the bill of lading provides for “the delivery of the said property to the steamer, her master, agent or servants, or to the steamship company, or on the steamer pier at the said port.” (Italics ours.) On August 6 the defendant delivered the shipments to the Steamship Company on the latter’s “steamer pier at the said port.” The lighter remained at this pier for nine days, with the shipments aboard, when the defendant had the right, under the bill of lading, to deliver the shipments on this pier on July 28. We note that paragraph 10 provides that while a shipment awaits further conveyance the carrier’s liability shall be that of a warehouseman, but we are of the opinion that, under the particular facts of this case, the defendant is precluded, by its conduct, from now claiming that it ceased to be a common carrier after the tender to the Steamship Company on July 28. (See Texas & Pacific Ry. Co. v. Clayton, 173 U. S. 348, 362, 363.) In any event, the defense of the defendant is not and could not be based upon paragraph 10. The shipments in the instant case had not arrived at their destination at the time in question, and therefore paragraph 10 would apparently not apply to a case like the present one, but, if it did, it is the rule in the federal court that where an interstate shipment has arrived at its destination, and where there is a stipulation in a bill of lading that the carrier shall be liable, as a warehouseman only, for goods after arrival at destination and not removed within a specified time, the carrier is liable for its negligence as a warehouseman. (Southern Ry. Co. v. Prescott, 240 U. S. 632.)

But even if it be assumed that the liability of the defendant as a common carrier ceased on July 28, 1919, and entirely aside from the fact that the defendant would be liable for negligence, if its status after July 28 be considered as that of a warehouseman, nevertheless, unless the defendant is correct in its contention that the said provisions in paragraphs 3 and 5 legally exempt it from all liability, a duty still rested upon it to exercise reasonable care and diligence to prevent unnecessary damage to the meat. If the defendant be considered merely as a forwarder to the next designated carrier, the Steamship Company, it would be required, in that capacity, to exercise the same degree of care to prevent damage that a prudent owner would in the same situation. It is a general rule that where the carrier is unable to deliver the goods to the next designated carrier, it is his duty to at once notify the shipper or consignee, if he has an opportunity to do so, and a failure to give such notice will render him liable for any loss or injury resulting therefrom. (Fisher v. Boston & M. R. Co., 99 Me. 338, 59 Atl. 532.) That case cites a number of decisions in support of its ruling. In Johnson v. New York Cent. R. Co., 33 N. Y. 610, 611, the Railroad Company undertook to transport flax to Albany and to forward it thence to New York by the People’s Line of steamboats. The Steamboat company refused to receive the flax, and the court held that thereupon the Railroad Company’s obligation as a carrier ceased, but that “on the refusal of the steamboat proprietors to receive the property, the company should either have communicated the fact to the plaintiff, and awaited further instructions, or it should have relieved itself from liability, by depositing the hemp for safe-keeping in a suitable warehouse. (Forsyth v. Walker, 9 Penn. St. 148; Goold v. Chapin, 20 N. Y. 259; Fisk v. Newton, 1 Denio 451.)” Where a connecting line notifies the first carrier that it cannot receive the goods and transport them to their destination because of a block in freight, this will not relieve the first carrier from liability for damages caused by the' delay, where it fails to notify the shipper and give him an opportunity to dispose of the property or take measures for its preservation. (In re Petersen v. Case, 21 Fed. 885.) In The Convoy’s Wheat, 3 Wall. 225, the Supreme Court of the United States held that where a bill of lading, signed by a master, shows that a voyage to a particular place named on it is but part of a longer transit which it is understood is to be made by the cargo shipped, and that the cargo is to be carried forward in a continuous way on its further voyage, the master must be presumed to have contracted in reference to the course of trade connected with getting the cargo forward, and that in such a case, if any obstacle should intervene, which by the regular course of the trade is liable to occur and for a short time retard the forwarding, the niaster cannot, from a mere inability to find storage at the entrepot, turn about, and taking the cargo to some near port, store it there, inform the consignees, and clear out. He should notify them by telegraph of his difficulty and receive their instructions. “There is no authority which holds that on refusal of freight by a consignee, or non-delivery through other obstacles, notice is not required to the consignor or persons known by the carrier to be owners or interested in the goods. The law is the other way. Louisville & Nashville R. R. Co. v. Duncan, 137 Alabama, 446.” (Michigan Cent. R. Co. v. Harville, 136 Ill. App. 243, 253.) To the same effect is Edson Keith & Co. v. Atchison, T. & S. F. Ry. Co., 192 Ill. App. 350, 356. Many other cases supporting our position might be cited, but it is not necessary to do so as it appears that the defendant has practically ignored, in its argument, this vital principle of law. It is stipulated that “no notification was at any time given to plaintiff by defendant of the failure of Triangle Steamship Company at any time to accept said shipment, and no notice was ever given to plaintiff by the' defendant at any time that said shipment was delivered by the defendant to the Triangle Steamship Company on August 6th, 1919, ’ ’ and no notice of any kind was given by the defendant to the plaintiff that the meat was on a lighter in the North River, and without icing or refrigeration.

