James Eva Estate v. Oakland B. M. Co.

Action by a lessor for the collection of delinquent rent, against its lessee and two sureties upon a bond guaranteeing the faithful performance on the part of said lessee of the covenants of a written lease. The lessee suffered default and the action was tried as against the sureties *Page 517 alone. Judgment was rendered against both sureties, from which one of them appeals. The appellant urges three grounds for reversal, which will be considered in the order in which they are made.

[1] It is claimed that the bond executed by appellant is void because "it was entered into contrary to express statutory law, to wit, sections 594-596, inclusive, of the Political Code of the State of California." The sections referred to are found in article XVI of the Political Code, which article by its title and provisions refers to the office of insurance commissioner, the performance of his duties and the transaction of the business of insurance under his supervision. The particular sections relied upon are section 594, subdivision 5, which provides that fidelity and surety insurance includes ". . . guaranteeing and executing all bonds, undertakings, and contracts of suretyship, and guaranteeing the performance of contracts other than insurance policies," and the closing paragraph of subdivision 6 of section 596, which reads as follows: "All policies and other contracts of insurance, issued without full compliance by all parties concerned with the laws of this state, shall be null and void." Appellant urges that the bond here sued upon comes within the term "other contracts of insurance" found in section 596 as defined in section 594. If such contention is correct, it follows that it is illegal for any corporation to execute in this state any bond guaranteeing the performance of any contract, or even to guarantee the payment of a promissory note, without having first complied with the provisions of the Political Code above referred to, and placed itself under the jurisdiction of the insurance commissioner. In our opinion the code sections relied upon are intended to apply exclusively to the conduct of the business of insurance as such, and their provisions cannot be stretched to cover the case of a single contract of guaranty such as the one involved in this action. We hold, therefore, that said sections have no application to the facts of this case.

[2] It is next contended that the contract sued upon is a mere naked guaranty and is, therefore, ultra vires of the purposes and powers of the appellant corporation, and for that reason void. The term "ultra vires" when applied to the act of a corporation is used in different senses. It may indicate that the act referred to is entirely beyond the scope *Page 518 of the powers of the corporation to perform under any circumstances or for any purpose, or, again, the term may be applied to an act of a corporation which may be fully within the scope of the general powers of the corporation for some purposes, but beyond such powers for other purposes. The rights of persons dealing with the corporation vary according as the act is ultra vires in one or the other of these senses. When the act is within the corporate powers for some purposes or under some conditions, the rights of parties who have dealt with the corporation, under the express or implied representation that it is acting within such powers in the making of a particular contract are entitled to favorable consideration. In such a case the defense of ultra vires is not available unless it be shown that the party dealing with the corporation had notice of the intention to perform the act for an unauthorized purpose, or under circumstances not justifying its performance. (Miners' Ditch Co. v. Zellerbach, 37 Cal. 543, at pages 578-588, [99 Am. Dec. 300]; 10 Cyc. 1148, 1149.)