Opinion
No. 33680.
April 24, 1939.
1. UNITED STATES.
Where trust deed given to Home Owners' Loan Corporation provided that the corporation, its successor or assigns or any subsequent holder of the note, payment of which is hereby secured, might revoke authority of any trustee and appoint another in his place at any time, no personal discretion was confided to any particular person in matter of appointment of a substituted trustee, as regards authority of corporation's state manager to appoint a substituted trustee (Federal Home Owners' Loan Act 1933, 12 U.S.C.A., sec. 1461 et seq.).
2. POWERS.
The doctrine of "delectus personae," which properly applies to the selection of a natural person in whose integrity and competence the donor of a power may confide because he knows the donee to be of such honor as to specifically fit him for the trust, has no application to a corporation since the grantor does not give the power to the corporation under the influence of the delectus personae doctrine.
3. MORTGAGES.
The power of appointing substituted trustee under deed of trust is not necessarily vested in board of directors merely because the power is given to a corporation by name.
4. UNITED STATES.
Where debtors obtained writ of injunction to prevent foreclosure on ground that appointment of substituted trustee, who had advertised for sale, land covered by trust deed, was void because state manager of mortgagee, the Home Owners' Loan Corporation, did not have authority to appoint substituted trustee, the corporation by appearing before chancellor and moving to dissolve injunction ratified the appointment made by its state manager (Federal Home Owners' Loan Act 1933, 12 U.S.C.A., sec. 1461 et seq.).
5. UNITED STATES.
Where deed of trust given to Home Owners' Loan Corporation provided that corporation, its successors or assigns, might revoke authority of any trustee and appoint another in his place at any time and resolution passed by board of directors of corporation authorized state manager to execute appointment of substituted trustee, the state manager was vested with authority to appoint a substituted trustee (Federal Home Owners' Loan Act 1933, 12 U.S.C.A., sec. 1461 et seq.).
APPEAL from chancery court of Lee county; HON. JAS. A. FINLEY, Chancellor.
J. Thomas Dunn, of Jackson, for appellants.
The appointment of the substituted trustee was made by W.A. Blair in his official capacity as State Manager of appellant corporation in the name and under the seal of said corporation and pursuant to the authority granted him by a resolution of appellant corporation's board of directors, adopted on September 27, 1937; a true and correct copy of which is attached to the answer as Exhibit "A." It was the contention of the appellees in the lower court, in which they were sustained by the Chancellor, that under the terms of the power of substitution conveyed in the said deed of trust, the substitution could only be made by specific resolution of appellant corporation's board of directors, which resolution must name the trustee to be substituted; that this power of substitution could not be delegated to any other officer, employee or agent of appellant corporation.
A corporation is an artificial being, existing only in legal contemplation and can only act and perform its functions through agents.
Southern Electric Securities Co. v. State, 44 So. 875, 91 Miss. 195; 7 R.C.L. 1.
The board of directors or trustees is the body usually intrusted with the authority to conduct the business of the corporation, and it may be said that the directors have plenary authority to transact all the ordinary business of the corporation within the scope of its charter powers unless their authority is restricted; and what they do within the scope and purposes of the corporation, the corporation does.
7 R.C.L. 437, par. 426.
However, since it is manifestly impossible for a board of directors to perform each and every detailed function required in the discharge of the corporation's activities, the further rule is "They (directors) have authority, acting as and for the corporation, to delegate to subordinate officers and agents, or to a committee of their own number, the power to perform any act in the course of the business of the corporation which they themselves can legally perform, although the performance of the act may involve the exercise of the highest judgment and discretion."
Thompson on Corporations (3 Ed.), page 758, par. 1300; 7 R.C.L. 447, par. 433.
Not only may any officer or agent of a corporation perform any act expressly authorized by the board of directors, but certain officers, by virtue of their office, have authority to bind the corporation without prior or express resolution.
Metzger v. Southern Bank, 54 So. 241, 98 Miss. 108; Brown v. British American Mort. Co., 38 So. 312, 86 Miss. 388; Allen Gravel Co. v. Nix, 93 So. 244, 129 Miss. 809; Case v. Hawkins, 53 Miss. 702; 7 R.C.L. 450, par. 436.
It is, of course, settled by numerous decisions of this state, that the power of substituting a trustee is personal to the donee, may not be delegated to another, and must be strictly construed.
Hartley v. O'Brien, 13 So. 241, 70 Miss. 896; Cary v. Fulmer, 74 Miss. 729, 21 So. 752; Allen v. Alliance Trust Co., 36 So. 285, 84 Miss. 319.
Can it be said that the action of appellant corporation's board of directors, in authorizing the state manager to appoint a substituted trustee, constituted a redelegation of a delegated power, thus violating the maxim, "Delegatus non potest delegare?" The answer to this question is very clearly expressed by a recognized authority on corporations, Thompson on Corporations (3 Ed.), page 758, par. 1300: "Whatever may have been the strictness of the rules formerly on the question of the delegation of powers by a board of directors, it is apparent that the doctrine has been very liberally extended in recent corporation law. While some restriction still necessarily exists, yet it is now granted that boards of directors or trustees may ordinarily delegate to a less number their general powers."