We believe that when the provisions in paragraphs 3 and 5, upon which the defendant relies, are considered in the light of the law that we- are about to state, it will appear that they were not intended to apply to cases where shipments are damaged through the negligence of the carrier, but if it be assumed that the said provisions were so intended, the further question is presented : Can the defendant by provisions in a bill of lading exempt itself from liability for its negligence? In Chicago & N. W. Ry. Co. v. Chapman, 133 Ill. 96, 107, the court states: “Whatever may be. the rule elsewhere, in this State the common carrier can not contract for exemption from responsibility for a failure on its part, or that of its servants, to exercise ordinary care in the transaction of its business. If the carrier may by contract limit its liability for gross negligence or willful misfeasance to any extent, it may contract for total exemption. A contract for exemption from liability for its torts being void, as against public policy, it can not shield itself as to any portion of the damages to person or property occasioned by its gross negligence or willful misconduct.” In Chicago & N. W. Ry. Co. v. Calumet Stock Farm, 194 Ill. 9, the court cites with approval the above rule of law. The defendant contends that the Supreme Court "of the United States has held in a number of decisions that a common carrier engaged in an interstate shipment may limit its common law liability by stipulations in a bill of lading, and it apparently argues that these decisions are broad enough to warrant a holding in the present case that the provisions in paragraphs 3 and 5 are valid and exempt the defendant from liability for damage to the shipments through its negligence. The following cases, cited by the defendant, of course, do not sustain its position. In Missouri Pac. R. Co. v. Porter, 273 U. S. 341, the court stated that there was “no e.laim that the loss was caused by any fault or negligence of the carrier.” In Missouri Pac. R. Co. v. Prude, 265 U. S. 99, the plaintiff purchased from the Missouri Pacific Railroad Company a round-trip ticket to travel over the lines of that railroad company to Texarkana, Arkansas, thence over the Texas Pacific Railroád to Longview, Texas, and from that point over the International & G-reat Northern Railroad to Houston, Texas, and return via the same'route, and she claimed that while on the line of the last-named company she was assaulted by the auditor of that company. The ticket contained the following provision: “In selling this ticket and checking baggage hereon, the selling carrier acts only as agent and is not responsible beyond its own lines.” The Supreme Court held (inter alia) that such a provision was valid and that the assault did not constitute a breach of the initial carrier’s contract for safe transportation. In American Ry. Exp. Co. v. Levee, 263 U. S. 19, the Supreme Court merely held that a provision in the receipt given the plaintiff by the defendant limiting the amount of liability in case of loss in consideration of the rate charged for carrying the property, which was dependent upon the value thereof and was based upon an agreed valuation, was valid under the federal law, whatever may have been the law of Louisiana, where the suit was brought. To the same effect is Lancaster v. McCarty, 267 U. S. 427. The federal law, bearing on the instant question, is plain “that it is not just and reasonable in the eye of the law for a common carrier to stipulate for exemption from responsibility for the negligence of himself or his servants.” (New York Cent. R. Co. v. Lockwood, 17 Wall. 357, 384. See also Muser v. Holland, 17 Blatchf. 412; Missouri Pac. Ry. Co. v. Harper Bros., 201 Fed. 671, 674.) “In upholding the right to contract many courts have gone so far as to rule that a common carrier may even stipulate for exemption from responsibility for its own negligence. But the Supreme Court of the United States has never accepted this view. In a series of decisions beginning with the great case of Railroad Co. v. Lockwood, 17 Wall. 357, 21 L. Ed. 627, it has consistently held that any contract which excuses a common carrier from negligence in the performance of its duty is contrary to public policy and void.” (Pierce Co. v. Wells Fargo & Co., 189 Fed. 561, 565.)

