Story Case

The Home Insurance Company was a corporation organized under the laws of the state of South Dakota, with power to engage in the business of writing fire insurance policies. It had no power to own land other than for the purpose of conducting its business of insurance. The company, in the course of several years, had accumulated a large surplus. With this, in excess of its chartered powers, it purchased for speculating purposes, a large tract of farming land in South Dakota. After holding it for several months, it sold a portion of it to Mr. Brown for the sum of $3,500, and executed a deed to him. Sometime later, Brown demanded the return of his money; he contended that the corporation had no power to hold real estate for general purposes; and, therefore, it had no title to the land in question, and could convey none to him. What should be the decision of the Court under the foregoing circumstances?

Ruling Court Case. Kerfoot Vs. Farmers' & Merchants' Bank, Volume 218 United States Reports, Page 281

James Kerfoot conveyed certain real estate to the First National Bank of Trenton, Missouri; the First National Bank then conveyed it to Harvey Kerfoot. This is an action brought on behalf of Robert Kerfoot, the grandson of James Kerfoot, seeking to recover this property. The conveyance made by James Kerfoot to the First National Bank was challenged upon the ground that, under the Revised Statutes of the United States, relating to national banks, the bank-was without power to take other than for its own use, and, hence, no title passed by the deed, but remained in the grantor and descended to Robert Kerfoot, after the decease of James Kerfoot.

Decision

Although by the laws of the United States, a national bank may take a conveyance of real estate only for certain purposes, if it accepts such a conveyance for some other purpose, the conveyance is not absolutely void. It obtains a title which is good against every one except the United States. So long as the United States does not object to such a conveyance, no one else may or can. Accordingly, the conveyance made by James Kerfoot to the First National Bank passed a good title; and this title the bank passed on. Therefore, the land may not be recovered by the grandson of James Kerfoot, deceased.

Mr. Justice Hughes rendered the opinion. "But while the purpose of this transaction was not one of those described in the statute for which a national bank may purchase and hold real estate, it does not follow that the deed was a nullity and that it failed to convey title to the property. In the absence of a clear expression of legislative intention to the contrary, a conveyance of real estate to a corporation for a purpose not authorized by charter, is not void, but voidable, and the soverign alone can object. Neither the grantor nor his heirs nor third persons can impugn it upon the ground that the grantee has exceeded its powers."

Accordingly, it was held that the property could not be recovered by Robert Kerfoot, the grandson of James Kerfoot, deceased.

Ruling Law. Story Case Answer

A corporation receives good title to real property and can pass to other purchasers, even though it has no power to do so by its charter, so long as it remains unchallenged by the state. No third person may bring an action against it to question its ownership. Only the state may compel it to show by what right it holds title to real property. In the Story Case, the insurance company had no power to hold real estate for the purpose of speculation; but by the conveyance to it, it did receive a valid title to the land. Since, in its conveyance to Mr. Brown it passed good title, he has no right to demand the return of his money from the corporation.