We would invite the court's attention to the particular wording of the power of substitution employed in the deed of trust here involved, which, under the authority of the case of West v. Union Naval Stores, 117 Miss. 153, 77 So. 961, clearly removes all doubt as to the applicability of the delectus personae doctrine to the case at bar.
In our opinion, the right of a corporate beneficiary to authorize any of its officers or agents to appoint a substituted trustee has been settled in this state by the case of Chandler v. Bank of Brooksville, 178 So. 797, 181 Miss. 529.
Metzger v. Southern Bank, 54 So. 241; 7 R.C.L. 663, par. 664; Helms v. Home Owners' Loan Corp., 103 S.W.2d 128.
With due deference to the construction placed upon the Allen case, 93 So. 244, 129 Miss. 809, by the learned chancellor in holding that such a power must be exercised by appellant corporation's board of directors and it alone, we respectfully submit that under the authorities quoted herein the appointment of appellant, L.M. Adams, as substituted trustee, was valid and subsisting in all respects, and that appellants are entitled to have the decree of the lower court reversed and judgment rendered in this court dissolving the injunction.
Guy Mitchell, Jr., of Tupelo, for appellees.
This court has repeatedly held that the power to appoint a substituted trustee is to be strictly construed. In fact, an examination of the following cases will reveal that there has probably been a more rigid adherence to the rule of strict construction in this state than in any other state in the union.
Guion v. Pickett, 42 Miss. 77; Ready v. Hamm, 46 Miss. 422; Clark v. Wilson, 53 Miss. 119; Bonner v. Lessley, 61 Miss. 392; Sharpley v. Plant, 79 Miss. 175, 28 So. 799; McNeil v. Lee, 79 Miss. 455, 30 So. 821; West v. Union Naval Stores, 117 Miss. 153, 77 So. 961; Jones v. Salmon, 128 Miss. 508, 91 So. 199; Powers v. Interstate Trust Banking Co., 163 Miss. 30, 139 So. 318.
Appellant corporation was created under an Act of Congress of June 13, 1933, 48 Stat. 128. The Act, (Sec. 4 (a)), provides that the Federal Home Loan Bank Board shall constitute the board of directors of the corporation, and that the corporation "shall be under the direction of the board and operated by it under such by-laws, rules, and regulations as it may prescribe . . ." Therefore, the authority of the board of directors of appellant corporation in governing the corporate business is not merely comparable to but probably exceeds that of the directors of the average private corporation.
The general rule fixing the status of the board of directors in the management of corporate affairs is set forth in 2 Thompson on corporations (2 Ed.), section 1066, as follows: "Corporations, being mere entities, can only act through the medium of agency, and a board of directors is the supreme agent, or governing body . . . to manage and conduct the corporate business."
And in section 1065 of the same volume it is stated: "It is a rule of law now generally recognized that the corporate powers, business and property of a corporation must be exercised, conducted and controlled by such managing body."
Since the board of directors is the supreme governing body of appellant corporation, it is manifest that by conveying the power of appointment to the corporation, without naming the individuals who might act for it in the exercise of the power, the parties to the deed of trust intended that such power should be exercised by the board of directors itself. The action of the board of directors of appellant corporation in attempting to delegate the power to its state manager should dispel any doubt as to the correctness of this conclusion.
The intention of the parties must control the determination of this question, and the only reasonable construction that can be placed upon such intention is that the term "The Corporation" was used in the deed of trust as an equivalent of the term "the board of directors."
Conceding that the power of appointment was vested in the board of directors of appellant corporation, was this such a power as could be delegated by the board to a subordinate officer of the corporation, and specifically, to W.A. Blair, its state manager?
The restrictions placed upon the delegation of discretionary powers are clearly evident from the following quoted statements found in Thompson on Corporation, supra: "The general rule that may be deduced from the cases is that a board of directors cannot delegate their power or authority when from its nature it involves the exercise of discretion, and implies a special trust and confidence on the part of the donor in the donee, unless there is some express authority or a custom authorizing such delegation."
2 Thompson on Corporations (2 Ed.), sections 1202, 1204 and 1205.
It is submitted that in so far as the delegation of a power is concerned, there can exist no valid reasons for differentiating between a power vested in the board of directors of a corporation by a deed of trust and one conveyed to the board by the general laws, the corporate charter or by-laws. If such powers can be distinguished, then, under the decisions of this court, the delegation of a power conveyed by a deed of trust, as opposed to one conferred by the corporate charter or by-laws, should be limited and restricted, rather than extended. This conclusion seems inescapable in view of the strictness with which powers contained in a deed of trust have been construed in this state.
Conceding that the power to appoint a substituted trustee was vested in the board of directors of appellant corporation, and that under the general rule such power could not be delegated if it involved the exercise of discretion, the question presents itself: Did the nomination and appointment of L.M. Adams as substituted trustee involve the exercise of choice and discretion? If this question is to be answered in the affirmative, then it is submitted that such power could be exercised solely by the board of directors and could not be delegated by the board to W.A. Blair, state manager of appellant corporation.