In the reply brief of the defendant our attention is directed to paragraph 1 of part I of “Conditions” in the bill of lading, which reads as follows: “No carrier . . . in possession ... of the property herein described, shall be liable for any loss thereof, or damage thereto, by causes beyond its control; or by floods or by fire; or by quarantine; or by riots, strikes or stoppage of labor; or by leakage, breakage, chafing, loss in weight, change in weather, heat, frost, wet or decay; or from any cause if it be necessary or is usual to carry such property upon open cars.” The defendant contends that Missouri Pac. R. Co. v. Porter, supra, is “a direct holding to the effect that Section 1 of the bill of lading in this suit is valid and binding,” and it further contends that the provision in reference to heat in said section “is directly applicable to this claim and even if nothing further appeared in the bill of lading the decision herein would necessarily be in favor of the carrier.” Missouri Pac. R. Co. v. Porter merely holds that a stipulation in a bill of lading exempting a carrier from liability for loss of such shipment by fire, is valid, where it appears that the damage was not due to the carrier’s negligence, and that a State law forbidding such a stipulation is invalid in view of the occupation of the field by Congress. Tested by the law bearing upon the subject, paragraph 1, so far as it is applicable to the instant contention, should be construed to mean no more than that the carrier shall not be liable for any damage to property in its possession caused by heat, where the carrier has not been negligent. The defendant concedes that the heat in New York City at the time in question was not unseasonable for midsummer, and if the heat be considered a proximate cause of the damage to the meat, nevertheless, this does not exempt the defendant from liability, as it is clear from the evidence that the negligence of the defendant was also a proximate and concurring cause of the damage. One of the shipments of meat was delivered to the defendant on July 18, 1919; the other on July 19,1919. The first arrived in Croxton on July 22, and the second on the next day. The meat remained there in the cars without icing or refrigeration for five days and was then unloaded from the cars to a lighter owned and controlled by the defendant, upon which it remained for a further period of nine days without icing or refrigeration service of any kind. The defendant knew that the meat was perishable. That it would rot and become unfit for human consumption if exposed, for the period in question, to the temperature that prevailed in New York City at that time, without icing or refrigeration, is undisputed. The maximum heat on the following days was: July 22, seventy-seven degrees; 23, eighty-three degrees; 24, eighty-nine degrees; 25, eighty-three degrees ; 26, eighty-four degrees; 27, ninety-two degrees; 28, ninety-one degrees; 29, eighty degrees; 30, eighty degrees; 31, eighty-one degrees, and August 1, eighty-two degrees. The evidence shows that borax that was placed on the meat for the purpose of preserving it in shipment, would break down or melt at sixty degrees and that when that occurs it leaves the meat exposed and deterioration thereupon starts. The defendant neither cared for the shipments in any way nor did it give the plaintiff an opportunity to do so. It" had the undoubted right to make delivery to the Steamship Company on the latter’s pier on July 28. It failed to do so and negligently and' unnecessarily allowed the meat to remain on the lighter for nine days in the midsummer heat without icing or refrigeration.

