unsatisfied, is one of insurance.72 The logic of such a construction is apparent since it is generally accepted that guaranty contracts written in consideration of the premium paid are in reality insurance contracts. Sometimes it is provided that any alteration of the original contract by the creditor, without the consent of the surety or guarantor, exonerates the latter. Where the common law is thus codified, and the statute makes no distinction between gratuitous and compensated sureties, the legislative intent is deemed to release from liability the latter where the principal and the obligee agree to alter their contract, "and that it is not a subject of inquiry whether the alteration has or has not been to his injury." The use of the term surety or guarantor without any other limitation in the act includes a compensated surety.78 If the plaintiff is a foreign corporation which has failed to comply with the statute of the forum requiring certain information in proper form to be filed with specified officials, there can be no recovery from the surety.74 But once the surety has become liable, he can be relieved only in the manner provided by statute.7 75 Under a general statute providing that before the issuance of process in civil actions, nonresident plaintiffs must give a recognizance to the adverse party signed by a propertied resident of the state, a foreign corporation organized for the purpose of transacting business as a surety may be accepted on the bond. "A corporation organized in one state may so conduct its business in another as to become for some purposes a resident of the latter state." 76 In the appeal of a case, some jurisdictions require an undertaking to be given with two or more sureties. A subsequent act 72 Claflin v. United States Credit System Co. (1896) 165 Mass. 501, 43 N. E. 293, 53 A. S. R. 528. 78 First Congregational Church, etc. v. Lowrey et al. (1917) 175 Cal. 124, 165 Pac. 440. See the limitation on this case in Roberts v. Security Trust & Savings Bank (1925) 196 Cal. 557, 238 Pac. 673, 677. 74 McCanna & Fraser Co. v. Citizens Trust & Surety Co. of Philadelphia (1896) 74 Fed. 597. 75 Clark v. American Surety Co. (1897) 171 Ill. 235, 49 N. E. 481. 76 Lovejoy v. Isabell (1898) 70 Conn. 557, 40 Atl. 531, 533. authorizing the incorporation of surety companies which the court may accept as sole surety on such bonds is valid. This legislation does not violate the constitutional prohibition against the enactment of special laws regulating the practice of the courts.7 77 An officer authorized to accept a bond may be compelled by mandamus to approve the corporate bond offered by a surety permitted by the law of the state to engage in business therein. The official duty to approve is ministerial. The officer incurs no personal liability if the surety thereon proves worthless so long as due care and reasonable discretion is exercised by the official.78 § 240. The right of the state to prescribe rates. Although the view is generally accepted that surety companies are engaged in writing insurance and subject to regulatory action by the state, the power to prescribe rates to be charged is not possessed by the state. "It is in no way a monopoly, for individuals and partnerships are free to furnish such bonds in competition with them, and to make any charge or no charge for assuming such risks. No one is compelled to resort to the surety companies as practically the only source from which may be obtained surety bonds. The public interest in the business of such companies is no different in kind, from its interest in the business of any large mercantile or manufacturing company, whose capital, experience, and facilities may enable it to have a widely extended patronage, but such characteristics do not make the business one which is affected with a public interest." 79 In this denial to the state of the power to regulate rates of guaranty companies, an apparent inconsistency results, because it seems to be conceded that it is not violative of the federal Constitution for the state to regulate fire insurance premiums.80 77 Cramer v. Tittel (1887) 72 Cal. 12, 12 Pac. 869. See Gans v. Carter (1893) 77 Md. 1, 25 Atl. 663; Miller et al. v. Matthews et al. (1898) 87 Md. 464, 40 Atl. 176. 78 Santee River Co. v. Webster (1902) 23 R. I. 599, 51 Atl. 218. 79 American Surety Co. of New York v. Shallenberger, Governor et al. (1910) 183 Fed. 636, 639. 80 German Alliance Insurance Co. V. Barnes (1911) 189 Fed. 769, affirmed in (1913) 233 U. S. 389, 58 L. Ed. 1011, 34 Sup. Ct. 612. It might be contended that since both guaranty and fire insurance companies are considered to be engaged in the insurance. business, the power to prescribe rates or control the actions of one should be the same as to the other. No court seems to have pointed out any difference between the power of the state to prescribe rates in the two cases. However, it is submitted that the difference lies in the fact that from time immemorial fire insurance contracts have been written by corporations only, never without the payment of a premium, while guaranty insurance never has been monopolized by corporate sureties; that, as a matter of fact, guaranty insurance is frequently written by individuals without the payment of premium. Therefore, a monopoly exists in one case and not in the other. 