Michael v. Crawford, 108 Tex. 352, 193 S.W. 1070.
While it does not appear that the precise question raised by this appeal has ever been decided in this state, the attitude of this court in reference thereto is clearly pointed out by the opinion in the case of Allen v. Alliance Trust Co., 84 Miss. 319, 36 So. 285. In considering the appointment of a substituted trustee by a corporate beneficiary Judge CALHOUN said: "Who may appoint, in the exercise of this power, the substituted trustee? The Corporation itself may do so, acting in making such an appointment through its directors."
In the Allen case the power of substitution under consideration ran to the "corporation," just as it does in the present case. And, there as here, the deed of trust failed to designate any particular officer or class of officers who might make the substitution. Being identical in these respects, the two powers are subject to the same construction.
While the statement of Judge CALHOUN does not specifically limit the right of a corporate beneficiary to exercise the power of appointment solely through its board of directors, it can only be reasonably construed as a limitation upon such power inspired by the rule of strictissimi juris established by the many previous decisions of this court. The effect of giving the statement any other construction would be to rob it of significance and characterize it as a platitude, for it is certain that in such a case no one would question the right of the board of directors to exercise the power of appointment.
Argued orally by J. Thomas Dunn, for appellants.
The question presented for decision on this appeal is whether or not W.A. Blair, State Manager of the Appellant Home Owners' Loan Corporation, an instrumentality of the United States created under an Act of Congress, known as the Home Owners' Loan Act of 1933 (48 Stat. 128, 12 U.S.C.A., section 1461 et seq.) was vested with authority to appoint a substituted trustee, pursuant to a resolution passed by the board of directors of said corporation undertaking to authorize him to execute, under the corporate seal, the appointment of substituted trustees when necessary or proper in deeds of trust in force in this state, where such deeds of trust provide that: "The Corporation, its successors or assigns, or any subsequent holder of the note, the payment of which is hereby secured, may revoke the authority of any trustee and appoint another in his place at any time."
It will be noted from the above quoted provision of the deed of trust that there was no personal discretion to be confided to any particular person in the matter of the appointment of a substituted trustee, since any successor or assign of the corporation, or any subsequent holder of the note, was authorized to make such appointment. West v. Union Naval Stores Company, 117 Miss. 153, 77 So. 961. If it should be contended that a trust and confidence was reposed in the board of directors, because of its personnel at the time of the execution of the deed of trust, and that the board of directors, through whom a corporation acts as its governing body, must itself make the selection and appointment of a substituted trustee, the answer is that the personnel of such boards may constantly change, and that the power might thereby become entirely lost. The doctrine of delectus personae (which, as was said by way of dicta in the case of Allen v. Alliance Trust Company, 84 Miss. 319, 36 So. 285, "vitalizes this whole doctrine of special confidence and trust, properly enough applies to the selection of a natural person in whose integrity and confidence the donor of a power may confide, because he knows the donee to be of such honor as to specially fit him for the trust") should have no application to a corporation, since the grantor does not give the power to the corporation under the influence of the delectus personae doctrine. Moreover, it was held in the case of Chandler et al. v. Bank of Brooksville, 181 Miss. 529, 178 So. 797, that where a bank was beneficiary in a deed of trust and the substituted trustee was appointed by the president of the bank, without an order of the board of directors authorizing him to do so, the appointment was valid; and the effect of which holding of the court is that the power of appointment is not necessarily and in all events vested in the board of directors merely because the power is given to the corporation by name. In that case the court, after holding the appointment valid, observed that the act of the president was also ratified by the bank by its claiming the property sold pursuant thereto. Likewise, in the case at bar, when the appellees obtained a writ of injunction to prevent a foreclosure on the sole ground that the appointment of the substituted trustee, who had advertised for sale the land involved herein, was void, the appellant corporation ratified the appointment made by its state manager, W.A. Blair, by appearing before the chancellor and moving to dissolve the injunction so as to permit the sale to be made at the time stated in the notices of sale by the substituted trustee so appointed.
It is conceded by counsel that the precise question here involved has never been decided in this state. However, we find that the question was decided in favor of the validity of an appointment made under the identical form of resolution adopted by the board of directors of this corporation, authorizing a regional manager thereof to select and appoint a substituted trustee in the case of Helms et ux. v. Home Owners' Loan Corporation, 129 Tex. 121, 103 S.W.2d 128. The well reasoned opinion of the Supreme Court of Texas in that case we think fully answers the argument made against the validity of the appointment of the substituted trustee in the case at bar.
The hearing on the motion to dissolve the injunction having been treated by agreement of the parties as a final one, and the default in the payment of the indebtedness having been shown by an agreed statement of facts, which statement also embraced the resolution of the board of directors authorizing the appointment of the substituted trustee and showed the making of such appointment by the state manager, as well as the due recordation thereof, the injunction should have been dissolved and the sale allowed to proceed as advertised.
Reversed and remanded.