Under all the circumstances of this case, we hold that the defendant was guilty of negligence and a breach of duty and that the negligence proximately contributed to the damage sustained by the plaintiff, and that the provisions of the bills of lading, upon which the defendant relies, do not exempt it, under the law, from responsibility for such negligence and breach of duty. In our judgment, it would be highly unjust to permit the defendant, under the record in this case, to escape liability. The judgment of the superior court of Cook county should be and it is affirmed.

Affirmed.

G-ridlby, P. J., and Barnes, J., concur.


author: Mr. Presiding Justice Barry

text:
    John F. Davis et al., Appellees, v. Louise Mosbacher et al., Appellants.

      Opinion filed September 12, 1928.
    A. C. Bollinger, W. K. Koerner and M. R. Stahl, for appellants.

      Hill & England and McGlynn & McGlynn, for appellees.
   Mr. Presiding Justice Barry

delivered the opinion of the court.

The questions in this case are the same as those in Term Nos. 37 to 40, both inclusive. The same parties are appellees in each case and the respective appellants being represented by the same attorneys we shall include the five cases in this opinion. When we prepared the opinion filed June 1, 1928, in the case of John F. Davis et al. v. Louis Wirth, Term No. 18 [249 Ill. App. 544], for the reasons therein stated, we inadvertently disposed of the cases now under consideration. When our attention was called to the fact that the appellants in these cases were claiming that the questions raised by them were not the same as those presented in the Wirth case, rehearings were, allowed. The records in Term Nos. 37, 38, 39 and 40 are in the same condition as the record in this case. Appellees obtained a judgment by confession on January 30, 1926, and appellants’ motion to open the same and for leave to plead was continued from time to time until September 6, 1927. On that day the court denied the motion and appellants prayed an appeal to this court, which was allowed upon their filing bond in the sum of $4,000, within 20 days, and bill of exceptions within 30 days. On September 22, 1927, the court extended the time for filing the appeal bond until October 17, 1927, and extended the time for filing the bill of exceptions until October 26, 1927. No bill of exceptions was presented to the judge or the court within the time allowed for filing the same.

Appellants filed a transcript or a portion of the record in this court on February 8, 1928, but it contained no bill of exceptions. On February 28, 1928, they filed herein a purported bill of exceptions which shows that it was presented to and signed by the trial judge on February 23, 1928, several months after the time allowed for filing the same had expired. Attached thereto is a purported stipulation of the attorneys to the effect that the said bill of exceptions shall be filed in the office of the clerk of the city court on or before February 28, 1928. Neither the purported bill of exceptions nor the purported stipulation of counsel was authenticated by the certificate of the clerk of the trial court, nor is it shown that the court, upon stipulation of the parties, extended the time for filing the bill of exceptions until February 28, 1928.

Appellants were required by section 100 of the Practice Act, Cahill’s St. ch. 110, If 100, to file an authenticated transcript of the record. Authentication by a certificate of the clerk of the trial court is essential under that statute. Glos v. Randolph, 130 Ill. 245. As the purported bill of exceptions and the purported stipulation of counsel are not so authenticated, they cannot be considered as a part of the transcript of the record. Even if they had been properly authenticated they would fail to show that the time for filing the bill of exceptions was extended in accordance with the law. The making of an order allowing an appeal, and fixing the amount of the appeal bond and the time in which the bond and bill of exceptions shall be presented and filed, is a judicial act, which can only be performed by the judge in term time, and when sitting as a court. So, an order extending the time for filing such papers is an exercise of judicial power, and can only be performed in term time. Hake v. Strubel, 121 Ill. 321; United States Life Ins. Co. v. Shattuck, 159 Ill. 610-615.