8241. Ultra vires contracts of guaranty. Corporations without specific authority to enter into contracts of guaranty have done so frequently as an incident to the conduct of their business. When action has been brought to enforce such contracts, the defense has been made that they were ultra vires. It is too elementary to require the citation of authority that a corporation cannot be bound on any agreement which is outside the powers expressly conferred or necessarily incident to those given by the state. As one court defined it: 66 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 busi The court in this case held an appeal bond signed by the defendant corporation for a third person was ultra vires. However, if a bond is executed in consideration of the profits the corporation is to receive from the purchase from it of materials, it will be construed as within the implied powers of the corporation. This is considered to be an exception to the general rule where "a corporation may rightfully exercise this power 81 Best Brewing Co. of Chicago ▼. Klassen (1900) 185 Ill. 37, 57 N. E. 20, 21, 50 L. Ed. 765. See in furtherance of its own corporate purposes. 82 The tendency is to view such acts with more liberality than formerly. In the absence of statutory limitations, many courts hold valid the bond of a corporation authorized to manufacture and sell a certain commodity, where by giving the bond it secured direct and substantial benefits by reason of the sale of material.88 But if the guaranty covers portions of the contract, in the fulfillment of which the guarantor could have no direct and legitimate interest, its act in signing the bond is ultra vires.84 If the question is not as to the power of the corporation to sign the undertaking, but as to the authority of the individual officer to bind it, the one relying on such authority of the officer has the burden of proving it and must overcome the presumption against its existence. However, if it be conceded that no authority exists to make the particular bond, but the corporation has given the official apparent, though not actual, authority to sign it, the corporation may nevertheless be bound by the act of the agent.85 § 242. Basis for law governing the compensated surety. Consultation of recent opinions of various courts will convince that legal questions concerning the compensated surety are being submitted in increasing numbers. The cases cited in this 82 Wittmer Lumber Co. v. Rice et al. (1900) 23 Ind. App. 586, 55 N. E. 868. 88 Wheeler, Osgood & Co. v. Everett Land Co. et al. (1896) 14 Wash. 630, 45 Pac. 316. In holding it to be within the power of a lumber company to sign a bond guaranteeing that the building contract, for which it furnished the material, would be performed, the Wisconsin Supreme Court said: "As noted in many of the cases, courts in recent times have been more liberal in construing the pow ers of corporations to accomplish the general scope and object of their creation, and the question of ultra vires has not been, of late years, construed with that strictness that existed in former times."' Interior Woodwork Co. v. Prasser et al. (1910) 108 Wis. 557, 84 N. W. 833, 834. 84 Chief Justice Taft, then Circuit Judge, in Humboldt Mining Co. v. American Manufacturing & Milling Co. et al. (1894) 62 Fed. 356, 10 C. C. A. 415. 85 Interior Woodwork Co. v. Prasser et al. (1901) 108 Wis. 557, 84 N. W. 833, 834-835; Dobson et al. v. Moore (1896) 164 Ill. 110, 45 N. E. 243, 56 A. S. R. 184; In re Goldberg (1924) 123 Misc. Rep. 438, 205 N. Y. S. 649. chapter indicate that the courts and legislatures have built upon the law governing the individual guarantor, departing therefrom where reason does not require adherence to the principles prevailing prior to the advent of the compensated surety. The contract of the corporate surety is a hybrid. In form it is frequently that of the gratuitous surety. In substance it is that of an insurer, to which courts decline to apply the whole law of insurance. Not only in the construction of the contracts of the corporate guarantor, but also in the interpretation of legislation touching its rights and obligations, knowledge of the principles underlying the law relating to the private surety and insurance contracts must be supplemented by an understanding of the differences of the conditions under which many of the suretyship undertakings are now assumed. Corporate suretyship is a developing field of study, to which the activities of the executive, legislative and judicial branches of government are contributing many problems.86 86 Portions of Chapter XII originally appeared in (1926) 26 Columbia Law Review 171. The courtesy of its editor permits republication here. |