Appellants argue that the time for filing the bill of exceptions was actually extended until February 28, 1928, by an agreement of the parties embodied in the purported stipulation. Their contention in that regard is contrary to Hawes v. People, 129 Ill. 123, and other cases upon which they rely. The rule stated in those cases is that after the time for filing has expired, the parties may, by agreement, invest the court with power and authority to enter an order, in pursuance of their stipulation, granting a further period for filing the bill of exceptions. The parties cannot exercise judicial power as that can only be done by the court. After the time for filing has expired, the parties may agree that the time may be extended, but the time is not extended until the court exercises its judicial .power and enters an order extending the time in pursuance of the agreement. Hawes v. People, supra; Morris v. Watson, 61 Ill. App. 536. The order must appear of record. Pardridge v. Morgenthau, 157 Ill. 395; United States Life Ins. Co. v. Shattuck, supra.

If we could overlook the lack of an authentication of the purported bill of exceptions by the clerk of the trial court and the fact that there was no order of court extending the time for filing the bill, we would not be warranted in reversing the order.

The first ground of appellants’ motion is that the note was executed for the purchase price of certain real estate purchased from.the payee in the note under a written contract in which the seller agreed that upon the execution of the note he would convey the real estate to appellants; that the deed was to be the sole consideration for the note; that no conveyance of the real estate was ever made to appellants by any one and that by reason thereof the note was without consideration. The purported bill of exceptions shows that a written contract of sale was offered in evidence by appellants, but the contract itself is not contained therein. Nevertheless, the abstract of the record sets out the purported contract in full. Appellants later filed a supplemental abstract showing a photostatic copy of the same contract in which one paragraph of the alleged contract as set out in the original abstract was erased. Nothing should be shown in an abstract that is not in the transcript of the record.

The contract is not to be found in the alleged bill of exceptions and we cannot assume that it contained a provision that upon the execution of the note appellants were entitled to a deed. There is no showing that appellants ever tendered payment of the note or offered to pay it prior to the time they filed their motion to open the judgment. Appellants may not have been entitled to a deed until they paid the note. There is no explanation as- to why the deed was not delivered upon the execution of the note if they were then entitled to receive it.

The second ground of the motion is that at the time the note was executed the payee therein falsely represented to appellants that he had the right and power to convey the real estate described in the contract, whereas appellants are informed and believe that he had no title to the property and no right or power to convey. There is no showing as to how the alleged representation was made. Appellants may have concluded that the mere fact that the payee entered into a contract of sale was a representation that he then had the power to sell and convey. Facts should be averred from which the court could see that false representations were made.

The third ground of the motion is that the attorney’s fee included in the judgment is excessive, unwarranted and unreasonable. The allegations in that regard are mere conclusions. There is no showing as to what would be a usual, customary and reasonable fee. The warrant of attorney authorized the inclusion in the judgment of a reasonable attorney’s fee and the court found that $450 was such fee.

The fourth ground of the motion is that, on its face, the note purports to have been signed and delivered in the State of Missouri; that at the time of its execution and delivery the payee was a resident of Missouri; that the indorsement on the note and its delivery to the indorsee were made in the State of Missouri; that the indorsee is a corporation of that State; that the note on its face is a Missouri contract; that the indorsement is also a Missouri contract; that under the law of that State the provision authorizing the confession of judgment is null and void and the court had no jurisdiction of appellants; that the Missouri law upon this question is stated in First Nat. Bank of Kansas City v. White, 220 Mo. 717.

The judgment was entered at the January term, 1926, of the city court. That being true, the note and warrant of attorney are not a part of the record unless preserved in a bill of exceptions. Waterman v. Caton, 55 Ill. 94; Boyles v. Chytraus, 175 Ill. 370. They were not even preserved in the purported bill and cannot be considered even though the clerk has copied them into the transcript of the common law record. People v. Faulkner, 248 Ill. 158. It will be observed that the motion does not state that the note was delivered in the State of Missouri, but simply that, on its face, it purports to have been signed' and delivered in that State. The declaration avers that it was delivered in the State of Illinois. The place where a note is made depends not upon where it is actually written, signed or dated, but upon the place where it is delivered as consummating the bargain. Walker v. Lovitt, 250 Ill. 543.

It was not shown that the note is a Missouri contract. For that reason it is unnecessary to decide whether any of its provisions are null and void under the laws of that State. A litigant, who desires to claim the" advantage of some law or statute of a foreign State, must show by appropriate pleadings and proof what that law is, or the courts of this State will apply the law of the forum. Shannon v. Wolf, 173 Ill. 253, Appellants simply say, in their motion, that under the law of Missouri a certain provision in the note is null and void and that the law upon the question is stated in a certain decision of the Supreme Court of that State. The case was not offered in evidence on the hearing of the motion. The law of a foreign State is a fact that must be proven like any other fact. No one would seriously contend that it would be sufficient to aver that certain evidence would be found recorded in a certain book in a certain county without offering that record in evidence.

Where it has been sought to prove the law of a sister State by the introduction of the decisions of the courts of that State, the opinions relied upon, or excerpts therefrom, must be set forth in haec verba in the bill of exceptions, in order that such proof may be before the Appellate tribunal for review. Gunning System v. La Pointe, 113 Ill. App. 405.

The fifth ground of the motion is that the note, by reason of the provision authorizing a confession of judgment at any time after date, is not a negotiable instrument under the laws of the State of Missouri or those of the State of Illinois, and because of that fact appellees are not innocent holders. It was not shown that the note is a Missouri contract, nor is there any showing as to what the law of that State is in regard' to that matter. Section 5 of our Negotiable Instrument Act provides that the negotiable character of an instrument, otherwise negotiable, is not affected by a provision which authorizes a confession of judgment. Cahill’s St. ch. 98, If 25.

In any view of the case we cannot say that the court committed reversible error, and the judgments in this case and in Term Nos. 37 to 40, both inclusive, are affirmed.

Affirmed.


text:
    The Fisk Tire Company, Inc., Appellant, v. Lillian E. Burmeister, Appellee.

      Opinion filed February 1, 1929.
    W. J. MacDonald, T. S. Morgan and John K. Lord, Jr., for appellant.
    Louis Beasley and Edward C. Zulley, for appellee.
   Mr. Presiding Justice Barry

delivered the opinion of the court.

Appellant sued on a written guaranty, the printed portion of which is as follows: “I hereby guarantee, unconditionally, to the Fisk Tire Company, Inc., a New York corporation, the full and prompt payment at maturity of all invoices that it has now rendered, or may hereafter render against...................... for merchandise furnished or to be furnished, and all notes and renewals given on account thereof, hereby waiving notice to me of the acceptance of this guaranty, and of delivery of all materials and waiving notice of default in payment; and in the event of the failure of the said............................'..... to pay any such invoices or notes when due and matured, acknowledge myself liable and agree to pay same upon demand, as though the materials had been purchased and invoiced to me for my own account; this guaranty being given for and in consideration of one dollar and other valuable considerations, the receipt whereof is hereby acknowledged.

“This guaranty to be and remain in full force and effect until I serve you with written notice by registered mail addressed to the Fisk Tire Company, Inc., Chicopee Falls, Massachusetts, of my intention to «cancel same not less than ten days from date of mailing said notice.

“Witness my hand and seal this ........ day of

............A. D. 192...

At .................................

....................(Seal)

....................(Seal)”

Appellee filed a special plea to the effect that appellant obtained the said writing from her by fraud and circumvention; that on November 18, 1926, she was suffering from a nervous breakdown and that appellant’s agent came to her home while she was sick in bed and presented to her a printed form containing certain blank spaces; that the said agent then represented to her that he desired her to guarantee the account of Frank B. Burmeister, doing business as the Burmeister Tire Company, in the sum of $400; that appellee examined the printed form and told the said agent that she would not guarantee the account for any amount in excess of $400; that the said agent did not then and there fill in the said blank spaces in the printed form but he then and there represented to her that he would return to the office of appellant and would then and there fill in said blanks in accordance with the agreement between appellee and the said agent that is, so that appellee’s liability under said contract would be limited tó the sum of $400; that she relied upon the representations of the said agent to fill in said blank spaces in the printed form so that her liability would be limited and fixed in the said contract at the sum of $400, and so relying thereon she executed the said guaranty in blank, etc.

Appellant joined issue on the said special plea and by so doing admitted that it was sufficient in law, if proven, to bar the action. Appellee testified that when the said guaranty was presented to her it was the blank form hereinabove quoted; that at the time she signed the same none of the blanks had been filled in; that she told the agent of appellant she would only guarantee the account to the amount of $400; that she told him she would not sign it except it was so written and that the agent told her he would have it put in that way. She says that thereupon she signed her name to the blank printed form and that she never saw the writing again until she went to appellant’s St. Louis office in the early part of November, 1927, after she had received a letter from appellant demanding payment. She says that she was then shown the contract and that she told the manager that the blanks had not been filled in accordance with the agreement; that the agreement was that her liability was to be limited to $400.

The contract as offered in evidence contains in the first blank the following: “Burmeister Tire Co., 1126 N. 15th St., East St. Louis, Illinois, or Frank B. Burmeister, of same address.” In the second blank the following appears: “Burmeister Tire Company, or Frank B. Burmeister.” The date was also inserted as the 18th day of November, 1926.

If the testimony of appellee is true, no valid or binding contract was entered into at the time she signed the blank printed form unless it was afterwards filled out in accordance with the agreement between her and appellant’s agent. Her testimony is in effect that she gave the agent express authority to fill the blanks in the contract in such a way as to limit her liability to $400. Where express authority is given to fill blanks left in an instrument in one respect only, that authority must be pursued, and no other can be exercised. 2 C. J. 1244; I. R. C. L. 1017. Where a party signs a contract of guaranty in blank and delivers it, the party to whom it is delivered has the right to fill in the blanks, and by so doing he does not alter the contract if he filled the blanks in accordance with the agreement of the parties. Cook Brewing Co. v. Goldblatt, 184 Ill. App. 266. We are of the opinion that the evidence on behalf of appellee supports her special plea.

Appellant contends that the court erred in admitting parol evidence of the agreement between appellee and appellant’s agent at the time she signed the blank printed form. The rule that contemporaneous oral statements cannot be held to alter or vary the terms of a written instrument presupposes execution and delivery of the writing with intent to bind the parties by its terms. Kilcoin v. Ortell, 302 Ill. 531. According to the testimony of appellee the writing she signed, in the condition" it then was, was not a contract. It was intended to become a contract, so far as she was concerned, when appellant’s agent had written in such language as would limit her liability to $400.

Appellant contends that it is utterly unreasonable to believe that appellee’s testimony is true; that she knew that the word “unconditionally” was in the contract and that it would be necessary to write an entirely new contract if the agreement were such as testified to by appellee. In this, we think, counsel are mistaken. The blank printed form is an absolute continuing guaranty and unlimited as to the amount of the liability. Appellee’s contention is that her liability was to be limited to $400. If the words “to the amount of $400.00” were inserted after the words that were inserted in the first blank, the contract would still be an absolute continuing guaranty but would be limited in amount to $400. Taussig v. Reid, 145 Ill. 488.

No other complaint is made as to the admission or exclusion of evidence or as to the giving or refusing of instructions. While appellant’s agent testified that the blanks in the printed form were filled in as they now appear before appellee signed the instrument, yet it was a question of fact for the jury to decide as to who was telling the truth about that matter. While counsel on either side speak of the special plea as one of fraud and circumvention, we are satisfied that it has not been properly named. It is really a plea to the effect that appellee never executed the contract in its present form. Appellant says that the court erred in permitting her to deny the execution of the instrument, as she had not filed a verified plea. No objection of that kind was interposed during the trial.

Under the law and the evidence we would not be warranted in disturbing the finding of the jury. The judgment is affirmed.

Affirmed.